On December 9th, the California Air Resources Board (“CARB”) issued proposed regulations for California’s Senate Bill 253, the Climate Corporate Data Accountability Act (“SB 253”) and Senate Bill 261, the Climate-Related Financial Risk Act (“SB 261”). As discussed further in our prior LegalCurrent here, SB 261 requires covered entities doing business in California to prepare and disclose certain climate-related financial risks, and SB 253 requires certain covered entities to disclose their emissions. There are several key items that the proposed regulation clarified including the definition of “revenue” and “doing business in California”, certain deadlines for Scope 1 and 2 emissions, recordkeeping requirements, penalties, and fees, and exemptions.
Key Items
- Definition Updates
- The definition of “revenue” has been updated to align with California Revenue and Taxation Code meaning of “gross receipts”. Covered entities will need to use the lesser of the prior two years revenue when determining whether the revenue threshold is met.
- The proposed regulations clarify when a covered entity is “doing business in California” to include activities in which it is engaged in any transaction for the purpose of financial or pecuniary gain or profit and if during any part of the reporting year the entity is either (a) being organized or commercially domiciled in California or (b) has sales in California above the inflation-adjusted thresholds of approximately $760,000 or 25% of its total sales, whichever is less.
- Reporting Deadlines
- For covered entities with total annual revenue exceeding $1B, the SB 253 scope 1 and 2 report must be submitted by August 10, 2026 and will have 6 months after fiscal year end to report. Note that, covered entities with a fiscal year end between January 1, 2026 and February 1, 2026 will report data from the fiscal year ending in 2026. Alternatively, covered entities with a fiscal year end between February 2, 2026 and December 31, 2026 will report data from the fiscal year ending in 2025.
- Recordkeeping, Penalties and Fees
- The proposed regulations will require covered entities to maintain and provide records demonstrating that they meet the “doing business in California” and “revenue” thresholds for five years. Additionally, CARB may assess certain penalties against covered entities. For SB 253, CARB may assess penalties of no more than $500,000 per year. For SB 261, CARB may assess penalties of no more than $50,000 per year. Furthermore, covered entities will be subject to an annual flat fee based on program costs and CPI adjustment.
- Exemptions
- The proposed regulations provide certain category exemptions for entities which include: (i) entities subject to state insurance regulations; (ii) entities that are majority-owned by the government as well as local, state, and federal government owned entities; (iii) entities that are nonprofits or charitable organizations; (iv) entities that are only engaged in employee compensation or payroll expenses; and (v) entities that are engaged in only wholesale electricity transactions.
Moving Forward
The proposed regulations will be published on December 26, 2025 by the California Office of Administrative Law and open for public comment for a period of 45 days. Furthermore and as discussed in our LegalCurrent here, the proposed regulations arrive after the Ninth Circuit Court of Appeals (the “Court”) granted an injunction halting enforcement of SB 261 as the Court reviews First Amendment challenges to both SB 261 and SB 253. CARB acknowledged the injunction and has stated that it will not enforce SB 261 during the appeal process. The Court has set oral argument for appeal for January 9, 2026.
As the Court works through the appeal and the proposed regulations face public comment, it is possible these regulations may have more changes to come. While companies subject to SB 261 will need to take a wait and see approach, those subject to SB 253 should implement steps now to comply with the data requirements by the applicable deadlines. If you have any questions about CARB’s proposed regulations, please contact a member of Harter Secrest & Emery LLP’s Securities and Capital Markets group.