California Becomes First State To Require Climate Change Reporting

In 2023, California passed legislation requiring large companies to file climate change disclosures. After delays and on going legal challenges, the California Air Resources Board adopted the final language, enacting corporate greenhouse
gas reporting and climate-related financial risk disclosure requirements starting in August 2026. With the vote, California becomes the first U.S. state to enact sustainability reporting requirements.

In September 2023, California approved the Climate Accountability Package, a pair of bills aimed at creating sustainability reporting requirements. Senate Bill 253 required companies that do business in California and have an excess of $1 billion in revenue, defined as “reporting entities”, to submit an annual report for Scope 1 and Scope 2 starting in 2026. Scope 3 reporting will begin in 2027.

Senate Bill 261 required companies that do business in California and have an excess of $500 million in revenue, defined as “covered entities”, to submit a biennial climate-related financial risk report. The report is based on the work of the Task Force on Climate-Related Financial Disclosures, established by the Financial Stability Board.

The responsibility of drafting specific regulations and implementing the reporting standards was delegated to the California Air Resources Board. CARB was initially given until January 1, 2025 to draft the rules and processes. However, the process of drafting such complex regulations required more time. As a result, the Legislature gave CARB an additional six months to complete the drafting in Senate Bill 219, a deadline they failed to meet. These three bills have been nicknamed “the 200s” by regulators.

CARB was in the final stages of adopting the enacting language, when the courts intervened. In November 2025, the United States Court of Appeals for the Ninth Circuit issued a temporary order pausing the enactment of SB 261. It did not pause SB 253, and as a result, CARB moved forward. On February 26, the full board of CARB voted to approve the staff proposal.

The staff proposal was introduced by Courtney Smith. She noted this is only a first step to a broader regulatory scheme to continue to enact SB 253, and possibly SB 261. Public engagement will continue through 2026 and beyond to address elements of the law that are outside the scope of the initial regulation.

John Chung, the lead staff member for the regulation, presented the final proposal to the board. He stated that the proposal is limited to three key elements: establishing a fee structure, defining key terms, and the first-year reporting deadlines for SB 253. All other aspects, including 2027 reporting requirements, will require additional rulemaking. He noted that the 2026 reporting requirements are limited to Scope 1 and Scope 2. Additionally, he stated that these regulations will only impact very large companies, like Apple, Google, and PG&E

Fee Structure

The fee structure for climate reporting is intended to make the program revenue neutral. As a result, reporting companies will be charged a flat fee annually, using a simple calculation of taking the annual program costs and dividing it by the number of regulated entities. As they are still evaluating the actual program cost, if any debt is incurred by the program requiring more funds than collected, debt recovery will be calculated in subsequent years. The final dollar amount was not revealed, but it is expected to be up to $7,000 per entity.

Key Terms Defined

Multiple key terms were not defined in the 200s, leaving CARB the responsibility to adopt definitions to provide clarity. For the initial regulation, CARB focused on three terms in the legislation that required further definition.

Revenue

The reporting requirement in SB 253 states the company must have annual revenues in excess of $1 billion. SB 261 has a lower threshold of $500 million. It was unclear what should be considered in calculating revenue to determine a reporting requirement. The new rule aligns definition of “Revenue” with existing definition of “Gross Receipts” as defined by California Revenue and Taxation
Code § 25120(f)(2).

Doing Business in California

Both SB 253 and SB 261 are limited to companies that “do business in California.” To clarify what constitutes meeting this requirement, CARB looked to California Revenue and Taxation Code § 23101. A company is doing business in California if:(1) Organized or commercially domiciled in California; or (2) sales exceeds amount set by Franchise Tax Board ($735,019 in 2024). A exemption was carved out for wholesale sales of electricity and companies that process employee compensation or payroll expenses.

Parent-Subsidiary Relationships

The 200s were unclear how the relationship between a parent company and a subsidiary would impact reporting requirements. CARB determined thatparent companies can consolidate reports and fees, filing a single report for “in-scope” subsidiaries. This is based on the exitings Cap-and-Invest Program in Title 17, California Code of Regulations § 95833.

Reporting Timeline for 2026

CARB was delegated the responsibility of setting the annual reporting deadline. They settled on August 10, 2026 for the initial reporting date. For companies with a fiscal year cutoff prior to February 1, 2026, they will report data from FY 25 – 26. If a company has a FY ending on or after February 1, 2026, then they will report for FY 24 – 25.

The debate over climate change related reporting is far from over. Legal challenges continue to work their way through the federal court system. There is a strong possibility that a federal court may decide to delay the implementation of SB 253, as it did with SB 261. For now, large companies will be subject to greenhouse
gas reporting and climate-related financial risk disclosure requirements starting August 10.