California Air Resources Board Advances Climate Disclosure Rulemaking: Key Developments

On May 29, 2025, the California Air Resources Board (CARB) held a public workshop to provide updates and solicit feedback on the implementation of California’s landmark corporate climate disclosure laws — Senate Bills (SB) Nos. 253 and 261, as amended by SB No. 219 (collectively, the California Climate Disclosures). The California Climate Disclosures establish some of the most comprehensive greenhouse gas (GHG) emissions and climate-related financial-risk disclosure requirements in the United States. CARB’s workshop confirmed its intent to adhere to the statutory deadlines, while also previewing significant clarifications regarding the definitions of “doing business in California” and “revenue” for purposes of determining which entities are subject to the new rules. 

Key Developments

Deadlines. During the workshop, CARB confirmed that for purposes of the California Climate Disclosures, it will maintain the implementation timelines established in SB No. 219. Included below is a summary of these key deadlines.

Regulations Deadline	CARB is expected to adopt the implementing regulations by July 1, 2025.
Scopes 1 and 2 GHG Emissions Reporting	Entities that are in-scope must begin disclosing Scopes 1 and 2 GHG emissions for the 2026 reporting year, with disclosures due on a schedule to be set by CARB.
Scope 3 GHG Emissions Reporting	Disclosure of Scope 3 GHG emissions will begin in 2027, with the precise schedule to be specified by CARB.
Assurance Requirements	Limited assurance for Scopes 1 and 2 GHG emissions will begin in 2026, with reasonable assurance required starting in 2030. Limited assurance for Scope 3 GHG emissions will be required beginning in 2030, subject to further CARB review.
Climate-Related Financial Risk Report	In-scope entities must prepare biennial climate-related financial risk reports, beginning in 2026.

Doing Business in California. A central issue for companies determining whether they are in-scope for purposes of the California Climate Disclosures is the definition of “doing business in California.” In the workshop, CARB staff indicated a strong preference for harmonizing the term with the existing definition in the California Revenue and Taxation Code (RTC) Section 23101.

Under CARB’s proposed changes, a company is “doing business in California” if it is actively engaging in any transaction for financial gain and meets any of the following thresholds (adjusted for inflation) during any part of a reporting year:

• Organized or commercially domiciled in California;
• California sales exceed US$735,019;
• California property exceeds US$73,502 or 25% of total property; or
• California payroll exceeds US$73,502 or 25% of total payroll.

Critically, CARB’s proposed definition has a few crucial differences from the current definition in RTC Section 23101. Those differences include:

• The replacement of the phrase “taxable year” with “reporting year” to clarify the period of assessment;
• The clarification of the criteria for being considered as “doing business in California” so they apply if any of the specified conditions are met during any part of a reporting year; and
• The removal from CARB’s proposed definition of the 25% of the taxpayer’s total sales prong in RTC Section 23101. 

Total Annual Revenue. In addition to meeting the “doing business in California” test, in order for a company to be in-scope for the California Climate Disclosures, it must exceed the “total annual revenue” thresholds of US$1 billion (SB No. 253) or US$500 million (SB No. 261), respectively. 

CARB has proposed to define “total annual revenue” as “gross receipts” as set forth in California RTC Section 25120(f)(2). CARB is also considering whether the total annual revenue threshold should be assessed at the parent or subsidiary level. The initial CARB position is to allow for parent-level consolidation, consistent with SB No. 219’s authorization for consolidated reporting at the parent company level. Meaning in practice, if a subsidiary is in-scope, but the in-scope parent company is already reporting on a consolidated basis, the subsidiary would not be required to file a separate report. Lastly, CARB is also evaluating whether certain income sources, such as interest or investment income in the financial sector, should be excluded from the revenue calculation.

Next Steps for In-Scope Entities

CARB’s rulemaking process is ongoing, with formal regulations expected by July 1, 2025. Companies and funds operating in California should closely monitor CARB’s evolving guidance and begin preparing for compliance with the California Climate Disclosures requirements. Key action items include:

• Assessing whether your entity meets the “doing business” and “total annual revenue” thresholds under the proposed definitions;
• Preparing to collect and report GHG emissions data in accordance with the Greenhouse Gas Protocol Corporate Standard;
• Planning for third-party assurance engagements; and
• Reviewing climate-related financial-risk reporting and aligning internal processes with the Task Force on Climate-related Financial Disclosures.