Inside the Kickoff Workshop for California SB 253 and 261
Clarity, Compliance, and the Clock: What Businesses Learned, and Still Don’t Know, After CARB’s First Workshop
Too long, didn’t read:
California’s new climate disclosure laws (SB 253 and SB 261) will affect over 10,000 large companies, including those with only minimal business ties to the state.
Key questions remain around definitions and a tight implementation timeline that may leave businesses scrambling before rules are even finalized.
While compliance won’t require cutting emissions, public reporting will likely trigger reputational scrutiny, and companies that act early may shape the rules and avoid last-minute chaos.
California’s Climate Disclosure Laws Move Forward—But Questions Remain
On May 29, 2025, the California Air Resources Board (CARB) held its first public workshop on implementing Senate Bills 253 and 261—two landmark laws that promise to reshape how large businesses approach climate disclosure. Though the workshop was formal and structured, it was a pivotal moment showing that these bills are being taken seriously by Californians and businesses alike. It’s no doubt that as this unfolds, these bills will continue to be watched closely both nationally and internationally. About 10,000 companies that do business in California and meet the revenue threshold for these bills. While much is still unclear, these bills are still in effect, and for affected businesses, the clock is already ticking on finding a path to adherence.
These two laws, while framed as transparency tools, signal a broader shift. California is setting out to regulate not just emissions, but the quality of climate-related data in the corporate domain, data that investors, consumers, and policymakers increasingly use to evaluate financial and reputational risk. And because of the scale and interconnectedness of the U.S. economy, the implications of these laws will stretch far beyond California’s borders.
A New Layer of Reporting for America’s Largest Companies
SB 253, known as the Climate Corporate Data Accountability Act, requires public and private companies with over $1 billion in global annual revenue to report their greenhouse gas emissions if they do business in California. Senator Scott Wiener noted that about 5,400 businesses meet these requirements. Beginning in 2026, companies will be required to disclose Scope 1 and Scope 2 emissions—those from direct operations and purchased energy, respectively. In 2027, Scope 3 emissions reporting begins. Scope 3 includes emissions across the entire supply chain, from product inputs to consumer use and disposal of the product. SB 253 also requires companies to obtain third-party assurance, starting with limited assurance and moving toward reasonable assurance over time.
SB 261 casts a slightly wider net, applying to companies with over $500 million in annual revenue that operate in California. While the exact number of companies affected by this is unknown, NAICS reports that nationally, 4,070 businesses fall between $500 million and $999.9 million. These companies, along with those making over $1 billion in revenue, must publish a report on climate-related financial risks every two years. The intent is to bring climate risk disclosures in line with frameworks like the now-disbanded Task Force on Climate-Related Financial Disclosures (TCFD), now carried forward by the International Sustainability Standards Board (ISSB). Reports must describe not only risks, but also strategies for mitigating or adapting to them.
These requirements are sweeping in scale, including many multinational firms, national retailers, manufacturers, and agricultural processors that do business in California but are headquartered elsewhere.
“Doing Business in California”: A Low Threshold, Big Implications
A repeated question during the workshop was how to define the phrase “doing business in California,” because that definition determines whether a company falls under the law’s scope. CARB is currently proposing to adopt the definition used in Section 23101 of the California Revenue and Tax Code. Under that standard, a company is considered to be doing business in California if it is commercially domiciled in the state or meets any one of the following thresholds: annual California sales exceeding $735,000; property in California worth more than $73,500; or California payroll above $73,500.
This creates a striking scenario. A company with a global footprint generating $10 billion in revenue might be drawn into the law’s scope simply for having a sales relationship, warehouse lease, or staff presence totaling a fraction of a percent of its business in California. To be clear, the $1 billion and $500 million thresholds in SB 253 and SB 261 refer to total global revenue, not California-based revenue. So long as the company meets the economic activity triggers in California, the law applies. This broad reach has raised eyebrows, especially among companies with only marginal ties to the state. Some stakeholders have asked whether CARB might consider proportionality, taking into account how much of a company’s total business is conducted in California. So far, CARB has given no indication that such an adjustment is under serious consideration.
CARB staff argued that harmonizing with existing tax code language offers legal clarity and administrative efficiency. But even they acknowledged concerns from stakeholders that this might cast too wide a net. The agency is now seeking public feedback on how to ensure the rules are both inclusive and practical.
Parent Companies, Subsidiaries, and the Challenge of Corporate Structure
Another key issue is how the law will apply across complex corporate entities. If a subsidiary is doing business in California but the parent company is not, who is responsible for reporting? CARB’s initial concept borrows from its Cap-and-Trade program: if a parent entity owns or controls more than 50% of a subsidiary, the two are considered part of a single “corporate association.” Under this framework, the entire enterprise could be subject to disclosure obligations even if the reporting entity is not itself operating directly in California.
Corporate structures often exist for legal, tax, and operational reasons. For companies with subsidiaries incorporated across states or countries, the question of who bears responsibility and how data should be aggregated could become a major compliance challenge. Moreover, if revenue is calculated at the parent level but emissions reporting is done at the subsidiary level, or vice versa, the result could be inconsistencies or unintended compliance gaps. CARB has opened the door to stakeholder input on how best to manage this, but the early framing suggests a desire to apply the rules broadly and uniformly.
Scope 3: The Achilles’ Heel of Climate Reporting?
Of all the requirements under SB 253, Scope 3 emissions are likely to be the most contentious. While Scope 1 and 2 emissions can generally be measured through utility bills and direct equipment data, Scope 3 emissions span every facet of a company’s supply chain and customer base. That includes emissions from purchased goods and services, transportation, use of sold products, and waste generated during product end-of-life. For many companies, Scope 3 makes up the majority of their emissions footprint, sometimes as much as 70% to 90%.
Yet Scope 3 is also the least standardized area of climate disclosure. During the workshop, the UCLA Anderson Center for Impact presented data showing that while Scope 3 reporting is increasing among S&P 500 companies, it remains uneven and shallow. The most commonly disclosed category, business travel, makes up only a small fraction of total Scope 3 emissions. In contrast, categories like purchased goods or downstream asset use, which are far more material, are often overlooked.
CARB is considering whether to allow companies to apply “materiality thresholds” to Scope 3 disclosures. This would allow firms to focus on the categories most relevant to their operations, rather than reporting across all fifteen categories. While this would reduce the compliance burden, some worry it could also water down the very transparency the law aims to create. Striking the right balance will be crucial.
Financial Risk Reporting: A Bridge Too Far?
Under SB 261, companies must assess and publicly disclose climate-related financial risks. The goal here is to get firms thinking ahead: how might physical climate impacts or regulatory shifts affect future earnings, operations, or liabilities?
The challenge, of course, is that these risks are often speculative and unevenly distributed. Most companies aren’t in the business of long-term climate modeling, and boards are rightly cautious about disclosing liabilities that may be difficult to verify or quantify.
CARB’s proposal allows firms to use voluntary standards like those from the International Sustainability Standards Board (ISSB), the successor to TCFD. That’s a smart move, since many companies are already familiar with these frameworks. But CARB is still weighing whether this program should be implemented via regulation or non-binding guidance.
For businesses, that’s a big distinction. Regulation implies enforcement and legal risk. Guidance implies flexibility. In an environment where companies are already navigating inflation, labor challenges, and supply chain volatility, many will favor the latter.
Lessons from Abroad and at Home
CARB staff noted that California’s effort mirrors similar initiatives around the world. Jurisdictions like the European Union, Japan, and New Zealand have all moved toward corporate climate disclosure. Many of these programs are aligning with ISSB standards, which bodes well for harmonization.
Still, California’s approach differs in some ways. It emphasizes public disclosure and state-level oversight. And with Scope 3 included in the mix, it goes further than many existing U.S. frameworks. As Montrose Environmental pointed out in its technical presentation, regulatory programs tend to emphasize Scope 1 emissions and verification, while voluntary protocols offer more flexibility in Scopes 2 and 3—but often lack transparency.
Montrose’s takeaway? Companies juggling multiple reporting frameworks will need clear, consistent guidance and time to adjust. Otherwise, overlapping requirements could increase compliance costs without improving data quality.
Implementation Timeline Is Approaching Fast
While the implementation timeline has not changed, it also wasn’t clarified in the workshop. The SB 253 legislation says reporting for 2025 scope 1 and 2 emissions starts on January 1, 2026, however, there is still confusion on what that means.
In 2025, CARB will complete the pre-rulemaking phase, including workshops like this one and the development of draft regulatory concepts. In late 2025 or early 2026, the agency will enter formal rulemaking. This involves releasing a standardized regulatory impact assessment (SRIA), publishing the proposed rule text, and collecting public comments during a 45-day window. Additional revisions could trigger a 15-day comment period. Once finalized, the rules will be submitted to the Office of Administrative Law for review.
Here’s where it gets tight. By law, CARB must adopt final regulations within one year of issuing its Notice of Proposed Rulemaking. That’s a compressed window for a complex rule with national implications. And yet, companies will be expected to begin disclosing Scope 1 and Scope 2 emissions in 2026, the very same year the final rule is likely to be adopted. In 2027, Scope 3 disclosures begin. SB 261 climate risk reports are also due in 2026.
This timeline raises real concerns. How can companies build new reporting systems, hire auditors, review legal risks, and align cross-functional teams when the rules themselves may not be final until months before reporting is due? CARB has offered some assurance that penalties will not apply in 2026 if a company shows a “good faith effort” to comply. But good faith effort is undefined. Until clarity is provided, companies will be forced to operate in a gray zone.
Additionally, there’s the risk of litigation. Given the scope and novelty of these laws, legal challenges seem likely. If a court delays or alters the implementation schedule, companies could find themselves stuck between evolving compliance requirements and frozen regulatory timelines.
A Note on Governance and Who’s Driving This
One subtle thread running through the UCLA report was the role of corporate governance in driving climate performance. Only 7% of board members across the S&P 500 were found to have relevant environmental competencies. This suggests that many of the individuals tasked with overseeing climate disclosures may lack the technical background to do so effectively.
This raises a question: Will CARB encourage competency-building at the board level? Or will it rely on external consultants and auditors to fill the gap?
Either way, companies that proactively strengthen internal oversight now will be better positioned when the rubber meets the road.
What Do The People Think?
If there was one clear signal from the workshop, it was this: people still have a lot of questions. The Q&A portion stretched well past the official end time, and nearly every comment circled back to a central theme—clarity. Attendees pressed for more detail on the meaning behind key phrases like “doing business in California” and “good faith effort,” which remain vague yet critical to compliance. Others raised practical concerns, particularly around the risk of duplicative reporting. Several participants urged state agencies to align reporting requirements with existing frameworks, hoping to avoid a scenario where companies are forced to submit multiple emissions disclosures for essentially the same data.
The timeline also drew scrutiny. While the law states that Scope 1 and 2 emissions must be reported in 2026, that leaves open a critical question: when in 2026? If the deadline is set for January 1, for instance, it’s virtually impossible for companies to include data from December 2025. That would leave them either rushing to produce incomplete figures or relying on estimates, neither of which sets the state up for success in launching a credible program.
Ultimately, the questions raised were about feasibility. If this regulation is going to succeed, the implementing agencies will need to eliminate as much ambiguity as possible to ensure consistency and provide the kind of guidance that turns legislative intent into workable action on the ground.
The Work Ahead
This workshop did two things: it confirmed that California is moving ahead with aggressive climate disclosure laws, and it acknowledged that many details are still up for discussion.
For the business community, that’s both a challenge and an opportunity. Complying with SB 253 and 261 will not be easy, especially for firms that haven’t yet developed robust ESG programs. But those who engage early by submitting comments, shaping definitions, and developing internal systems will have a head start and a voice in the process.
It’s also worth noting that these rules are about transparency, not performance. They don’t require companies to change their emissions, only to report them. In that sense, they may serve more as a reputational and investor-relations tool than a driver of near-term operational change. That could help ease concerns from those wary of regulatory overreach.
But make no mistake: disclosure often begets pressure. And as these reports become public, the data will shape everything from capital flows to procurement decisions to public perception.
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