The California Air Resources Board (CARB) has adopted the initial regulation implementing the state’s climate disclosure laws SB 253 and SB 261. The regulation defines key terms and establishes the 2026 reporting deadline for first-year SB 253 compliance, adding to a growing body of CARB notices and guidance supporting mandatory climate reporting in California. Future SB 253 emissions reporting and assurance requirements are being established through a subsequent rulemaking process, which CARB recently launched.
About SB 253 & SB 261
SB 253 requires U.S. companies with total annual revenues greater than $1 billion that do business in California to disclose their Scope 1, 2, and 3 emissions and obtain independent third-party assurance of their data. Initial disclosure requirements, which cover Scope 1 and 2 reporting, begin in 2026.
SB 261 requires U.S. companies with total annual revenues greater than $500 million that do business in California to publish a climate-related financial risk report every two years. Although first reports were initially due by January 1, 2026, a federal appeals court issued an injunction in November 2025 that temporarily paused enforcement of SB 261 pending the outcome of an appeal, which is ongoing. The injunction does not extend to SB 253 compliance.
Doing Business in California
The regulation’s definition of doing business in California aligns partially with California Revenue and Taxation Code (RTC) Section 23101 (i.e., a company must satisfy the criteria in Section 23101 (a) and the criteria in either Section 23101 (b)(1) or (b)(2)).
Specifically, a company is considered to be doing business in California if:
(1) It is actively engaging in any transaction for the purpose of financial or pecuniary gain or profit; and
(2) During any part of a reporting year, it fulfills either of the following conditions:
- The company is organized or commercially domiciled in California; or
- The company’s sales in California, as defined in RTC Section 25120 (e) or (f), exceed the 2024 inflation-adjusted threshold of $735,019. This total includes sales by a company’s agent or independent contractor. California apportioned sales should be determined per RTC Sections 25135 and 25136, as modified by 25137, which establish criteria for assessing whether a sale takes place in California. Sales within the state are reported on Schedule R-1 of a company’s California Franchise Tax Board FTB filing.
It should be noted that the regulation’s definition excludes the tax code’s references to property holdings and payroll (RTC Section 23101 (b)(3)–(4)), which CARB determined do not demonstrate a sufficient economic connection to the state to require compliance with SB 253 and SB 261. The definition also clarifies that wholesale sales of electricity do not count for purposes of determining an entity’s sales in California.
Revenue
The regulation’s definition of revenue aligns with the gross receipts definition in RTC Section 25120(f)(2). To account for annual fluctuations, applicability is determined by the lesser of the company’s two previous fiscal years of revenue. Revenue considers total gross receipts, regardless of whether the revenue was generated within California.
Amounts are verifiable in company tax filings with the FTB, as outlined below in the references provided by CARB.
| Entity Type | Tax Form | Total Revenue (Gross Receipts) | California Sales (Doing Business) |
|---|---|---|---|
| Corporation | Form 100 | Schedule F, Line 1a | Schedule R-1, Col(b) |
| S-Corporation | Form 100S | Schedule F, Line 1a | Schedule R-1, Col(b) |
| Partnership | Form 565 | Line 1a | Schedule R-1, Col(b) |
| LLC | Form 568 | Schedule B, Line 1a | Schedule R-1, Col(b) |
Parent and Subsidiary Reporting
Both subsidiaries and parent companies must independently assess their compliance obligations under SB 253 and SB 261. Parent companies may choose to file a consolidated report on behalf of the covered entities to relieve each of their in-scope subsidiaries from separate reporting requirements.
The regulation uses the existing definitions of parent and subsidiary in CARB’s Cap-and-Invest Program, Title 17, California Code of Regulations Section 95833. Ownership or control is determined by any of the following:
- Greater than 50% ownership of any class of listed shares, including rights to acquire such shares or options to purchase such shares.
- Greater than 50% overlap of common owners, directors, or officers with the other entity.
- Greater than 50% of the voting power of the other entity.
- In the case of a partnership other than a limited partnership, greater than 50% ownership of the partnership interests.
- In the case of a limited partnership, greater than 50% control over the general partner or greater than 50% of the voting rights to select the general partner.
- In the case of a limited liability corporation, greater than 50% ownership of the other entity, regardless of how the ownership interest is held.
Exemptions
The regulation exempts the following entities from compliance with SB 253 and SB 261:
- Nonprofits that are tax-exempt under the Internal Revenue Code.
- Federal, state, and local government entities, and companies that are majority-owned by government entities.
- Insurance companies (regulation exempts from SB 253, already statutorily exempt from SB 261).
- Companies whose only business in California is employee compensation or payroll expenses, including remote workers.
- Businesses whose only activity in California consists of wholesale electricity transactions.
SB 253 Reporting Deadline and Assurance Updates
Companies subject to SB 253 will be required to report and obtain assurance over their Scope 1, 2, and 3 greenhouse gas (GHG) emissions on a phased-in compliance schedule.
The regulation establishes August 10, 2026, as the initial compliance deadline for reporting Scope 1 and 2 data.
CARB is exercising enforcement discretion for the first year of SB 253 compliance, consistent with a SB 253 enforcement notice, stating penalties will not be imposed on companies acting in good faith during the first reporting year.
Companies that were not collecting data or were not planning to collect data at the time the enforcement notice was issued are not required to submit Scope 1 and 2 data for the first reporting cycle. Instead, these companies should provide a statement to CARB indicating they did not submit a report because they were not collecting data or planning to collect data at the time of the enforcement notice (December 5, 2024). These statements should be uploaded to a public docket that CARB will launch prior to the initial 253 reporting deadline. Furthermore, limited assurance is not required for 2026 reporting — another aspect of CARB’s discretion related to the enforcement notice.
In October 2025, CARB released a draft Scope 1 and 2 emissions reporting template designed to streamline reporting, especially for entities disclosing GHG emissions for the first time. Use of the template will be optional during the 2026 reporting cycle. CARB is working to develop emissions reporting templates that can be used in 2027 and beyond.
For reporting due in 2027, companies will be required to disclose their Scope 1, 2, and 3 emissions and obtain limited assurance over their Scope 1 and 2 data. CARB is developing a new regulation to define key implementation details, including Scope 3 reporting pathways and recognized assurance standards. Assurance requirements for 2030 reporting will not be covered in this rulemaking.
| SB 253 Compliance: Initial 2026 Reporting | |
|---|---|
| Due Date | August 10, 2026 |
| Contents of Report | Scope 1 & 2 GHG data, if collecting or planning to collect at time of CARB enforcement notice published on December 5, 2024. |
| Reporting Period | For the first compliance deadline, the reporting period will be determined by the company’s fiscal year end:
|
| Assurance | Not required for Scope 1 & 2 GHG data submission |
| SB 253 Compliance: 2027 and Beyond1 | |
|---|---|
| Contents of Report and Due Date | Annual reporting of Scope 1, 2 & 3 GHG data beginning in 2027 (2026 data) on a date to be determined by CARB. |
| Reporting Period | Previous fiscal year. |
| Assurance |
|
| 1Obligations and details to be further defined by CARB through subsequent rulemaking. | |
SB 261 Guidance on Minimum Reporting Requirements
Companies subject to SB 261 must post a climate-related financial risk report to their company website biennially. The initial compliance deadline was January 1, 2026, however in late 2025, the U.S. Court of Appeals for the Ninth Circuit issued an injunction staying enforcement of SB 261 pending resolution of an appeal.
In January 2026, the court conducted a hearing regarding enforcement but did not issue a ruling and did not provide a timeline for its decision. As always, we recommend companies continue to consult with their legal counsel on how to proceed.
Prior to the court’s injunction, CARB provided guidance on the minimum requirements for climate-related financial risk reports (outlined below). Disclosures should reflect a company’s approach to assessing and communicating climate-related risks by describing the processes — such as governance, strategy, and risk management — used to identify, evaluate, and address these risks.
Companies in early stages of evaluating climate-related risks may disclose how risks may be relevant, even if no material risks have been identified. CARB encourages companies to describe any gaps, limitations, and assumptions made as part of their climate risk assessments.
General
Reports should contain a statement that:
- Specifies which reporting framework or standard is being applied. Companies may prepare reports using the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) or IFRS S2. Companies should follow any applicable industry-specific guidance, if available within their chosen reporting approach.
- Discusses which recommendations and disclosures have been compiled and which have not.
- Provides a short summary of reasons why recommendations or disclosures have not been included and discusses any plans for future disclosures.
Governance
Reports should describe a company’s governance structure for identifying, assessing, and managing climate-related financial risks, including details on:
- Management oversight of climate-related risks and opportunities.
- A description relating to the Board of Directors’ oversight of those climate-related risks and opportunities (if the reporting entity has a Board).
Strategy
Reports should describe the actual and potential impacts of climate-related risks and opportunities on the company’s operations, strategy, and financial planning (where material), including:
- The climate-related risks and opportunities the company has identified over the short, medium, and long term.
- The resilience of the company’s strategy, taking into consideration the future impacts of climate change under various climate scenarios (may be qualitative in nature).
The guidance states that companies should refer to TCFD (issue date June 2017) for a discussion of material relevance or, if using a different framework, that framework’s guidance. This also applies to the materiality reference in the metrics and targets section below.
Risk Management
Reports should describe how the company identifies, assesses, and manages climate-related risks including a description of:
- The process the company uses for identifying, managing, and assessing climate-related risks, and how those considerations and processes are integrated into the company’s overall risk management.
Metrics & Targets
Reports should disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities where such information is material. Note that CARB minimum reporting requirements for the initial SB 261 reporting period do not include Scope 1, 2, and 3 data.
Consistent with SB 253, CARB will accept a good faith effort from companies in their first year of reporting under SB 261. Companies should use the most recent and reliable data available to comply.
Next Steps
First-year disclosures under SB 253 are due by August 10, 2026. This year, CARB will also undergo a separate rulemaking process to set SB 253 requirements for reporting and assurance starting in 2027.
Given the complexity of these requirements and the recent court injunction pausing enforcement of SB 261 pending outcome of the appeal, it’s important that impacted companies seek advice from their legal counsel to determine applicability of the California climate laws and how to proceed.
BDO can help companies prepare for California’s climate disclosure rules and leverage reporting insights to build more resilient and efficient organizations. Contact us to learn more.