The era of voluntary corporate climate pledges is rapidly giving way to a new reality of mandated transparency as California finalizes regulations that will compel thousands of companies to disclose their environmental impact and financial risks. With the recent release of draft regulatory text for its landmark climate laws, Senate Bill 253 and Senate Bill 261, the California Air Resources Board (CARB) has transformed abstract legislative goals into a concrete compliance framework. This pivotal development provides long-awaited clarity on reporting requirements and deadlines, yet it unfolds against a backdrop of intense legal opposition that questions the very foundation of these new mandates. For businesses operating in the Golden State, the path forward is becoming clearer but remains fraught with uncertainty.
A Clear Mandate or a Legal Minefield
The release of the draft regulations represents a critical milestone, moving California’s ambitious climate disclosure program from concept to actionable policy. For the first time, companies have a detailed blueprint of what is expected, from precise revenue thresholds to specific reporting deadlines. This shift from legislative language to regulatory text provides the tangible guidance businesses need to begin preparing their data collection systems and internal processes for compliance, ending months of speculation about the practical application of the laws. The detailed rules signal the state’s firm commitment to enforcing a new standard of corporate environmental accountability.
However, this emerging regulatory clarity is directly contrasted by a significant legal storm. The laws are currently the subject of major lawsuits filed by powerful business groups, including the U.S. Chamber of Commerce, and corporations like ExxonMobil. The central argument in these challenges is that the mandatory disclosure requirements violate the First Amendment by compelling corporate speech. This legal fight introduces a profound layer of uncertainty, creating a dual reality where companies must prepare for compliance with a set of rules that could potentially be altered or even invalidated by the courts.
The Genesis of Californias Landmark Disclosure Laws
The journey of these regulations began in October 2023, when Governor Gavin Newsom signed SB 253 and SB 261 into law, officially launching one of the most comprehensive climate disclosure initiatives in the world. The task of crafting the specific rules fell to CARB, the state’s primary air pollution control agency. A subsequent bill granted the agency more time and flexibility to develop the complex regulations, acknowledging the immense scope of the undertaking. This process has been methodical, involving extensive internal review and analysis to translate the legislative vision into a workable and enforceable program.
These laws are widely recognized as a pivotal moment for corporate climate accountability in the United States. As the first of their kind in the nation, they set a new precedent for transparency that extends far beyond California’s borders. By mandating emissions and climate risk reporting for large corporations that do business in the state, California is effectively creating a national standard by default. The success or failure of this initiative is being closely watched, as it could inspire similar legislation in other states and influence federal policy for years to come.
Despite the legislative mandate, the path to implementation has been complex. The sheer scale of creating a novel regulatory system led to procedural delays, with CARB missing an amended July 1, 2025, deadline to propose the rules for SB 253. This delay underscored the challenges of defining key terms, establishing reporting protocols, and building the infrastructure for a program of this magnitude. The eventual release of the draft text followed months of anticipation from both the business community seeking clarity and environmental advocates eager to see the laws put into action.
Unpacking the Draft Regulations and What They Require
The Climate Corporate Data Accountability Act, SB 253, casts a wide net, targeting public and private companies with total annual revenues exceeding $1 billion. The draft rules establish a firm initial deadline, requiring these entities to submit their first reports covering Scope 1 (direct) and Scope 2 (indirect, from purchased energy) greenhouse gas emissions by August 10, 2026. This concrete date provides a clear runway for companies to implement the necessary accounting and verification systems to meet their obligations.
A broader set of companies falls under the Climate-Related Financial Risk Act, SB 261, which applies to entities with annual revenues over $500 million. This law mandates a biennial report detailing climate-related financial risks and the measures adopted to mitigate them. However, its implementation has been halted by litigation. Following a federal court order, CARB announced it will not enforce the law’s original January 1, 2026, reporting deadline while the legal challenge is ongoing. This pause provides temporary relief for covered companies but adds to the long-term uncertainty surrounding the rule.
The draft text provides crucial definitions that shape the scope of both laws. Revenue is defined as “gross receipts,” aligning with California’s tax code, a metric intended to capture a company’s full operational scale rather than just its profitability. To ensure fairness, a company’s revenue will be determined by the lesser of its previous two fiscal years, preventing one-time financial spikes from triggering compliance. The regulations also specify key exemptions, including for nonprofit organizations, insurance companies, and government entities, thereby refining the list of businesses that must ultimately report.
The Rationale Behind CARBs Regulatory Approach
CARB’s decision to define revenue as “gross receipts” was a deliberate choice aimed at capturing a more accurate picture of a company’s potential environmental impact. In its accompanying staff report, the agency argued that total sales, before the deduction of costs, serve as a better proxy for the size of a company’s operations and, by extension, its potential carbon footprint. This approach prevents companies with high sales volumes but low profit margins from slipping through the regulatory cracks, ensuring the rules apply to a broad swath of economically significant entities.
The inclusion of a two-year revenue lookback was designed to inject stability and fairness into the compliance process. This provision shields companies that experience a sudden, non-recurring surge in revenue, such as from the sale of a major asset, from being permanently categorized as a reporting entity. By using the lower of the two preceding years, the regulation focuses on businesses with sustained high revenues, which are more likely to have the significant, ongoing operations the laws are intended to cover.
To provide an early indication of the laws’ reach, CARB had already released a preliminary list of thousands of entities it expects will need to comply. This list includes a significant number of major players across key sectors of the economy, such as utilities, energy corporations, and large-scale manufacturers. The publication of this list served as an initial wake-up call for many businesses, demonstrating the broad scope of the disclosure mandates and prompting many to begin assessing their readiness for the forthcoming reporting requirements.
The Path Forward Through Public Comment and Legal Hurdles
A structured timeline for public participation is now in place, inviting stakeholder feedback on the proposed rules. The draft regulations are set for a 45-day public comment period, officially beginning on December 26 and concluding on February 9, 2026. This period is a critical opportunity for businesses, environmental groups, and the public to weigh in on the specifics of the framework. CARB has scheduled a final approval hearing for February 26-27, 2026, where the board will consider the public comments before voting on the final version of the regulations.
Simultaneously, the regulations must navigate a formidable legal gauntlet. The ongoing lawsuits led by the U.S. Chamber of Commerce and others pose the most significant threat to the implementation of both laws. The core of their argument—that forcing companies to disclose climate data constitutes compelled speech and violates the First Amendment—will be tested in federal court. The outcome of this litigation will have profound implications, potentially reshaping the boundaries of corporate speech and regulatory authority over environmental disclosures.
In response to the legal volatility, CARB has adopted an adaptive and cautious enforcement stance. Initially, the agency indicated it would prioritize a “good faith effort” from companies over perfect compliance in the early stages. More recently, in direct response to the Ninth Circuit’s temporary injunction, CARB formally suspended enforcement of the SB 261 reporting deadline. This flexible approach demonstrates the agency’s attempt to balance its mandate to implement the law with the legal realities of an active and unpredictable court battle.
The release of the draft regulations for SB 253 and SB 261 marked a definitive transition from legislative ambition to regulatory reality. A clear pathway for corporate climate disclosure was laid out, establishing specific deadlines, definitions, and requirements that provided companies with a tangible framework for compliance. At the same time, the intensification of legal challenges created a parallel track of uncertainty, questioning the very authority of the state to mandate such transparency. The complex interplay between these regulatory and legal forces defined the environment in which thousands of corporations had to prepare for a new era of accountability. Ultimately, the resolution of these intertwined paths determined the future landscape of corporate climate reporting in the United States.
