California Climate Disclosure Rules Come Into Focus As 2026 Deadlines Near

Key Takeaways

• The California Climate Disclosure Laws will require U.S. companies doing business in California to prepare biennial climate-related financial risk reports and to make annual disclosures of their greenhouse gas emissions, subject to certain revenue and other thresholds.
• The California State Air Resources Board ("CARB") has not yet proposed or adopted implementing regulations for the California Climate Disclosure Laws.
• CARB has indicated that it intends to follow the definition of "doing business in California" under the California Revenue and Tax Code § 23101.
• CARB's signaled definitions could capture a significant portion of fund managers that have business operations in California beyond certain low financial thresholds, but there is a possibility that these definitions could exclude some or many investment funds.
• Covered entities may use the GHG Protocol for greenhouse gas emissions reporting and may use existing voluntary reporting frameworks like the ISSB standards for their climate-related financial risk reports.
• CARB will not penalize companies in 2026 who show a "good faith" effort to comply.

Introduction

Recently, in Chamber of Commerce of the United States of America v. California Air Resources Board,¹ the United States District Court for the Central District of California denied the U.S. Chamber of Commerce's motion for a preliminary injunction to block the California Corporate Data Accountability Act and the Climate-Related Financial Risk Act (together, the "CA Climate Disclosure Laws"). This decision makes it much more likely that the CA Climate Disclosure Laws will go into effect in 2026 according to their statutory compliance schedules. The CA Climate Disclosure Laws will require U.S. companies doing business in California (potentially including financial services companies and asset managers) to prepare biennial climate-related financial risk reports and to make annual disclosures of their greenhouse gas emissions, subject to certain revenue and other thresholds. The CA Climate Disclosure Laws are widely understood to require significant efforts by covered entities to develop mechanisms for tracking and reporting their greenhouse gas emissions and in preparing the mandated climate risk reports.

California Corporate Data Accountability Act ("CCDAA" or "SB 253")

The CCDAA requires CARB to adopt implementing regulations requiring any U.S. company that "does business in California" with total annual revenues over $1 billion to publicly disclose its Scope 1, Scope 2 and Scope 3 greenhouse gas emissions.² CARB has stated that businesses may utilize existing reporting standards such as the Greenhouse Gas Protocol (GHG Protocol) for reporting their Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. To ensure accuracy, the CCDAA requires covered companies to obtain an assurance engagement, performed by an independent third-party, to review their disclosures.

• Scope 1 emissions are defined as "all direct greenhouse gas emissions that stem from sources that a [company] owns or directly controls, regardless of location, including, but not limited to, fuel combustion activities."
• Scope 2 emissions are defined as "indirect greenhouse gas emissions from consumed electricity, steam, heating, or cooling purchased or acquired by a [company], regardless of location."
• Scope 3 emissions are defined as "indirect upstream and downstream greenhouse gas emissions, other than [S]cope 2 emissions, from sources that the [company] does not own or directly control and may include, but are not limited to, purchased goods and services, business travel, employee commutes, and processing and use of sold products."

The bill also: authorizes CARB to contract with a nonprofit emissions reporting organization and to set appropriate fees; creates the Climate Accountability and Emissions Disclosure Fund, which will be funded by annual fees from reporting entities; and allows CARB to issue administrative penalties for noncompliance and to periodically review and update reporting deadlines and standards.

Despite the imminence of the statutory compliance dates, CARB has not yet formally proposed any of the implementing regulations for SB 253. Nonetheless, CARB has formally solicited comments from the public³ and has held two public workshops (on May 29, 2025, and August 21, 2025) and published presentations in which it has published its staff's views on how these regulations might be drafted and solicited informal feedback from the public. In implicit recognition of the time pressures created by this delay, CARB has stated that it will not penalize companies in 2026 who show a "good faith" effort to comply.⁴

Compliance Dates/Penalties

Reporting entities are required to disclose Scope 1 and 2 emissions by 2026, followed by Scope 3 emissions in 2027. In the public workshop on August 21, 2025, CARB staff signaled a June 30, 2026, implementation date for Scope 1 and 2 reporting and stated that CARB would post reporting templates for Scope 1 and 2 reporting by the end of September 2025.⁵

Companies that fail to comply with the law will face administrative penalties, not to exceed $500,000 in a reporting year. Penalty amounts will depend on the facts and circumstances, including a company's past and present compliance and any good faith measures taken. Companies will not be subject to an administrative penalty for any Scope 3 emissions disclosures misstatements made with a reasonable basis and disclosed in good faith. Penalties assessed on Scope 3 emissions reporting between 2027 and 2030 will only be for failure to file.

Climate-Related Financial Risk Act ("CRFRA" or "SB 261")

The CRFRA requires any U.S. company that "does business in California" with total annual revenues over $500 million to prepare biennial climate-related financial risk reports disclosing their climate-related financial risks and to make the reports publicly available.⁶ The statute requires covered companies to outline how they address and adapt to physical and transition risks associated with climate change. For companies with subsidiaries, the climate-related financial risk reports may be consolidated at the parent company level if a subsidiary of a parent company is covered by the law, and the subsidiary would not be required to prepare a separate climate-related financial risk report.

Similar to SB 253, CARB has yet to propose or adopt implementing regulations for SB 261, but in the public workshops on May 29, 2025, and August 21, 2025, CARB staff signaled potential plans for implementation. CARB staff stated during the public workshop on August 21, 2025, that entities may use one of several frameworks to meet disclosure requirements, including: the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (2017), International Financial Reporting Standards (IFRS) Disclosure Standards, and any report developed in accordance with any regulated exchange or national government.⁷ Each entity's report must be posted on its website. On September 2, 2025, CARB posted a "Draft Checklist" for preparing the SB 261 climate risk disclosure report. In addition to affirming the use of the frameworks noted above, the checklist also indicates the elements of these frameworks that CARB considers foundational to these reports.⁸ CARB stated that it will post a public docket on December 1, 2025, for entities to post the public link to their reports.

The CRFRA authorizes CARB to contract with a climate reporting organization for additional oversight and reporting functions. A fee system will be established to fund administrative costs, with the collected fees deposited into the Climate-Related Financial Risk Disclosure Fund.

Compliance Dates/Penalties

Covered entities will be required to disclose the climate-related financial risk reports starting on or before January 1, 2026, for fiscal years 2023/2024 or 2024/2025 depending on the organization.⁹

Companies that do not comply or provide inadequate reports face administrative penalties, not to exceed $50,000 in a reporting year. Penalty amounts will depend on the facts and circumstances, including a company's past and present compliance and any good faith measures taken.

Covered Entities

Both SB 253 and SB 261 use similar terms for determining the scope of the business entities that will be subject to the laws, with the primary difference between the two statutes being the revenue threshold to be in scope. CARB has not proposed or adopted regulations further defining these terms or provided binding guidance. Nonetheless, in the two public workshops, it signaled potential paths toward finalizing these definitions.

These definitions could capture a significant portion of fund managers that have business operations in California beyond certain low financial thresholds. However, both definitions of "revenue" signaled by CARB staff leave open the possibility of taking the position that investment funds are out of scope because their revenue is derived from investment and not business activities.¹⁰

Parent and Subsidiary Reporting

CARB signaled at the May 29, 2025, workshop that it could use the approach set forth in the California Cap-and-Trade regime to define corporate relationships for consolidation of the climate-related financial risk reports required by the CRFRA. Based on the existing Cap-and-Trade regulation, a "subsidiary is a business in which another company (the parent or holding company) owns more than 50% of its voting stock. . . . This corporate relationship implies that the parent company has a controlling interest and can influence the subsidiary's operations, management, and financial decisions, even though the subsidiary operates as a separate legal entity."

Exempted Entities

At the August 21, 2025, workshop, CARB staff signaled that it is considering the exemptions for the following types of entities, on which it is soliciting public comment:

• Non-profits;
• A company whose only business in California is the presence of teleworking employees; and
• CA Independent System Operator (CAISO) or a business entity whose only activity within California consists of wholesale electricity transactions that occur in interstate commerce.

Government entities would not be covered and do not need an exemption because they are not formed under business entity laws as defined in California Health and Safety Code Sections 38532 and 38533.

Chamber of Commerce of the United States of America v. California Air Resources Board

On January 30, 2024, the U.S. Chamber of Commerce filed a lawsuit against the Chair of CARB challenging the constitutionality of SB 253 and SB 261.¹¹ In the course of this litigation, the Court has dismissed several of the Chamber's claims while leaving standing its First Amendment claims.¹² In the remaining claims in the case, the Chamber of Commerce argues that forcing companies to publish greenhouse gas emissions and to submit climate risk disclosure reports violated their First Amendment rights by compelling speech. In its most recent decision, the Court applied the Zauderer standard, stating that the disclosure of greenhouse gas emissions constituted factual, non-misleading, and uncontroversial information subject to a lower level of constitutional scrutiny. The Court found that the plaintiffs were unlikely to succeed on the merits of their First Amendment challenge against the CCDAA because the disclosures required by the CCDAA are "reasonably related to the State's substantial government interest" to provide reliable information to investors and reduce emissions and mitigate climate change.

Regarding the CRFRA, the Court applied intermediate scrutiny, because the disclosure of climate-related financial risk mandates more than purely factual disclosures and instead verges into the disclosure of "controversial information" about the potential future impacts of climate change. The Court found that the plaintiffs were unlikely to succeed on their First Amendment claim against the CRFRA because the State "made a sufficient showing as to the benefits of investors' desire for the specific disclosures required by the CRFRA to achieve the legislature's objective in reliable information that enables investors to make informed judgments about the impact of climate-related risks on their economic choices." The Court found the business groups were unlikely to succeed on their First Amendment challenges for both laws, stating that the disclosures further legitimate state interests in transparency, investor protection and climate change mitigation. In addition, the Court concluded that the business groups did not show adequate irreparable harm, and the balance of equities supported denial of the preliminary injunction.¹³

Conclusion

The denial of the Chamber's motion for a preliminary injunction places business entities that are in scope on a tight timeline to prepare to comply with the CA Climate Disclosure Laws, especially given the January 1, 2026, deadline for submitting the SB 261 climate risk disclosure report. On September 15, 2025, the Chamber filed a Motion for Injunction Pending Appeal with the Ninth Circuit Court of Appeals, requesting relief by November 3, 2025, which was subsequently denied.¹⁴

The fact that CARB has not proposed or finalized implementing regulations or provided final guidance on the definitions of key scoping terms leaves business entities that may be in scope with a degree of uncertainty regarding whether and how to comply. This uncertainty seems unlikely to be resolved before November 2025, which means that these businesses may need to make decisions based on reasonable interpretations of the two statutes and CARB staff statements.

Footnotes

1. Chamber of Com. of the U.S., v. Ca. Air Res. Bd., No. 2:24-cv-00801-ODW-PVC (D. C.D. Cal. August, 13, 2025).

2. Cal. Health & Safety Code § 38532.

3. Cal. Air Res. Bd., Public Comments to California Climate-Disclosure Information Solicitation (Mar. 21, 2025); Cal. Air Res. Bd., Public Comments to August 21, 2025 Climate Disclosure Workshop (Sept. 11, 2025).

4. Kickoff Workshop: California Corporate Greenhouse Gas Reporting and Climate Related Financial Risk Disclosure Programs, Cal. Air Res. Bd. 10 (May 29, 2025).

5. SB 253/261/219 Public Workshop: Regulation Development and Additional Guidance, Cal. Air Res. Bd. 34 (Aug, 21, 2025).

6. Cal. Health & Safety Code § 38533.

7. In July 2023 the work of the Task Force on Climate-Related Financial Disclosures completed. The requirements of IFRS S1 and IFRS S2 are consistent with the TCFD recommendations. There are additional requirements in IFRS S2. IFRS, ISSB and TCFD (last visited Oct. 7, 2025).

8. Cal. Air Res. Bd., Climate Related Financial Risk Disclosures: Draft Checklist (Sept, 2, 2025).

9. Cal. Air Res. Bd., California Corporate Greenhouse Gas Reporting and Climate-Related Financial Risk Disclosure Programs: Frequently Asked Questions Related to Regulatory Development and Initial Reports (Jul. 9, 2025).

10. Commenters have argued that registered investment companies (e.g., mutual funds, ETFs) do not produce greenhouse gas emissions and should be explicitly excluded from these reporting requirements, and that funds differ from operating companies because they have no employees, produce no goods or services, and do not engage in emissions-producing activities such as transportation or manufacturing. See ICI Comment Letter on the Implementation of the California Climate-Disclosure Legislation, ICI (Mar. 14, 2025). Nonetheless, on September 24, 2025, CARB staff published a preliminary list of entities covered by either or both statutes, for which CARB staff matched California Secretary of State registered business data with a proprietary dataset. The list included a number of investment funds. Cal. Air Res. Bd., Posted: Preliminary List of Reporting/Covered Entities and Stakeholder Survey (Sept. 24, 2025).

11. Complaint for Declaratory and Injunctive Relief, Chamber of Com. of the U.S., v. Ca. Air Res. Bd., No. 2:24-cv-00801 (C.D. Cal. Jan. 30, 2024).

12. Order Granting Defendants' Motion to Deny or Defer Plaintiffs' Motion for Summary Judgement and Denying Plaintiffs' Motion for Summary Judgement, Chamber of Com. of the U.S., v. Ca. Air Res. Bd., No. 2:24-cv-00801-ODW (PVCx) (C.D. Cal. Nov. 5, 2024); Order Granting Defendants' Motion to Dismiss Plaintiffs' Second and Third Causes of Action, Chamber of Com. of the U.S., v. Ca. Air Res. Bd., No. 2:24-cv-00801-ODW (PVCx) (C.D. Cal. Feb. 3, 2025).

13. Order Denying Plaintiffs' Motion for Preliminary Injunction, Chamber of Com. of the U.S., v. Ca. Air Res. Bd., No. 2:24-cv-00801-ODW (PVCx) (C.D. Cal. Aug, 13, 2025).

14. Plaintiffs' Notice of Motion and Motion for Injunction Pending Appeal, Chamber of Com. of the U.S., v. Ca. Air Res. Bd., No. 2:24-cv-00801-ODW (PVCx) (C.D. Cal. Aug. 20, 2025); Order Denying Plaintiffs' Motion for Inu

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