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Webinar Q&A: Answers to Your Top Questions on California’s Climate Laws

*This is not intended as legal advice. We encourage you to consult your counsel for legal advice.

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• If I work for a company that has multiple entities, but only 1 does business SS in CA, do I need to have data for all of my entities? For instance, do I need to report data if one of my entities is located in Europe?
  • This is dependent on the company's organizational boundaries and CARB's final regulations. However, as the legislative text is currently written, reporting at the parent-level will be required, assuming the parent is a US entity.
• How should data be collected? Is it still unclear because CARB has yet to issue regulations?
  • For now, companies have clarity that SB 253 and SB 261 are rooted in the GHG Protocol and TCFD recommendations. Companies should start collecting data and conducting analysis and calculations using these two frameworks in order to be prepared. The data for SB 253 must be collected in a manner that allows you to obtain assurance over your GHG emissions. The specific reporting mechanism (reporting to CARB or a third party entity) will be determined by the regulations CARB puts out. 
• Is the requirement under 261 to have a biannual (once every 6 months) report or biennial (once every 2 years) report?
  • Under SB 261 the requirement is to report once every two years.
• Is there a form that will be accepted? It is very amorphous as it stands what will be accepted.
  • This is still under consideration for SB 253, whether it will be a form, an online portal, or what the format for submission will be. For SB 261, the legislation says that a report on the reporting company’s website will be compliant.
• For SB 261, is the expectation for a 100% compliant TCFD/ISSB report? For example, many companies currently publish TCFD-aligned reports but omit quantified financial risk descriptions or scenario analysis. What is the level of completion necessary to satisfy the regulatory expectation?
  • SB 261 legislative text requires the disclosure of climate-related financial risks (physical and transition) and measures taken to mitigate the risk in accordance with TCFD or, optionally, ISSB. In this regulated environment, it is expected that companies will adhere to all of the TCFD’s 11 recommendations including financial risk descriptions and scenario analysis. If a company is already preparing an ISSB report, or sees the opportunity in taking the next step to global interoperability, they can report using ISSB’s standards which are rooted in the TCFD. 
• Will CA bill ask for a completeness of scope 3 (all categories of scope 3), or will CA leave each company to disclose what category is material to the company like ISSB?
  • We are waiting for CARB's implementing regulations to definitively know this answer, however, we know SB 253 is closely aligned to GHG Protocol which allows companies to determine which categories are significant to the business. We also know that SB 253 wants to be consistent with other major standards like the ISSB, so that could point to allowing companies to determine which categories are most significant.
• When can we expect a formal definition of "doing business in" for purposes of determining who will be required to report?
  • We are expecting CARB's implementing regulations by July 1, 2025 which will include more formal definitions of "doing business in California."
• Is the disclosure in 2026 for calendar year 2025, or fiscal year 2025 (some companies' fiscal year ends in Mar or Jun 2026)?
  • We will await more specific definitions from CARB, but the legislation points to fiscal year 2025.
• Can you help explain "limited assurance" as would be required for 2025 reporting?
  • Limited assurance provides a moderate level of confidence in reported data through inquiries and analytical procedures rather than in-depth testing. The assurance provider checks for material misstatements and issues a report stating that nothing significant was found to cause the assurance provider to believe the information in the report is not accurate. This differs from reasonable assurance, which requires the assurance provider to make a finding that the information reported is accurate in all material respects.
• When is CARB going to start its rulemaking process?
  • CARB has been granted an extension to July 1, 2025 to develop the standard and should be expected to begin the rulemaking process now. 
• TCFD has less requirements than ISSB IFRS S2, is the requirement to be aligned with TCFD or IFRS S2? ISSB has technically absorbed TCFD, will this be changed in the bill?
  • A report issued that satisfies the ISSB standards as issued by the ISSB will satisfy the requirements of SB 261. SB 261 provides for the evolution of the TCFD requirements (including, presumably, they're now being under the ISSB umbrella).
• In terms of the roll up of GHG disclosures, what if the subsidiary itself is subject to California's GHG disclosure but is not included in the parent's GHG boundaries for the parent's GHG disclosures?  Would the subsidiary need to do an independent disclosure to CA?
  • You would look at the disclosure obligations of each entity. If the parent and subsidiary both have reporting obligations independently, they could each report separately or they could report on a consolidated basis at the parent level.  
• Can we use the report from a parent company which is based outside of the US?
  • Yes, it is expected that this will be accepted as long as you are including the emissions from the subsidiary doing business in CA as well. Keep in mind that only US entities are in scope so evaluate whether the parent or the subsidiary is in scope first. 
• Understand that CARB is extended to July '25, but the reporting due Jan '26 must cover all of '25. Is that true?
  • We believe that this is true. As with many of the details around the implementation of SB 253 and SB 261, CARB will provide further details in its implementing regulations.
• Are we expecting more specifics for SB261 formal disclosure requirements in July? Or just TCFD is fine and nothing more specific there?
  • While CARB has been tasked with writing implementing regulations for SB 253, we can expect further guidance on SB 261 as well. However, that should not delay companies from preparing TCFD-based climate-related financial risk reports. 
• Will the inaugural 2026 report need to cover 2024 and 2025? And each biannual report thereafter with a two year look back?
  • The 2026 report will reflect the company's most current climate-related financial risk disclosures, which may include 2024 and 2025 events, and future reports will follow a two-year cadence.
• Is there a good forum to get involved for companies to share feedback
  • Yes. Please keep a close eye on CARB's progress on this and provide feedback and comments when the time comes.
• If we do little business in CA (below the $ benchmark) but exceed the benchmark globally, is it required we disclose? Basically - is it the financial benchmark of just business done in CA or if you exceed the $ benchmark regardless of where, and happen to do business in CA also?
  • The bill defines a “reporting entity” as a US-based entity with $1B in total annual revenue, not just revenue within the US. Please see SEC 2 Section 38532 of the bill text. Further detail as to the interpretation of “reporting entity” and other definitions in the bill are expected to be fleshed out in the implementing regulations to be adopted by the California Air Resources Board (CARB).
• If we leave a company to disclose their own material category to disclose emissions, how can we trust a company's ability and intention to select (or hand pick) their material?
  • Companies should follow the GHG Protocol’s scope 3 guidance as outlined in their Technical Guidance for Calculating Scope 3 Emissions:
    • The Scope 3 Standard recommends that companies identify which scope 3 activities are expected to have the most significant GHG emissions, offer the most significant GHG reduction opportunities, and are most relevant to the company’s business goals. Companies should begin by conducting a screening process, using less specific data, to determine the size of GHG emissions in each of the 15 categories. Then each category can be examined to determine whether to further refine its emission estimates.
• Can Catherine say more on how businesses can engage with CARB’s process to develop the implementing regulations? How does such engagement work?
  • CARB will publicly notify interested parties of the means by which they can get involved and provide input into the process. We expect these mechanisms to include meetings and a written comment process.
• Are there any standard assessments we need to perform (similar to a DMA or Gap assessment for CSRD) in order to prepare for the TCFD compliant report?
  • To prepare for a TCFD-compliant report, companies typically conduct gap analysis to identify differences between current practices and TCFD recommendations. Risk and opportunity analysis evaluates both physical and transition risks along with potential climate-related opportunities. Scenario analysis explores the impact of different climate scenarios (e.g., 1.5°C or 3°C) on the business to support strategic planning.
• Would a private equity firm be in scope for SB 261 if it doesn't have an office in CA but has investors in the state?
  • Yes, under SB 261, even if your private equity firm doesn't have an office in California, it could still fall under the law’s requirements if it meets the annual revenue threshold of $500 million and is considered to be “doing business” in the state. If your firm is engaging in activities or has sufficient economic ties in California (like fundraising or investments from California-based entities), it might still qualify as "doing business" and thus be subject to biennial reporting requirements starting in 2026. We will need to wait for CARB’s official definition of “doing business in California.”
• How does this apply to franchises?  If a fast-food company as a whole meets the revenue requirement, but each restaurant is owned by a franchisee, what does this mean for reporting?
  • As the legislative text is currently written, franchise scope is not yet clear. We expect the CARB implementing regulations to provide further guidance on such issues.
• What financial thresholds (e.g. company turnover) are in place initially for SB 261 and SB 253, do they apply to global turnover and are they expected to evolve over time?
  • SB 253 Coverage: Coverage: Public and private US businesses with revenues >$1B doing business in CA (est. 5,400 cos)
  • SB 261 Coverage: Public and private US businesses with revenues > $500 million doing business in California 
  • The State of California Franchise Tax Board defines “doing business in California” as meeting any of the following criteria:
    1. Engage in any transaction for the purpose of financial gain within California
    2. Are organized or commercially domiciled in California
    3. Your California sales, property or payroll exceed the following amounts:
       1. $690,144 in CA sales exceed (either the threshold amount or 25% of total sales) for 2022
       2. $69,015 in CA real and tangible personal property exceed (either the threshold amount or 25% of total property) 
    4. $69,015 in CA payroll compensation exceeds (either the threshold amount or 25% of total payroll)
  • To be clear, SB 253 does not clearly state that this law will use this definition or if it will use revenue from financial reporting, tax revenue, or some other definition. As with other details, the CARB implementing regulations will provide further detail.
• Can the team send out a high-level flier on what companies have to comply with for all California climate ordinances
  • Please check out our simplified blog posts on CA climate disclosure:
    • California SB 253 and SB 261: What Businesses Need to Know
    • California Climate Disclosure: Getting Ready for SB 253 and SB 261
• What standard should be used to calculate revenue?
  • This is something CARB will need to define in its regs. Right now, the best guidance seems to be to look at your financial reporting and what you currently count as revenue.
• SB261 - TCFD includes climate metrics such as scope 1 and 2 emissions.  Is the expectation that companies would report this as part of their SB261 report by Jan 1, 2026 over FY25 data?
  • You are quite right that the TCFD requires companies to consider their scopes 1 and 2 emissions. We'll see if CARB provides further information about what companies will need to report but at a minimum, calculating your scopes 1 and 2 emissions and considering their financial impacts will be necessary.
• Understanding that we are expecting CARB to include more formal definitions of "doing business in California", is the current understanding that if we have less than $500 million in revenue from operations in California but these independent entities report up to a parent company with revenues greater than $1B, that the rules do apply?
  • Correct, the company would still be in scope of SB 253 and SB 261 in this instance since it meets the revenue threshold. The definition of “doing business in California” is expected to be much lower than the $500M threshold. 
• Which elements of TCFD are required? Does it include governance and oversight, scenario analysis? and what about IFRS S2, that is more stringent than TCFD.  And how will CARB monitor compliance?
  • It should be expected that all elements of TCFD will be required across all 11 recommendations. That said, an ISSB compliant report will also satisfy the requirements of the act.
• SB253: When in 2026 does a company need to disclose their 2025 scope 1 and 2 (with limited assurance)?
  • We will need to wait for CARB’s implementing regulations to know the deadline within 2026 but we do expect the Jan 1 deadline will be extended into Q1 or Q2 to allow companies time to gather and report the prior year’s data.
• Per SB 253, do all companies in the US with 1 billion in revenue or more need to start publicly disclosing Scope 1 & 2 GHG emissions - as long as they do business in California (however small their business revenue is generated in CA)?
  • Depending on CARB’s final definition of “doing business in California,” yes, a company with $1 billion in revenue that meets the defined threshold will be subject to GHG emissions reporting. 
• When "doing business in California" does the transaction need to take place in Cali or does it count if the transaction takes place in another state, but the transaction is with a Cali headquartered company?
  • This is dependent on CARB’s final definition of “doing business in California,” however, one could expect that if the company is headquartered in California they will be in scope. 
• What are your thoughts around this being implemented in other states - NYC, IL, all others?

Here are some bills that have been proposed:

• New York:
  • S897A: Requires annual disclosure of scope 1, 2, and 3 emissions for public and private entities with $1B+ in revenue, effective two years after the bill becomes law.
  • S5437: Mandates annual reporting on climate risks and mitigation strategies for businesses with $500M+ in revenue.
  • Both bills need to pass by December 2024 or face reintroduction in 2025.
• Illinois:
  • HB 4268: Requires annual reporting of scopes 1, 2, and 3 emissions for businesses with $1B+ in revenue, starting January 1, 2025. 
  • Currently in legislative process, with further consideration expected after November 2024.
• Minnesota:
  • SF 2744: Financial institutions with $1B+ in assets (banks and credit unions) must submit climate risk surveys annually to the Department of Revenue, starting July 30, 2024.
  • This bill has been adopted. The Commissioner of Revenue is to issue the reporting form to guide required disclosures. 
• Washington:
  • SB 6092: Phased-in reporting requiring scopes 1 and 2 emissions by October 2026 and scope 3 emissions by October 2027 for businesses with $1B+ in revenue. 
  • If not adopted in the 2024 session, the bill will need to be reintroduced in 2025.

• If a company reports to meet Jan 1, 2026 deadline but then later points a few months later a TCFD compliant report for its response (e.g. when its EU CSRD, SEC climate are published) would that  be ok, do you know yet if it would reset the biennial reporting requirement?
  • It’s a great question and one that would be useful for CARB to provide guidance on. From our perspective, this would be good practice and lend to good faith compliance but not clear if subsequent reporting will reset the timing for biennial reporting. 

• Are both SB253 and SB261 bills biennial reporting?
  1. No, SB 253 requires annual GHG reporting and SB 261 requires biennial climate-related financial risk reporting.
• What measures / fines are in place for non-compliance?
  • For SB 253 penalties are defined as up to $500,000 per year. There is a Scope 3 safe harbor if disclosures are made in good faith with reasonable basis
  • For SB 261, penalties are defined as up to $50,000 per year
• If a Company has climate-related financial risks disclosed as part of its annual Corporate Responsibility Report (and aligned with TCFD and complies with SB-261), is the publication of such CR Report on the Company's website sufficient?  Or does there need to be a standalone report?
  • We believe this should be sufficient because only website reporting is required. Whether the report will have to be separately called out as complying with SB 261 remains to be determined (again presumably by CARB in its regulatory process).
• To clarify, will the climate risk report need to also receive limited assurance, or just the emissions portion?
  • Only the SB 253 GHG emissions disclosures are subject to assurance.