Update on California's Climate Disclosure Laws: What Companies Need to Know 

June 17, 2025

On May 29, 2025, the California Air Resources Board (CARB) held a virtual public workshop to discuss forthcoming regulations implementing California’s corporate climate disclosure laws. The workshop focused on the scope of the forthcoming rule and CARB’s study of existing reporting standards. CARB signaled that a proposed rule would be issued by year-end, but did not state the exact month in 2026 when reporting would be required. While much work remains, valuable insight was provided to the public. Companies with any business or employees in California should continue to monitor the rulemaking process.

CALIFORNIA CLIMATE DISCLOSURE LAWS

The 2023 California Climate Corporate Data Accountability Act (SB 253) requires public and private companies doing business in California with total annual revenues exceeding $1 billion to disclose their annual Scope 1, 2, and 3 greenhouse gas emissions,1 with Scope 1 and 2 emissions to be reported in 2026 for the 2025 year and Scope 3 emissions to be reported in 2027, as extended by SB 219. The Climate-Related Financial Risk Act (SB 261) requires public and private companies that do business in California with over $500 million in annual revenues to prepare biennial reports disclosing climate-related financial risks.2 Both acts mandated CARB to implement regulations by January 1, 2025. SB 219 extended that deadline until July 1, 2025.3 CARB has not yet clarified when a proposed rule will be issued, but the statutory requirement to hold a 45-day public comment period after proposed rule issuance4 means a July 1 adoption date will not be met. CARB reminded attendees that reporting entities will not be penalized for incomplete disclosures in 2026 if they show good faith efforts to collect emissions data in accordance with enforcement guidance issued on December 5, 2024.

“DOING BUSINESS IN CALIFORNIA”

CARB’s working proposal for the definition of “doing business in California” is to incorporate and align with the California Revenue and Tax Code (RTC) definition. 5 According to that definition, an entity is “doing business in California” if it engages in any transaction for profit and meets one of the five conditions outlined in RTC Section 23101(b).6 Numerous stakeholders expressed concerns that this definition would be overly broad and capture entities with infrequent business in the state. CARB recognized the concern and sought input on how to best implement a nexus requirement with the state, either through definitions or exceptions built into the rule.

TOTAL ANNUAL REVENUES AND SUBSIDIARIES

CARB’s working proposal defines total annual revenue as gross receipts, pursuant to RTC Section 25120(f)(2).7 CARB presenters emphasized that SB 219 allowed parent-level reporting, but did not clarify exactly when parent-level reporting would be required and included in the scope of annual revenues. Under CARB’s working proposal (adopted from California’s Cap-and-Trade program), a parent company is covered as a reporting entity when it has majority control or ownership over a subsidiary (over 50%). Commenters questioned whether and when CARB could attribute a subsidiary’s business or revenues in California to the parent company. Stakeholders were particularly concerned about the implications for out-of-state and foreign companies. CARB did not clarify these issues, which also relate to the need for a nexus requirement.

WHAT’S TO COME

The pre-rulemaking process is not over. CARB urged stakeholders to provide feedback and participate in future public workshops. At least one more is expected and, potentially, one more solicitation seeking feedback on comments expressed at the virtual session.

With the regulation timeline uncertain, several commenters reminded CARB that it could take many months to collect emissions data depending on the complexity of the business and who is covered, in addition to several months to verify that data as there is currently a limited market of third-party assurance providers. Only limited assurance will be required for the first reporting year.8 Despite uncertainty around the rule timeline, companies, emissions consultants, and third-party assurance providers are still preparing for a 2026 reporting year.

LITIGATION UPDATE

On January 30, 2024, the US Chamber of Commerce sued CARB in the Central District of California, alleging that SB 253 and SB 261 violated the Supremacy Clause, Dormant Commerce Clause, and First Amendment.9 The district court dismissed the Supremacy and Dormant Commerce Clause claims.10 All that remains is the First Amendment claim alleging the laws amount to compelled speech.11 Plaintiff has requested an injunction, with a hearing now expected in July 2025. A ruling on the injunction is expected before the end of the year.


1 S.B. 253, 2023­­–2024 S., Reg. Sess. (Cal. 2023).

2 S.B. 261, 2023­­–2024 S., Reg. Sess. (Cal. 2023).

3 S.B. 219, 2023­­–2024 S., Reg. Sess. (Cal. 2023).

4 Cal Gov’t Code § 11346.8.

5 Cal Rev. & Tax Code § 23101.

6 Cal Rev. & Tax Code § 23101.

7 Cal Rev. & Tax Code § 25120.

8 S.B. 253, 2023­­–2024 S., Reg. Sess. (Cal. 2023).

9 Complaint for Declaratory and Injunctive Relief, Chamber of Commerce of U.S. et al. v. California Air Resources Board et al., No. 2:24-cv-00801 (C.D. Cal. Jan. 30, 2024).

10 Order Granting Defendants’ Motion to Dismiss Plaintiff’s Second and Third Causes of Action, Chamber of Commerce of U.S. et al. v. California Air Resources Board et al., No. 2:24-cv-00801 (C.D. Cal. Feb. 2, 2025).

11 Order Granting Defendants’ Motion to Deny or Defer Plaintiffs’ Motion for Summary Judgment and Denying Plaintiffs’ Motion for Summary Judgment, Chamber of Commerce of U.S. et al. v. California Air Resources Board et al., No. 2:24-cv-00801 (C.D. Cal. Nov. 5, 2024).

 

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Authors

Amorie Hummel

Member

ahummel@cozen.com

(215) 665-4643

Seth Popick

Member

spopick@cozen.com

(412) 620-6527

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