California Air Resources Board (CARB) Releases FAQs: A Summary of Implementation Guidelines for SB 253 and 261

The California Air Resource Board ("CARB") released a "Frequently Asked Questions" document on July 9, 2025, to guide companies on the upcoming regulatory process for climate-related disclosure requirements. The guidance is meant to help companies prepare for initial reporting and understand the evolving regulatory framework.

To help companies better understand the agency's updated guidance, we have pulled forward some key themes.

Note: where Health and Safety Code 38532 is noted, this applies to CA SB 253, where Health and Safety Code 38533 applies to CA SB 261. 

1. Definition of "Doing Business in California"

A) CARB is developing regulations to define "doing business in California" based on the Franchise Tax Board definition.

Under the initial concept, an entity is considered to be doing business in California if it is actively engaging in transactions for financial gain and meets any of the following conditions:

• The entity is organized or commercially domiciled in California
• Sales in California exceed $735,019 (2024 inflation-adjusted threshold)
• Real property and tangible personal property in California exceed $73,502 or 25% of total property
• Compensation paid in California exceeds $73,502 or 25% of total compensation

B) Revenue Thresholds and Applicability

The two California climate disclosure laws apply to different revenue thresholds:

• Health and Safety Code 38532 (SB 253) (Corporate GHG Reporting): Companies with over $1 billion in total annual revenue doing business in California
• Health and Safety Code 38533 (SB 261) (Climate-Related Financial Risk Disclosure): Companies with over $500 million in annual revenue doing business in California

Companies may be subject to both laws or only one, depending on their revenue levels. Revenue is proposed to be defined as gross receipts under California Revenue and Taxation Code § 25120(f)(2).

C) Out-of-State Business Considerations

Companies exceeding revenue thresholds must report even if the majority of their business is outside California, provided they meet the "doing business in California" criteria. CARB is seeking input on potential exemptions for certain circumstances.

2.  Initial Reporting Timeline and Considerations

A) CA SB 253 (Corporate GHG Reporting)

Timeline:

• 2026: First reports due covering Scope 1 and 2 emissions for prior fiscal year
• 2027: Scope 3 emissions reporting begins for prior fiscal year

Verification Requirements:

• Limited-assurance level verification required beginning 2026
• Reasonable-assurance level verification required beginning 2030

Enforcement Notice: CARB issued an Enforcement Notice in December 2024 allowing reporting entities to submit emissions data based on information they already possess or collect, recognizing the need for lead time to implement new data collection processes.

B) CA SB 261 (Climate-Related Financial Risk Disclosure)

Timeline:

• January 1, 2026: First climate-related financial risk reports due
  • December 1, 2025: CARB posts public docket for entities to submit links to their reports
  • Docket remains open until July 1, 2026
    
• Biennial reporting thereafter

Reporting Framework Flexibility:

• Entities may choose reporting frameworks such as TCFD (Task Force on Climate-related Financial Disclosures)
• Must focus on "material risk of harm to immediate and long-term financial outcomes"
  • Covers risks to operations, supply chains, employee safety, investments, shareholder value, consumer demand, and financial markets

Good Faith Efforts:

• Penalties consider whether violators took "good faith measures to comply"
• Initial reports may be based on best available information from fiscal years 2023/2024 or 2024/2025
• CARB recognizes data quality and sources may evolve as new collection methods are implemented

3. Why This Matters?

California’s climate disclosure laws impose significant compliance costs and resource demands for companies across the spectrum where even small companies will need to invest in new data collection systems, specialized staff, and third-party verification services. The mandatory nature means non-compliance carries enforcement penalties, while the public disclosure requirements give investors, competitors, and stakeholders unprecedented visibility into how companies assess material climate risks across their operations, supply chains, and financial outcomes.

CARB continues to be in information-gathering stage with plans to finalize regulations by end of 2025. 

We are here to help when you and your company when you are ready to get started. For more information on these rules, check out our past insights. 

Disclaimer: The information provided does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are for general informational purposes only.