Regulatory developments as California's 2026 mandatory GHG disclosures and climate risk reporting deadlines loom

CARB hosted a virtual public workshop on Thursday, May 29, 2025, to update the public on its efforts to implement the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). The workshop broke CARB’s attendance record, reflecting significant public concern and engagement on the bills. The workshop marked the first time CARB has spoken publicly about SB 253 and SB 261 since its March deadline for voluntary submission of information by potentially regulated entities for use in the rulemaking process. We previously summarized the key provisions of the laws here and the September 2024 amendments to the laws (SB 219) here.

During the workshop, CARB discussed the timeline for SB 253 and SB 261 implementation and reporting and presented initial staff concepts for key issues anticipated in forthcoming regulations. CARB also asked for further, informal stakeholder input on a number of issues stemming from the general information solicitation which concluded on March 21, 2025. We previously summarized the details of the information solicitation here.

Background on Senate Bills 253 and 261

SB 253 and SB 261 require thousands of subject entities (including, potentially, certain public and private companies, partnerships, etc.) to submit reports disclosing GHG emissions and climate-related financial risks beginning in 2026. Both laws apply to public and private entities doing business in California. The threshold for required compliance with SB 253 is annual revenue in excess of $1 billion and for SB 261 annual revenue in excess of $500 million (regardless of where the revenue is earned).

Entities subject to SB 253 must prepare an annual report to disclose the prior fiscal year’s Scope 1 and Scope 2 emissions in 2026 and, beginning in 2027, must also begin reporting Scope 3 emissions (pursuant to more specific deadlines to be determined by CARB). SB 261 requires a biennial climate-related financial risk report that discloses (i) climate-related financial risks, and (ii) measures taken to reduce and adapt to any disclosed financial risks. Whereas the insurance industry is exempted from compliance with SB 261, it is not exempted from SB 253.

The laws also provide for significant financial penalties for non-compliance: up to $500,000 per year for violations of SB 253 and up to $50,000 per year for violations of SB 261.

Regulatory process and timeline for Senate Bills 253 and 261

SB 253 is not self-implementing, meaning that covered entities are not required to make GHG disclosures until CARB finalizes a rule specifying a reporting deadline and providing further direction for calculating and reporting emissions. SB 219, passed by the Legislature in late 2024, extended CARB’s deadline to adopt implementing regulations to July 1, 2025. That deadline was missed. Nonetheless, CARB made clear at the May 29 workshop that it is prioritizing regulations on SB 253 and that implementing regulations are anticipated to be finalized by the end of 2025. State Senator Weiner, who authored the bill, indicated in opening remarks that timelines for SB 253 are “holding firm” despite the delay in the rulemaking process. It appears unlikely, therefore, that the California Legislature will extend the statutory compliance deadline beyond 2026.

SB 261, on the other hand, sets forth a compliance deadline of January 1, 2026 (and every two years thereafter). Unlike SB 253, this deadline is not dependent upon rulemaking. Nonetheless, stakeholders have raised a number of concerns about uncertainty and ambiguity in the legislation that could be addressed by regulations or detailed guidance. Not surprisingly, therefore, various workshop attendees encouraged CARB to clarify key aspects of SB 261 between now and the end of 2025. CARB did not commit to provide specific guidance on issues unique to SB 261 before year end but acknowledged the potential for clarifying such issues through regulations, or otherwise, at a later date. Regardless, any rulemaking on SB 253 is likely to impact implementation of SB 261, given the significant overlap between key terms in the bills.

Regulations implementing SB 235 and/or SB 261 must be promulgated according to California’s notice-and-comment rulemaking procedure. CARB’s informal solicitation of input at the workshop does not fulfill these requirements. Rather, CARB acknowledged during the workshop that issues raised by SB 253 and SB 261 are “considerably more complex” than Staff had initially thought; CARB is conducting informal public engagement in advance of publishing draft rules in an effort to streamline the development of final regulations. CARB must still undergo the requisite notice-and-comment periods and otherwise adhere to the requirements of the state’s Administrative Procedure Act.

In the meantime, while CARB pursues the development of required regulations for SB 253, CARB issued an Enforcement Notice in December 2024 recognizing uncertainty in the SB 253 disclosure deadlines and stating that CARB would “exercise its enforcement discretion, such that, for the first report due in 2026, reporting entities may submit scope 1 and scope 2 emissions ‘from the reporting entity’s prior fiscal year’ that can be determined from information the reporting entity already possesses or is already collecting” as of December 2024. In order to benefit from this enforcement discretion, however, reporting entities must “demonstrate good faith efforts to comply with the requirements of [SB 253].”

Staff concepts for SB 253

Based on information received as part of CARB’s general information solicitation, at the workshop CARB raised the following “initial staff concepts” addressing key terms in SB 253:

• Doing business in California: To govern applicability of SB 253, CARB is considering adoption of a modified version of the definition of “doing business” in Revenue and Tax Code (RTC) section 23101. Under this approach, to meet the “doing business” threshold, an entity would need to be (i) actively engaging in transactions in California for the purpose of financial or pecuniary gain or profit (RTC § 23101(a)), and (ii) organized or commercially domiciled in the state or, alternatively, meet the sales, real property, or employee compensation thresholds set by RTC § 23101(b).
• Revenue: For the purposes of determining whether an entity meets the annual revenue threshold in SB 253 and SB 261, CARB is considering a definition of “total annual revenue” equivalent to gross receipts as set forth in RTC § 25120(f)(2). That is, CARB envisions determining total annual revenue based on total amounts realized from sales, services, or other business activities (subject to specified exclusions), before any deductions for expenses (e.g., costs of goods sold, employee wages, overhead, etc.).
• Corporate Relationships: CARB is considering options to leverage the Cap-and-Trade approach to defining corporate relationships, e.g., using a percent ownership criterion. Specifically, under the California Cap-and-Trade program, a corporate association exists “when one entity has a degree of ownership or control over another entity” with “a level of ownership or control of 50% or greater requiring establishment of a Corporate Association in the Cap-and-Trade program.”

Staff questions

Recognizing the complexity of the issues involved in its rulemaking effort, CARB continues to seek voluntary, informal input from stakeholders on the following topics:

• What definition of “doing business” in California should apply to SB 253 and whether there should be any express business section exemptions incorporated into the definition;
• Whether defining “total annual revenue” as gross receipts as set forth in California Revenue and Taxation Code § 25120(f)(2) is in alignment with current business practices;
• Whether CARB should define revenue at the parent or subsidiary level and how that would affect GHG reporting;
• Whether CARB should leverage the Cap-and-Trade approach to defining corporate relationships, which is based on percent ownership, or if there are other available alternatives to defining corporate relationships;
• How best to adapt relevant aspects of existing voluntary reporting frameworks to create specific regulatory requirements which meet CARB’s obligations under the APA; and
• Areas of concern regarding interoperability of disclosure requirements mandated by SB 253 (and, potentially, SB 261) with mandates in other jurisdictions.

At the workshop, CARB indicated that it would consider information received from stakeholders as it prepares a draft of its proposed rulemaking.

Specific questions raised by CARB during the workshop are available here (at slides 23, 26, and 29). Interested parties can submit further, informal comments via e-mail at: climatedisclosure@arb.ca.gov.

FAQ document

On July 9, 2025, CARB published an FAQ document (available here) responding to several issues raised during the workshop. The FAQ document largely reiterates material covered on May 29, including confirming CARB’s intention to publish regulations before the end of the year, summarizing key concepts presented at the workshop, and reiterating CARB’s desire for stakeholder input.

However, with respect to SB 261, the FAQ document provides the following new guidance:

“On December 1, 2025, CARB will post a public docket for covered entities to post the location of their public link to their first climate-related financial risk report. CARB will keep this public docket open until July 1, 2026.”

CARB makes a point of noting, despite this development, that future regulations may establish different SB 261 compliance requirements. In response to stakeholder concerns regarding the scope of climate risk-related data to be reported on January 1, 2026, CARB also clarified that initial climate-related financial risk reports submitted by January 1 may cover fiscal years (FY) 2023/2024 or FY 2024/2025 depending on the organization, and its respective fiscal year.

Key takeaways

Entities that may be covered by SB 253 and/or SB 261 should consider whether commenting prior to CARB’s issuance of draft rules is likely to be material to their future compliance, provide critical and relevant information to regulators early in the regulatory development process, or otherwise benefit the rulemaking. CARB has signaled awareness of the laws’ complexities and an interest in providing greater certainty to the regulated community. While entities will have the opportunity to comment during the formal rulemaking process, commenting prior to issuance of a proposed rule may allow for a higher level of input and leverage in the rulemaking process.

Entities covered by SB 261 will need to prepare and publicly post a climate-related financial risk report by January 1, 2026. Those entities will also need to upload their reports to CARB’s public docket by January 1.

The broad range of expertise at Hogan Lovells US LLP – including the Environment and Natural Resources, Litigation/Consumer Products, Sustainable Finance and Investment, Corporate and Finance, and Infrastructure, Energy, Resources and Projects teams – are available to assist clients with submitting feedback to CARB and complying with GHG emissions disclosures and climate-related financial risk reports pursuant to SB 253, 261, and 219 and can help you understand interactions with other relevant sustainability-related reporting regimes required globally.

Authored by Tom Boer and Maia Jorgensen.