In midst of ESG turmoil, CARB forges ahead with third public workshop and opening of “optional public docket” for SB 261

On November 18, 2025 (see our article here), the Ninth Circuit Court of Appeals issued an order staying California’s climate-related financial risk disclosure law (SB 261) pending a hearing on the merits of an appeal challenging the lower court’s denial of a preliminary injunction related to the law. The Court’s order presses pause on compliance and enforcement efforts related to SB 261 until the appeal is resolved. In line with the order, CARB issued an Enforcement Advisory on December 1, 2025, confirming that it will not enforce SB 261 against covered entities for failing to post and submit reports by the January 1, 2026, statutory deadline. CARB simultaneously announced the availability of an “optional docket” where entities may choose to voluntarily submit their SB 261 reports.

Also on November 18, CARB hosted a virtual workshop—its third this year—to update the public on its efforts to implement SB 253 and 261. Aside from Monday’s enforcement announcement, the November 18 workshop marks staff’s most recent set of updates on this set of ESG reporting and disclosure laws.

This public workshop addressed SB 253’s anticipated reporting deadline, provided further details about what compliance with the anticipated deadline may entail, proposed a new method to identify entities subject to reporting requirements, and presented proposed definitions for key terms relevant to both SB 253 and 261.

SB 253 reporting timeline

Unlike SB 261, SB 253 is not self-implementing. As a result, CARB must finalize a regulation specifying a deadline to trigger the law’s reporting requirements. During the workshop, CARB affirmed its earlier announcement that it aims to finalize the mandatory rulemaking required to implement SB 253 in the first quarter (Q1) of 2026 (see our previous article here).

Prior to delaying the rulemaking to Q1 of 2026, CARB had proposed an inaugural reporting deadline, for Scope 1 and Scope 2 emissions, of June 30, 2026. Staff is now proposing to delay that deadline by two months, to August 10, 2026. This timing suggests that CARB is anticipating finalizing its SB 253 rulemaking early in Q1 of 2026—because, if reporting entities do not have clarity on key aspects of SB 253 until the end of Q1 2026 (e.g., late March), an August 10, 2026, deadline may be impracticable.

Guidance on data use & compliance for inaugural SB 253 reporting year

In response to public feedback, CARB is proposing a schedule to determine what data a reporting entity should use to generate its Scope 1 and 2 emissions disclosures. Its current conceptual framework, assuming an August 10, 2026 deadline, consists of:

• If the reporting entity’s fiscal year ends between January 1 - February 1 in 2026, the entity will report data from the fiscal year ending in 2026.
• If the reporting entity’s fiscal year ends between February 2 - December 31 in 2026, the entity will report data from the fiscal year ending in 2025.

CARB emphasized during the workshop that this schedule is intended to give all reporting entities at least six months of access to relevant data to prepare their first SB 253 disclosures, regardless of when their fiscal year ends.

In designing the proposed rule, CARB will employ a “provide what you have” approach to report substance. Staff reiterated that no new information is required for 2026 SB 253 reporting and that CARB will exercise its enforcement discretion for good-faith first-year submissions to support reporting entities actively working toward compliance. CARB also provided the following specific guidance for 2026 reporting:

• Use of CARB’s October 10, 2025, SB 253 template is optional for 2026 reporting.
• If a reporting entity develops its own annual report that includes information on Scope 1 and 2 emissions, the company may submit that report to CARB for 2026 reporting.
• CARB will not require limited assurance for 2026 submissions but is encouraging entities who have obtained limited assurances already to provide that information as part of their 2026 disclosures.
• If a reporting entity was not collecting data or planning to collect data at the time CARB issued the Enforcement Notice on December 5, 2024, the entity is “not expected to submit Scope 1 and 2 reporting data in 2026.” Rather, the reporting entity “should submit a statement on company letterhead to CARB, stating that they did not submit a report, and indicating that in accordance with the Enforcement Notice, the company was not collecting data or planning to collect data at the time the Notice was issued.”

We will continue to monitor these issues and evaluate how they may impact reporting obligations next year as more details become available.

Applicability of SB 253 and 261

CARB is also proposing to modify its method for identifying potential reporting entities under SB 253 and 261. As detailed during the workshop, staff is now considering using a subset of corporate tax filing data from the Franchise Tax Board (FTB) to identify reporting entities. For example, CARB proposes corporations review their total revenue identified in Schedule F, line 1(a) and their California sales as identified in Schedule R-1, column (b). See November 18, 2025, Slide Deck, Slide 21. It is unclear from last Tuesday’s workshop what other corporate tax filing data CARB may consider relevant for purposes of identifying reporting entities.

This approach represents a divergence from CARB’s “Preliminary List of Reporting/Covered Entities” published on September 24, 2025 (see our article here). The public raised, and CARB acknowledged, serious data concerns with CARB’s prior approach—including erroneous entity exclusion, imprecise revenue estimates, and outdated information.

Until this new approach is finalized, CARB will continue to rely on the preliminary list and stakeholder input to predict the number of entities subject to the requirements of SB 253 and 261. This list carries implications for the fees required for both laws, given that per-entity fees are being calculated by CARB based on the number of entities that are anticipated to be captured by each law. CARB is proposing September 10, 2026, as its date for SB 253 and 261 fee assessment, meaning that the flat fee for each law will be established based on the number of covered entities as of that date. So, these issues will need to be resolved by the Fall of 2026, at the absolute latest.

Update on key terms: “Doing business,” “revenue” and parent-subsidiary relationships

“Doing business in California”

CARB has returned to the Revenue and Taxation Code (RTC) to define “doing business in California,” moving away from its earlier consideration of using the Secretary of State’s Business Entity Database (see our article describing this original change here).

CARB is proposing to define “doing business in California” under SB 253 and SB 261 with reference to RTC § 23101 with the exclusion of subdivisions (b)(3) and (4) relating to thresholds for property holdings and payroll, respectively. This limitation reflects concerns that the property and salary thresholds, absent sales into the State, set too low of a bar for defining a covered entity. Under this definition, “doing business in California” would be defined as “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit” and (a) being organized or commercially domiciled in California, or (b) having sales in the State exceeding an applicable inflation-adjusted threshold (e.g., $735,019 in 2024).

“Revenue”

In August, CARB presented two options for defining “revenue”: (1) adoption of RTC § 25120(f)(2), which focuses on gross receipts, and (2) a novel definition, established by CARB, using global sales figures. In this month’s workshop, CARB affirmed its preference for the former.

Under Section 25120(f)(2), “revenue” is calculated as follows:

“The gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold.”

CARB indicated that gross receipts are verifiable using FTB tax filings and that applicability would be determined by the lesser of an entity’s two prior fiscal years of revenue to account for annual changes in revenue.

Parent-subsidiary relationship

In August, CARB proposed defining “subsidiary” as “a business in which another company (the parent or holding company) owns more than 50% of its voting stock. A subsidiary has a different legal business name than its parent company. This corporate relationship implies that the parent company has a controlling interest and can influence the subsidiary's operations, management, and financial decisions, even though the subsidiary operates as a separate legal entity.” See August 21, 2025, Slide Deck, Slide 17.

CARB has moved away from this definition and is now considering a definition of “subsidiary” with reference to California public health regulations:

A corporate association exists when one entity has an ownership interest in or control over a second entity. The following indicia of control determine ownership or control:

• Greater than 50 percent of ownership of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity;
• Greater than 50 percent of common owners, directors, or officers of the other entity;
• Greater than 50 percent of the voting power of the other entity;
• In the case of a partnership other than a limited partnership, greater than 50 percent of the interests of the partnership;
• In the case of a limited partnership, greater than 50 percent of control over the general partner or greater than 50 percent of the voting rights to select the general partner; and
• In the case of a limited liability corporation, greater than 50 percent of ownership in the other entity regardless of how the interest is held.

A direct corporate association also exists when two entities are connected through a line of more than one direct corporate association.

See November 18, 2025, Slide Deck, Slide 27 referencing Title 17, California Code of Regulations, § 95833(a)(1)(A)-(F).

Proposed exemptions from SB 253 and 261 compliance

CARB has solidified its approach for proposed exemptions, largely reaffirming its position from prior workshops. In addition to the exclusion already prescribed by SB 261 (i.e., insurance companies), CARB anticipates proposing that the requirements of SB 253 and SB 261 will not apply to:

• Federal, State and local government entities, and companies that are majority-owned by government entities (>50.00%);
• Non-profit or charitable organizations that are tax-exempt under the Internal Revenue Code;
• Entities whose only business in California is the presence of “teleworking employees” (to be defined in Q1 of 2026); and
• A business entity whose only business within California consists of wholesale electricity transactions.

Updates on SB 261 (mooted by Ninth Circuit Order, for now)

Although California’s climate-related financial risk disclosures are no longer due on January 1, 2026, CARB provided an updated checklist and FAQ outlining staff’s current thinking on the law. We recommend companies review this guidance and consider whether further preparation of a draft report may nonetheless be warranted so that prompt disclosure can be achieved if ultimately required following a decision from the Ninth Circuit. Companies who have their reports ready to go should also consider whether it may make sense to take advantage of the optional public docket to avoid the potential need for a mad dash in the near future.

Key takeaways

• For SB 253, CARB intends for 2026 to be a “soft-launch” year. This transitional year will focus on good-faith compliance. CARB’s updated intention is to target a reporting deadline for Scope 1 and 2 emissions of August 10, 2026, when it publishes its proposed rule. However, CARB’s current proposal is contingent on it finalizing implementing regulations in early 2026.
• CARB will not enforce SB 261 until the Ninth Circuit appeal is resolved and/or the injunction is otherwise is lifted. Nonetheless, CARB has announced that entities can voluntarily submit their reports via an optional public docket opened on Monday, December 1, 2025.
• CARB is proposing to use FTB tax data to identify reporting entities who meet the revenue and “doing business” thresholds for SB 253 and 261. However, ultimately, the burden is on the regulated to community to determine whether they must comply with the laws.
• CARB is proposing to use RTC § 25120(f)(2) as a basis to define “revenue” under both SB 253 and 261.
• To-be-determined flat annual fees will apply per covered entity for both laws.

Authored by Tom Boer, Maia Jorgensen, and Allison Klei.