CARB Approves Proposed Climate Disclosure Regulations

First-Year Reporting Deadline Confirmed
CARB finalized the deadline for reporting Scope 1 and 2 emissions under SB 253, which will be due on August 10, 2026. CARB indicated that it will exercise “enforcement discretion for good-faith first year [2026] submissions,” as its priority is to focus on supporting compliance through stakeholder engagement. CARB has noted that companies will only be required to submit the GHG data they were already collecting as of December 5, 2024, or if not already collecting that data, submit a summary of their plans to exercise “good faith efforts” to collect GHG data in the future. 

Exempted Entities and Insurance Companies
The regulations explain that the climate disclosure laws apply to reporting entities and covered entities, but expressly exempt the following:

• Tax-exempt nonprofit or charitable organizations;
• Insurance companies in any state, and any other business entity subject to regulation by the California Department of Insurance;
• Federal, State and local government entities, and companies that are majority-owned by government entities;
• A business entity whose only activity within California consists of wholesale electricity transactions; and
• A business entity whose only business in California is employee compensation or payroll expenses, including teleworking employees.

The most significant development at the meeting concerned insurance companies. CARB’s proposed regulation extended an insurance company exemption based on existing climate disclosures required by the California Department of Insurance (CDI). Following Board discussion and public comment, CARB adopted additional resolution language directing the Executive Officer to coordinate with CDI; evaluate whether insurers’ existing CDI reporting fully satisfies SB 253 emissions reporting requirements; and propose future regulatory action to include insurers within SB 253’s scope if necessary, while minimizing duplicative reporting. The insurance exemption remains in current regulation, but CARB formally committed to reviewing and potentially revisiting the issue.

Definitions
CARB’s regulations also provided definitions of certain key terms relevant to SB 253 and SB 261. For purposes of SB 253, a “reporting entity” is defined as a business entity doing business in California with total annual revenues in excess of $1 billion. For SB 261 purposes, a “covered entity” is defined as a business entity doing business in California with total annual revenues in excess of $500 million. The revenue threshold for both reporting and covered entities is determined using the lesser of the entity’s two preceding fiscal years.

“Doing business” is defined by reference to Section 23101(a) of the California Revenue and Taxation Code, which is “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” “Doing business in California” means meeting both the “doing business” definition above and either of the following:

• The taxpayer is organized or commercially domiciled in California; or
• Sales for the taxable year being reported exceed the lesser of $500,000 or 25 percent of the taxpayer’s total sales.

CARB borrowed the sales criterion from Revenue and Taxation Code Section 23101(b) but declined to adopt alternative criteria for “doing business in California” from the Section 23101(b) definition (i.e., based on holdings of real property or compensation paid in the state).

The regulations also define “parent” and “subsidiary” by reference to CARB’s cap-and-trade regulations, treating an entity as a “parent” if it holds more than 50 percent ownership or control over another entity, including voting rights, board control or contractual authority. A “subsidiary” is any owned or controlled entity meeting that test. These terms are defined but not otherwise used in the regulations at this time.

Lastly, the regulations define “Scope 1 Emissions” according to Health & Safety Code (HSC) Section 38532(b)(3) as all direct GHG emissions that stem from sources that a reporting entity owns or directly controls, regardless of location. This includes, but is not limited to, fuel combustion activities. The regulations define “Scope 2 Emissions” according to HSC Section 38532(b)(4) as all indirect GHG emissions from consumed electricity, steam, heating or cooling purchased or acquired by a reporting entity, regardless of location.

Fee Structure Adopted 
CARB adopted a flat annual fee per covered entity to fund program administration for both SB 253 and SB 261, estimated to range from approximately $2,000 to $7,000 per entity annually beginning with fiscal year 2026, depending on total program costs and the number of reporting entities. Parent entities may submit consolidated fee payments on behalf of subsidiaries. Annual fees will be set in a written fee determination from CARB to regulated entities by September 10 of each year and will be due by November 9 each year to avoid late fees.

Litigation Status
As we’ve discussed in a previous client alert, the Ninth Circuit injunction currently applies only to SB 261 enforcement. Though the litigation also involves challenges to the legality of SB 253, that bill is not subject to the temporary injunction against enforcement. Accordingly, CARB confirmed that SB 253 implementation is proceeding. Notwithstanding the February regulations, CARB may continue regulatory development of SB 253 (with enforcement) and SB 261 (without enforcement unless and until the injunction is lifted) during the pendency of the litigation.

Implications
The February 26, 2026, regulations launch the initial administrative framework for California’s climate disclosure regime but remain limited in scope. The regulations leave significant detail about the format and scope of reporting for later rulemaking—detail which may be backfilled in subsequent rulemakings. Companies potentially subject to SB 261 should consult with their legal and technical advisors on the pros and cons of voluntary reporting versus waiting for a Ninth Circuit decision on the temporary injunction. Companies subject to SB 253 should work with their legal advisors to begin preparing for Scope 1 and Scope 2 reporting by August 10, 2026, while monitoring upcoming rulemaking on Scope 3 and assurance requirements. Pillsbury will continue to actively monitor developments on any further CARB rulemaking and the concurrent Ninth Circuit litigation and will be available to advise clients on any questions that may arise.