CARB Issues Proposed Climate Reporting Rules
Draft rules are a milestone in climate reporting.
On December 9, 2025, the California Air Resources Board (CARB) published proposed regulations implementing two California climate laws: the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). The draft regulations are a key step in implementing one of the most comprehensive corporate climate reporting requirements in the United States. The draft rules are out for public comment through February 9, 2026, with a February 26, 2026 hearing scheduled.
The regulatory text provides definitions, applicability criteria, deadlines, recordkeeping and fee structures, and reporting timelines. This is the first clear view of how California intends to operationalize these statutes.
The Legislative Framework
Governor Gavin Newsom signed into law SB 253 and SB 261, known as the Climate Accountability Package. SB 253 requires companies with revenues of more than $1 billion to report their greenhouse gas (GHG) emissions related to both operations and their supply chain starting in 2026. SB 261 requires companies with annual revenue of more than $500 million and that “do business” in California to disclose publicly their company’s climate-related financial risks and plan to address them.
Defining “Reporting” and “Covered” Entities
The proposed rules provide definitions that determine which businesses must report:
A “reporting entity” for SB 253 is any corporation, partnership, LLC, or similar business formed under U.S. law with total annual revenues of more than $1 billion and that does “do business” in California, as defined by state tax code criteria.
A “covered entity” under SB 261 includes similar business structures with annual revenues of more than $500 million doing business in California.
Importantly, the regulations exempt certain entities, including tax-exempt nonprofits, government bodies, and entities whose only California activity is wholesale electricity transactions.
Doing Business
The regulatory text applies the California Revenue and Taxation Code definitions of “doing business,” meaning many foreign-based companies with meaningful economic activity in California could fall within scope.
Reporting Requirements and Initial Deadlines
SB 253 — GHG Emissions: Under the draft regulations, Scope 1 and Scope 2 reporting for the first applicable year is due on or before August 10, 2026, covering the preceding fiscal year, with detailed rules on fiscal year alignment. Covered entities must calculate GHG emissions consistent with statutory definitions and report those metrics to CARB. Third-party assurance frameworks and data boundaries will be formalized as rulemaking progresses.
While the draft regulatory text includes only the initial reporting timeline for Scope 1 and 2, stakeholder commentary and CARB workshops indicate that Scope 3 disclosures will begin with the 2027 cycle, reflecting later implementation phases.
SB 261 — Climate-Related Financial Risks: For SB 261, the draft rules establish criteria for content and timing of risk reports. Enforcement has been stayed by federal court order pending appeal, meaning CARB has paused enforcement of the statutory January 1, 2026 deadline. When active, the requirement will obligate covered entities to provide a biennial public climate risk disclosure, including governance, strategy, material climate risks and mitigation strategies relevant to business operations.
Fees, Recordkeeping, and Administrative Provisions
CARB will assess annual fees on both reporting and covered entities to fund program implementation and administration, calculated using statutory formulas tied to required revenue and cost adjustments. Entities must remit fee payments by September 10 of each year and face late fees if payments are delinquent. Firms must also maintain records demonstrating revenue thresholds and California business activity for five years and provide them upon request.
Failing to pay fees or to comply with reporting requirements can trigger enforcement actions, penalties, and injunctive relief, consistent with the broader enforcement provisions of the California Health and Safety Code.
Definitional Clarity and Threshold Tests
One of the most consequential elements of the draft regulations is the precision in definitions. By anchoring revenue tests to the lesser of the previous two fiscal years and adopting statutory “doing business” language from tax code, CARB aims to reduce ambiguity about which companies fall under each regime.
The definitions of Scope 1, Scope 2 and other emissions metrics explicitly mirror statutory language, which in turn aligns with international GHG reporting norms — a critical point for multinational firms that may already compile similar data.
Implementation and Next Steps
CARB’s draft rules arrive amid ongoing legal and practical headwinds. Stakeholders have called for additional clarity on verification requirements, the cost burden on companies, and potential alignment with emerging federal and global standards. The public comment period and upcoming hearing in early 2026 represent a key phase for corporate stakeholders to influence the final contours of the rules.
If adopted largely as drafted, the regulations will make California home to one of the most robust state-level climate disclosure regimes in the United States, with implications for thousands of companies with significant revenues and California business ties. Even firms outside California with economic footprints in the state may find themselves subject to new reporting and transparency obligations.
In the broader context of climate policy, these rules signal California’s willingness to extend its climate leadership into corporate disclosure — a move that could ripple into national and global discussions on climate risk and emissions transparency.