CARB Adopts Initial Climate Disclosure Reporting Regulations to Implement SB 253 and SB 261

CARB Finalizes Initial Regulations Implementing SB 253 and SB 261

On Feb. 26, 2026, CARB adopted its initial regulations implementing SB 253 and SB 261, the California Greenhouse Gas Reporting and Climate Financial Risk Disclosure Initial Regulation.

The adopted rulemaking is brief but establishes an initial, first-year-only reporting deadline of Aug. 10, 2026, for Scope 1 and Scope 2 emissions reporting under AB253, includes several clarifying definitions, and describes CARB’s process for assessing and collecting flat fees from covered businesses and enforcing failures to timely remit payments. CARB’s adopted regulations are virtually identical to those it first proposed in December 2025.

Applicability

CARB’s adopted regulations apply to businesses that meet the definition of a Reporting Entity, as defined by SB 253, or a Covered Entity, as defined by SB 261. A Reporting Entity subject to SB 253 is a partnership, corporation, limited liability company, or other business entity formed under California law or the laws of any other state, the District of Columbia, or Congress, that does business in California and has revenues in excess of $1 billion in total global revenue. A Covered Entity subject to SB 2261 is a partnership, corporation, limited liability company, or other business entity formed under California law or the laws of any other state, the District of Columbia, or Congress, that does business in California and has total global revenues in excess of $500 million. In each case, an entity’s revenue amount is determined by the lesser of its two previous fiscal years of revenue. CARB modified the applicability-related definitions by considering an entity’s revenue over the two most recent fiscal years because of the potentially large annual changes in revenue that may occur from selling property or corporate assets.

The regulations expressly exempt several types of entities from coverage, including: (1) Nonprofit or charitable organizations that are tax-exempt under the Internal Revenue Code; (2) A business entity that is subject to regulation by the California Department of Insurance, or that is in the business of insurance in any other state; (3) Federal, state and local government entities, and companies that are majority-owned by government entities (>50%); (4) A business entity whose only activity within California consists of wholesale electricity transactions; and (5) A business entity whose only business in California is employee compensation or payroll expenses, including teleworking employees.

Background on SB 253 and SB 261

In 2023, California Gov. Gavin Newsom signed into law the Climate Corporate Data Accountability Act (SB 253, Weiner, 2023; codified in Health & Safety Code 38532), and the Climate-related Financial Risk Reporting Program (SB 261, Stern, 2023; codified in Health & Safety Code 38533) after the state legislature passed the two bills. In 2024, the legislature amended the bills to  extend deadlines and make certain administrative revisions (SB 219 (Weiner, 2024; codified in Health & Safety Code 38532 and 38533). SB 253 and SB 261 require large companies doing business in California to publicly report their Scope 1, 2, and 3 GHG emissions (SB 2563) and biennially prepare and submit climate-related financial risk assessments (SB 261). The risk assessment must be consistent with one of several disclosure frameworks, including the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (June 2017); the International Financial Reporting Standards Sustainability Disclosure Standards (IFRS S2); or a report developed in accordance with any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the U.S. government. For more information on these laws, please see our previous GT Alerts.

Rulemaking

As stated during the Feb. 26, 2026, hearing, CARB considers the adopted regulations a first step in its implementation of California’s climate disclosure laws. CARB’s stated primary purposes in proposing the rules is threefold: (1) establish a fee program to recover and pay for the costs to administer the new SB 253 and SB 261 reporting programs; (2) specify key definitions necessary to assess fee and program applicability; and (3) establish the first-year-only reporting deadline of Aug. 10, 2026. If covered, regulated entities will pay fees into two new funds: the Climate Accountability and Emissions Disclosure Fund and the Climate-Related Financial Risk Disclosure Fund. CARB staff intend to engage in a subsequent and separate rulemaking in 2026 to establish reporting details and deadlines for 2027 and beyond.

Key Terms and Provisions

To better align its climate disclosures reporting language with existing statutory and regulatory regimes, CARB borrowed from the California Revenue and Taxation Code and its Cap & Trade (now Cap & Invest) regulations. Key definitions CARB adopted include:

“Doing Business in California.” SB 253 and SB 261 apply broadly to entities “doing business in California.” CARB adopted regulatory definitions aligned with California Revenue & Taxation Code §23101(a) to determine a reporting entity’s threshold for coverage under SB 253 and SB 261. Accordingly, an entity is doing business in California if it engages in any transaction in the state for financial or pecuniary gain and either:

• Is organized or commercially domiciled in California; or
• Has California sales in excess of $500,000 (inflation adjusted to $735,019 for 2024 and $757,070 for 2025).

Because it considered the thresholds too low, CARB did exclude the property and payroll-based thresholds found in Revenue & Taxation Code §23101(b)(3) – (4) from the definition of “doing business in California,” which may narrow the scope of the definition relative to state tax rules.

“Parent” and “Subsidiary.” Under both SB 253 and SB 261, reports may be consolidated at the parent level. If a subsidiary of a parent company is in scope, the subsidiary is not required to prepare a separate report. CARB defined a “Parent” as a business entity with an ownership interest in or control of another business entity by direct corporate association (as defined in Title 17, California Code of Regulations, section 95833 (California’s Cap & Invest, formerly Cap & Trade, regulations). CARB defined “Subsidiary” as a business entity that another business entity has ownership interest in or control of by direct corporate association, which can influence the subsidiary’s operations, management, or financial decisions. The following indicia determine ownership or control: (1) Greater than 50% of ownership of any class of listed shares, the right to acquire such shares, or any option to purchase such shares of the other entity; (2) Greater than 50% of common owners, directors, or officers of the other entity; (3) Greater than 50% of the voting power of the other entity; (4) In the case of a partnership other than a limited partnership, greater than 50% of the interests of the partnership; (5) In the case of a limited partnership, greater than 50% of control over the general partner or greater than 50% of the voting rights to select the general partner; and (6) In the case of a limited liability corporation, greater than 50% of ownership in the other entity regardless of how the interest is held.

“Revenue.” The term “revenue,” is critical to determining whether a business meets the reporting thresholds under SB 253 or SB 261. CARB adopted the definition of “gross receipts” under section 25120(f)(2) of the Revenue and Taxation Code:

Gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold.

CARB’s “Required Revenue” and “Total Required Revenue” to Implement the Climate Disclosure Program

Both SB 253 and SB 261 authorize CARB to adopt a fee regulation to recover the costs of program implementation. Under the adopted regulations, CARB will invoice regulated entities based on its determination of the “required revenue” necessary to recover the costs of program implementation, including personnel salaries and benefits, legal defense costs, and contracting expenses.

First-Year-Only Reporting Deadline

For those entities that meet the definition of “doing business in California” and have annual revenues in excess of $1 billion, CARB adopted an initial, first-year-only reporting deadline of Aug. 10, 2026, for Scope 1 and Scope 2 emissions.

For SB 261, CARB has paused enforcement due to ongoing litigation before the Ninth Circuit Court of Appeals. However, CARB earlier opened a public docket for entities that may choose to voluntarily submit their Climate-Related Financial Risk Report, under SB 261.

Litigation Update

The U.S. Chamber of Commerce and other business groups have challenged both statutes.

• On Nov. 18, 2025, the Ninth Circuit issued an injunction pausing enforcement of SB 261, but not SB 253.
• CARB subsequently announced that all SB 261 reporting is voluntary pending a decision.
• Oral arguments occurred on Jan. 9, 2026. Judges focused on whether emissions reporting (particularly Scopes 1 and 2) constitutes factual operational data versus compelled ideological speech.

At oral arguments, Judge Jacqueline Nguyen raised what could prove to be a key question, i.e., whether the Ninth Circuit has “concern on the Scope 3 emission disclosure requirements” of SB 253, and whether it would be appropriate to ask the district court, on a potential remand, to consider whether the law could be severed. CARB’s counsel agreed that such a severability analysis would be appropriate to address discrete constitutional issues, raising the possibility of a partial remedy limiting implementation of SB 253 to Scope 1 and Scope 2 emissions without invalidating the statute.

Questions Raised by this Rulemaking

While providing much-needed clarity, CARB’s rulemaking does give rise to several questions, including:

• Can CARB exercise jurisdiction over foreign entities (businesses organized outside California) on the basis of less than $1 million in California gross receipts? California’s jurisdiction for purposes of its Revenue and Taxation Code is less controversial than a claim of jurisdiction requiring a disclosure of global emissions data based on a business’ California gross receipts of less than one-tenth of 1% of its global sales.
• Can CARB recover its legal defense costs from regulated entities? CARB’s fee structure broadly defines “required revenue” to include its legal defense costs. At the hearing, commenters encouraged CARB to narrow its definition to include only those costs reasonably necessary for program administration and not legal defense costs that might result in the regulated entities paying for CARB’s defense of its program.
• What information should reporting entities provide if they have not been collecting Scope 1 and Scope 2 data? At the hearing, CARB responded that it “wants to be mindful of the ramp-up that it will take for some companies to put the systems in place to collect this information” and CARB “recognize[s]…entities may have challenges with meeting the full requirements of what is in statute we have offered…enforcement discretion to allow them to give us what they have.”

Potential Next Steps for Regulated Businesses

• Businesses potentially subject to SB 253 or SB 261 regulation should consider preparing now for compliance, even as litigation continues. Potential actions may include assessing applicability by determining whether an organization meets the revenue thresholds and the “doing business in California” criteria under the California Revenue and Taxation Code.
• Businesses that determine they may be regulated should monitor the legal proceedings, including their effect on the compliance deadlines for SB 261, as well as any further developments associated with SB 253. For example, there are several potential litigation outcomes, including a decision against the plaintiffs that subsequently lifts the SB 261 injunction.
• Businesses with greater than $1 billion in total global revenue should prepare for the August 2026 SB 253 report and may wish to begin collecting and/or compiling Scope 1 and 2 emissions data consistent with the GHG Protocol. Businesses should also consider planning in the event Scope 3 emissions data will be subject to reporting, including by conducting a Scope 3 readiness assessment that considers data availability, supplier engagement, and examining whether current accounting approaches align with GHG Protocol guidance.
• Businesses should consider evaluating their governance and financial risk processes. Although SB 261 is enjoined, companies may wish to review their existing climate-risk governance structures and align reporting the one of the several TCFD frameworks in use.