California Climate Disclosures Webinar Continues to Keep Companies Guessing on Reporting Obligations

Am I a “reporting entity” subject to SB 253 disclosures? Am I a “covered entity” subject to SB 261 disclosures? These have been the central questions in California since the passage of these two bills in late 2023. The most recent workshop from the California Air Resources Board (CARB or the board) did not answer these questions but rather indicated the ways that CARB members are thinking about answering them. So what are they thinking?

CARB August 2025 Workshop

On August 21, 2025, CARB held a public webinar to provide further insights on the implementation of California’s Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261). The session included several updates on CARB’s development of implementing regulations, including two threshold issues related to which companies are within the scope of the laws: the definition of “total annual revenue” and the meaning of “doing business in California.” With the August 2025 workshop, we can see CARB’s evolving approach to these key threshold questions, from the guidance discussed in CARB’s May 2025 webinar, as the board develops its initial set of draft regulations to be previewed in October. Businesses with thoughts on how CARB should define these key terms should send input to CARB by September 11 to be incorporated into the initial October draft.

Background

California enacted SB 253 and SB 261 (as amended by SB 219) to create one of the most comprehensive climate disclosure regimes in the United States. (For background, see our posts on key developments on these laws in October 2023, September 2024, December 2024, January 2025, June 2025, and August 2025.) SB 253 requires reporting of greenhouse gas emissions (Scopes 1 and 2 and eventually Scope 3), while SB 261 mandates biennial disclosure of climate-related financial risks. Both statutes apply to companies with more than $500 million (SB 261) or $1 billion (SB 253) in annual revenues that are “doing business” in California. What counts as revenue and “doing business,” however, has been debated and is still being decided by CARB as discussed below — along with other key components of the requirements.

How will CARB measure “total annual revenue”?

CARB acknowledged that its earlier proposal to calculate a company’s revenue for triggering the requirements based on “gross receipts” has generated concerns among businesses. As an alternative, CARB staff are now considering a broader definition: “[R]evenue is the total global amount of money or sales a company receives from its business activities, such as selling products or providing services,” without deductions for operating costs. CARB indicated that it may be relying on metrics used by major data tracking and reporting industries, such as Dunn & Bradstreet, Standard & Poor’s, and Data Axle, rather than filed tax returns.

Businesses should be aware that CARB’s proposal to disallow deductions may cause entities to be subject to the requirements even if their taxable income falls below the SB 253 and SB 261 statutory thresholds. If you have thoughts or input on potential approaches to defining “total annual revenue,” CARB will accept comments until September 11, 2025.

How will CARB define “doing business in California”?

CARB is reconsidering its previous proposal to rely on the definition of “doing business” in California Revenue and Taxation Code (RTC) Section 23101, which includes factors such as sales thresholds, commercial domicile, and business transactions for financial gain. Instead, CARB is now considering using the California Secretary of State (SoS) public database of registered entities that are domiciled or have an in-state agent for service of process as a proxy for determining which entities do business in California. Put simply, if an entity is listed in the SoS database, CARB could consider it responsible to comply with SB 253 and SB 261 (if the entity also meets the revenue threshold). CARB is seeking input on this approach as compared to its earlier approach that would have applied RTC Section 23101 to determine applicability.

Based on a model analysis, CARB estimated approximately 4,200 companies would be covered under SB 261 and 2,600 companies under SB 253. A preliminary list of potential in-scope entities is expected to be posted in the coming weeks.

Other Key Updates

Parent-Subsidiary Treatment. CARB staff reiterated alignment with its cap-and-trade program definitions of subsidiaries, which determine parent-subsidiary relationships based on ownership of more than 50% voting stock. It would also consider using commercial databases to verify relationships.

Exemptions. CARB proposed exemptions for nonprofits, government entities, companies with only teleworking employees in California, California Independent System Operators (CAISOs), and other utilities.

Implementation Fees. CARB anticipates a flat fee per regulated entity, with payment responsibility falling on parent companies rather than subsidiaries.

Reporting Framework. For reporting scope emissions, CARB anticipates allowing entities to select from the Task Force on Climate-Related Financial Disclosures (TCFD) 2017 recommendations, International Financial Reporting Standards disclosure standards, or an equivalent framework developed by any regulated exchange or governmental entity. CARB indicated that good-faith efforts will likely suffice for first-year reporting.

Litigation

SB 253 and SB 261 have been challenged in litigation. In Chamber of Commerce of the United States v. California Air Resources Board, several business associations sought declaratory and injunctive relief in the U.S. District Court for the Central District of California. The federal court previously dismissed the plaintiffs’ federal preemption and extraterritoriality claims. Then, on August 13, 2025, the court denied a preliminary injunction on First Amendment grounds, rejecting arguments that the disclosure mandates unconstitutionally compel speech. Litigants have requested a decision on the merits by September 15.

Upcoming Deadlines

 CARB confirmed and expanded on prior compliance and rulemaking timelines, summarized below.

Next Steps for Businesses Evaluating Compliance Options

While CARB’s August webinar provides greater insight into staff’s thinking, much remains unsettled. To prepare, businesses should

• check the forthcoming preliminary list of in-scope companies

• review the evolving definitions of revenue and doing business in California, which may help in determining applicability of the requirements, and consider providing input to CARB

• collect necessary data for both reports

• prepare for draft reporting templates and regulations expected in the coming months

• track ongoing litigation, which could affect compliance obligations