Navigating CARB's Climate Disclosure Regulations

California's SB 219, 253, and 261 require greenhouse gas and climate-related financial disclosure reports by 2026 for thousands of companies

Two new California reporting and disclosure programs are set to take effect in 2026: the Corporate Greenhouse Gas Reporting Program, established by Senate Bill (SB) 253, and the Climate-Related Financial Risk Disclosure Program, established by SB 261. These regulations as amended by SB 219, collectively known as the California Climate Accountability Package, compel companies "doing business in the State of California" above specific revenue thresholds to publish aspects of their business operations related to climate change. 

SB 253 requires companies to annually report their Scope 1 and 2 greenhouse gas (GHG) emissions, which cover a company's direct emissions and those of its purchased utilities suppliers, starting June 30, 2026, for the 2025 fiscal year. Companies will additionally be required to publish Scope 3 emissions, which cover the rest of a company's supply chain, starting in 2027 for the 2026 fiscal year. SB 261 requires companies to report biennially on climate-related financial risk, with the first reporting deadline on Jan. 1, 2026.

However, the California Air Resources Board (CARB) has yet to issue final guidance for compliance with the regulations. On Sept. 2, CARB published a draft checklist with preliminary guidance for climate-related financial risk disclosures. Acknowledging the lack of lead time, CARB has indicated that "good faith efforts" will be deemed sufficient for the first year, which means applying the GHG Protocol Corporate Accounting and Reporting Standard. CARB has recently updated the timeline on its proposed rulemaking for SB 219 to Q1 of 2026. 

Who needs to comply, when, and how?

SB 253 requires business entities that "do business in California" and have more than $1 billion in total annual revenues to comply by June 30, 2026. Although CARB has not yet issued a finalized definition for "doing business in California," its Aug. 21 workshop on the bills indicated that the definition should be based on the California Secretary of State's business entity database, which includes any company that has an appointed legal representative in California. Similarly, CARB issued a revised proposed method for calculating revenue compliance as encompassing "the total global amount of money or sales a company receives from its business activities, such as selling products or providing services," which is consistent with metrics used by Dunn & Bradstreet and Standard & Poor. 

SB 261 requires U.S. companies that do business in California and have annual revenues greater than $500 million to comply by Jan. 1, 2026. Under currently proposed CARB guidance, compliance entails publishing a climate-related financial risk disclosure report to the company website and updating it every two years. SB 261 recommends reporting in line with guidance from the Task Force on Climate-related Financial Disclosures (TCFD) but provides flexibility for other standards such as the IFRS Sustainability Standard S2 from the International Sustainability Standards Board (ISSB).

Based on these proposed definitions and revenue thresholds, CARB published a list of entities covered by the California Climate Accountability Package. CARB has proposed to exempt various entities from compliance with both bills: nonprofit organizations, government entities, companies with only a remote-employee presence in California, California Independent System Operators, other business entities who only conduct wholesale interstate electricity transactions, and insurance companies (which are already exempt from SB 261). The preliminary list published by CARB may not be complete, and entities that meet the definitions and revenue thresholds but are not included in the list will still be expected to comply with the regulations.

Preparation is key

Reporting on both greenhouse gas emissions and climate-related financial risk is a significant undertaking, likely requiring months of preparation, particularly if a business has not reported these numbers before. Even though CARB has not yet issued clear reporting standards, businesses can benefit from starting this process as soon as possible to be ready for the rapidly approaching due dates.

Understanding the nuances of evolving regulatory frameworks will be critical to compliance, as well as identifying sources of GHG emissions. To support ongoing reporting, forward-looking companies can set up technical systems to optimize and maintain such information and take steps to conduct risk scenario analyses, evaluate a range of climate projections, and quantify physical risks related to future climate change impacts.