California Takes Step Toward Implementing Climate Disclosure Laws

The California Air Resources Board on Feb. 26 approved the adoption of a regulation establishing a fee assessment structure to implement the state’s 2023 climate disclosure laws, which require large U.S.-based companies doing business in California to report greenhouse gas emissions and climate-related financial risk. The regulation sets a first-year reporting deadline and enables the board to administer and fund the statutory reporting programs established by the two bills.

The Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). Under SB 253, companies with more than $1 billion in annual revenue must annually report direct emissions (Scope 1), indirect emissions from consumed energy (Scope 2), and indirect upstream and downstream emissions (Scope 3). Under SB 261, companies with more than $500 million in annual revenue must biennially report their climate-related financial risk and the steps they are taking to mitigate and adapt to such risk. Following a court order halting enforcement of SB 261, CARB will pause enforcement until the injunction is lifted but will proceed with its rulemaking efforts.

The regulation identifies a flat-rate fee structure and establishes Aug. 10, 2026, as SB 253’s first-year reporting deadline. Reporting for the first year will include only Scope 1 and Scope 2 emissions. The regulation also clarifies that the revenue threshold would be tied to entities’ gross receipts as reported to the California Franchise Tax Board to streamline implementation and verification.

The board maintains a voluntary public docket through which companies have begun submitting climate-related financial risk reports. To date, more than 120 reports have been submitted by private and public entities from a broad range of industries and made publicly available. The board will prioritize supporting compliance through stakeholder engagement and intends to exercise enforcement discretion for good-faith submissions during the first year.

Certain entities are exempt from reporting requirements, including tax-exempt nonprofits and charities, government or majority government-owned entities, California businesses regulated by the Department of Insurance, and insurance businesses in other states.