Five Things Companies Must Know About California’s Climate Rule

California's climate disclosure law survived a legal challenge last week, and now it's full steam ahead toward the compliance deadlines starting in 2026. This week, the California Air Resources Board (CARB) held its second workshop, which provided further insight into the “who, what, how, when, and how much” for compliance with its climate disclosure laws - SB 261 for climate risk and SB 253 for climate emissions. 

We condensed yesterday's 3-hour meeting into five key facts needed for compliance.

1. Know the Deadlines

We already knew that climate risk disclosures (under SB 261) are due on January 1st, 2026, from a recently released FAQ. CARB has now provided a date for disclosure of Scope 1 and 2 emissions reporting (under SB 253) - June 30th, 2026. Templates for reporting will be issued in late September. 

Also, the timeline for the final rules is now clearer. The first draft is expected in October, followed by a 45-day comment period, then the board will finalize the rule in mid-December.

👉 Prefer to get Sustainability Simplified straight into your inbox instead of LinkedIn? Sign up to our email list here.

2. Know If You’re Covered

CARB estimated that a total of more than 4,000 companies must report under one or both of the rules - here is the breakdown: 

• 2,596 companies will be required to report both climate risk (SB 261) and emissions (SB 253). 

• An additional 1,564 companies will be required to report only climate risks (SB 261). 

• All told, 4,160 companies will be impacted. 

To determine whether companies should be considered as ‘doing business’ in California, CARB will include any company that meets one of these criteria:

• It is legally based or headquartered in California.

• Its sales in California are above $735,019 (the 2024 threshold, adjusted for inflation each year), which includes sales through agents or contractors.

There will likely be some exemptions, including non-profits, government agencies, and companies whose only footprint in California is remote workers. 

If a parent company and its subsidiaries together exceed $500M per year in revenue and meet the test of “business in California,” the parent company can file one report covering all entities. Subsidiaries only need to file separately if they individually exceed the threshold and the parent does not consolidate reporting. CARB is encouraging one report per corporate family to avoid duplicate filings.

3. Expect Compliance Fees

In addition to the costs for report preparation and assurance, companies should expect to pay a disclosure fee to cover the cost to administer the program. 

CARB plans to determine the fee by dividing the estimated cost of implementation ($13.9M per year) by the number of covered companies. If the math checks out, CARB estimated the fees to range from $1,400 to just over $4,000 per company. Companies impacted by both rules (emissions and risk reporting) will be expected to pay both fees. 

4. Align With Standards to Prepare for Compliance

CARB asserts that the new rule will be aligned with existing voluntary reporting standards and, therefore, companies can prepare for compliance before the rules are finalized. The specific frameworks mentioned for compliance readiness are:

SB 253 (Climate Emissions):

• For emissions accounting: The Greenhouse Gas (GHG) Protocol 

• For assurance: ISSA 5000, AA1000, ISO 14060 series, or AICPA (apologies for the abbreviations).

SB 261 (Climate Risk):

For climate risk disclosures, the relevant sections of:

• The framework from the Taskforce on Climate Related Financial Disclosure (TCFD), 

• The International Sustainability Standards Board (ISSB - S2 Standard), or 

• Alignment with any other regulated climate risk reporting rule.

The assumption is that companies aligning with these standards or similar ones, like CDP, will approximate compliance with the CARB rules. 

CARB will consider good faith efforts as compliant for the first couple of years if companies explain the limitations in their reporting.

5. Be Assurance Ready

Scope 1 and 2 emission disclosures must be assured by a qualified third-party in the first year of reporting due June 30th, 2026. The assurance process must be independent and follow an accepted sustainability assurance standard such as ISSA 5000, AA1000, or ISO standards.

Limited assurance will be required first. This means a CARB-accredited verifier will provide an opinion in the negative. For example, “nothing has come to our attention that causes us to believe the emissions report is materially incorrect.” 

Reasonable assurance is expected in 2030, which requires an affirmative statement that the disclosures are correct. 

Other Notable Considerations:

The next few months will reveal more details about the California Climate Rule, and you can sign up for CARB updates here.

There are also some key milestones in the litigation over this policy in the coming months. The plaintiffs have already appealed last week's decision allowing the rule to proceed. Here’s the litigation timetable for the next few weeks:

• August 29: Defendants file their response to the case. 

• September 2: Plaintiffs file their reply. 

• September 8, 1:30 pm: Hearing on the plaintiffs’ motion.

• September 15: Plaintiffs have requested that the court reach a decision by this date or as close to it as possible.

The views expressed on this website/weblog are mine alone and do not necessarily reflect the views of my employer.