California Pioneers Corporate Climate Reporting Legislation
California is taking a groundbreaking step in climate regulation with its new legislative requirements for corporate climate disclosures. Through the Climate Accountability Package, the state is mandating large businesses to report on their greenhouse gas emissions and climate-related financial risks, starting in 2026. This move positions California as a leader in sustainability reporting within the United States.
In 2023, the California Air Resources Board (CARB) finalized regulations that require businesses in the state to disclose their environmental impact. Senate Bill 253 mandates companies with over $1 billion in annual revenue to report Scope 1 and Scope 2 emissions starting in 2026, with Scope 3 reporting to follow in 2027. Meanwhile, Senate Bill 261 requires companies with $500 million in revenue to submit biennial reports on climate-related financial risks, in line with the Task Force on Climate-Related Financial Disclosures.
The responsibility for drafting detailed regulations was given to CARB, which faced initial delays and legal challenges. Despite these hurdles, CARB moved forward with the regulations after a temporary court order paused only SB 261. On February 26, CARB’s full board approved the staff proposal for SB 253, marking a significant milestone in the implementation process.
Courtney Smith, introducing the proposal, highlighted its role as a foundational element in a broader regulatory framework. Public engagement is expected to continue beyond 2026 to refine the regulations further. John Chung, the lead staff member, emphasized that the current proposal focuses on establishing a fee structure, defining key terms, and setting initial reporting deadlines for SB 253.
Fee Structure and Key Definitions
The fee structure aims to keep the climate reporting program revenue neutral. Companies will pay a flat annual fee, which will be calculated based on the program’s costs divided by the number of entities required to report. Although the exact fee amount is yet to be disclosed, it is anticipated to be up to $7,000 per entity.
Clarifying Terms
To ensure clarity, CARB has defined several key terms:
Revenue
For SB 253 and SB 261, the revenue threshold for reporting is aligned with the definition of “Gross Receipts” under California Revenue and Taxation Code § 25120(f)(2). Companies must have annual revenues exceeding $1 billion and $500 million, respectively.
Doing Business in California
The criteria for “doing business in California” relies on California Revenue and Taxation Code § 23101. A company meets this requirement if it is organized or domiciled in California or if its sales exceed the threshold set by the Franchise Tax Board. Exemptions include wholesale electricity sales and companies handling employee compensation.
Parent-Subsidiary Relationships
CARB determined that parent companies can consolidate reports for subsidiaries, filing a single report for all “in-scope” entities. This approach is consistent with the Cap-and-Invest Program in California Code of Regulations § 95833.
2026 Reporting Timeline
CARB has set August 10, 2026, as the deadline for initial reporting. Companies with a fiscal year ending before February 1, 2026, will report data from FY 2025-2026. Those with a fiscal year ending on or after February 1, 2026, will report for FY 2024-2025.
While legal challenges may impact the timeline, for now, large companies must prepare to comply with California’s pioneering climate reporting requirements starting August 10, 2026.
Original Story at www.forbes.com