Mandatory climate reporting in California is quickly approaching, and for many companies, compliance may be challenging. SB 261 requires companies to publish climate-related financial risk reports every two years, with the first report due by January 1, 2026. SB 253 requires companies to disclose their Scope 1, 2, and 3 emissions and obtain independent third-party assurance of their data, with phased-in compliance beginning in 2026 and covering 2025 data.
At their Climate Disclosure Workshop on August 21, 2025, the California Air Resources Board (CARB) provided several updates to help companies implement the state’s climate reporting requirements.
Key takeaways from CARB’s workshop include:
- Proposed definition of “doing business in California” and covered entities.
- Draft guidance on minimum reporting requirements for SB 261 compliance.
- Proposed June 30, 2026, reporting deadline for SB 253 Scope 1 and 2 reporting.
- Public comment period on proposed rulemaking to begin in October, followed by a public CARB board hearing in December.
Details on these developments, as well as updates on ongoing litigation related to California’s climate reporting rules, are included below.
“Doing Business in California” and Other Updates
CARB’s workshop addressed, but did not resolve, unanswered questions about how to establish whether a company “does business in California” and the methodology for calculating revenue, both of which will determine whether companies must comply with SB 261 and SB 253. CARB is working to finalize definitions and is seeking feedback on the proposed options put forth below.
- “Doing business in California”: In May 2025, CARB initially proposed defining “doing business in California” using California Revenue and Taxation Code (RTC) Section 23101, which includes thresholds based on sales, property, and payroll. However, stakeholders found these thresholds too low and potentially overreaching. The new proposal aligns with the California Secretary of State’s business entity database, meaning any company that has appointed a legal representative in California would be considered to be “doing business” in the state. This change simplifies the criteria and ties it to a publicly accessible registry, making it easier to determine applicability.
- Revenue: In May 2025, CARB proposed defining total revenue as gross receipts under RTC Section 25120(f)(2). However, stakeholders raised concerns that this approach was too expansive. In response, CARB revised the definition to total global revenue or sales from business activities, excluding operating costs or other business expenses, and aligning with metrics used by major data tracking firms such as Dun & Bradstreet and S&P.
- Parent and subsidiary reporting: CARB intends to use existing cap-and-trade regulations that define a subsidiary as a “business in which another company (the parent or holding company) owns more than 50% of its voting stock.” This approach remains consistent with the definition outlined in May 2025.
CARB is also proposing to exempt the following entities from compliance with both SB 261 and SB 253: nonprofits, government entities, companies that only have a presence in the state via remote employees, and California Independent System Operators (CAISO) and/or business entities whose only activity in California consists of wholesale electricity transactions that occur in interstate commerce.
The proposal would also exempt insurance companies from SB 253. Insurance companies, many of which are subject to climate risk reporting requirements from the National Association of Insurance Commissioners, are already exempt from SB 261.
CARB plans to release a preliminary list of entities likely subject to SB 261 and SB 253. This list will be informed by the updated criteria for determining applicability and is intended to support compliance planning. Based on an analysis of California Secretary of State and Dun & Bradstreet data, CARB estimates that 4,160 U.S. entities and 2,596 U.S. entities will be in scope for SB 261 and SB 253, respectively.
SB 261 Draft Guidance on Minimum Reporting Requirements
Companies subject to SB 261 (U.S. companies with total annual revenues greater than $500 million and that do business in California) must post a climate-related financial risk report to their company website by January 1, 2026. A new report must be posted every two years. Between December 1, 2025, and July 1, 2026, companies must also provide a link to their report on a public docket to be established by CARB.
SB 261 references alignment with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), a reporting framework organized around four core pillars (Governance, Strategy, Risk Management, and Metrics & Targets). However, the law provides some flexibility, also accepting reports that align with IFRS S2, the standard for climate-related disclosures from the International Sustainability Standards Board (ISSB).
CARB has shared the following draft guidance to establish minimum requirements for these climate-related financial risk reports.
General
Reports should contain a statement that:
- Specifies which reporting framework or standard is being applied.
- 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, including:
- The climate-related risks and opportunities the company has identified over the short, medium, and long term.
- The impact of climate-related risks and opportunities on the company’s operations, strategy, and financial planning.
- The resilience of the company’s strategy, taking into consideration the future impacts of climate change under various climate scenarios.
Risk Management
Reports should describe how the company identifies, assesses, and manages climate-related risks including a qualitative 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.
- 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.
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.
SB 253 Reporting Deadline and Assurance Updates
Companies subject to SB 253 (U.S. companies with total annual revenues greater than $1 billion and that do business in California) will be required to report and obtain assurance over their Scope 1, 2, and 3 greenhouse gas (GHG) emissions. During its workshop, CARB announced that it would propose a compliance date of June 30, 2026, for the first reporting deadline, which requires companies to report and obtain limited assurance over their Scope 1 and 2 data.
CARB plans to release draft reporting templates for Scope 1 and 2 by the end of September 2025. CARB is also evaluating and seeking input on potential verification standards, including ISSA 5000 (IAASB), AA1000, ISO 14060 series, and AICPA.
| Scope 1 & 2 | Scope 3 | |
|---|---|---|
| First Annual Reports Due | June 30, 20261 (2025 Data) | 20272 (2026 Data) |
| Assurance Effective Date |
|
|
| 1Proposed compliance date. Reporting period covers previous fiscal year. 2Beginning in 2027 and annually thereafter, on a schedule to be specified by CARB. Reporting period covers previous fiscal year. 3CARB may establish an assurance requirement for third-party assurance engagements of Scope 3 by January 1, 2027. | ||
CARB has issued a SB 253 enforcement notice that it will not issue penalties in the first reporting year to companies acting in good faith. This is not an extension of the compliance deadline but rather can be viewed as an acknowledgement that comprehensive reporting takes time and that companies should begin implementing new data collection processes to help ensure complete emissions reporting.
Ongoing Litigation
California is currently defending its climate requirements in federal court, and although litigation is ongoing, rulings in early proceedings may indicate the laws’ staying power. In August, the rules cleared another key legal hurdle, when a federal judge denied a motion brought by the U.S. Chamber of Commerce, alongside other business groups, to block enforcement of SB 261 and SB 253 while litigation continues.
The judge emphasized that blocking these laws would compromise the public interest by disrupting the flow of climate-risk data to investors and impeding efforts to reduce GHG emissions. Although the court rejected the plaintiff's request for a preliminary injunction, it acknowledged that the First Amendment challenge deserves a full trial, setting the stage for continued legal scrutiny. The trial is scheduled for late October.
Next Steps
CARB plans to issue a notice of proposed rulemaking (NPRM) on October 14, which will address the proposals outlined above. The NPRM will be shaped by feedback received following the workshop and may contain additional modifications. Public comments will be accepted through the end of November, and rules are expected to be finalized by CARB in a public board meeting scheduled for December 11-12.
From assessing and reporting on climate-related financial risks to calculating and obtaining assurance over an emissions inventory, SB 261 and SB 253 establish challenging obligations that are likely to require new processes, systems, and controls. For companies within scope, it’s imperative to begin addressing compliance requirements immediately, as deadlines are fast approaching.
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.