California’s Climate Data Reporting Acts

California has enacted legislation (SB 253 and SB 261) requiring certain US-based entities to report specified greenhouse gas (GHG) emissions and climate-related financial risks. California Air Resources Board (CARB) is tasked with implementing this legislation and has recently held public meetings and released draft regulations regarding these Acts, their application, their requirements, and the updated timeline for compliance.

At the outset it should be noted that these Acts only apply to US entities. Many shipping companies, especially maritime shipping companies, as foreign businesses which were not formed under the laws of the United States, will not need to comply with the Acts. If a company is a foreign entity (organised under the laws of a non-US jurisdiction), no further analysis is needed. This is true regardless of whether the foreign entity has offices in the US and how much of its business is conducted in California or the United States.

It should also be noted that on 18 November 2025, the Ninth Circuit Court of Appeals issued an injunction temporarily halting the enforcement of SB 261, which otherwise would have required initial reporting on 1 January 2026. No stay was issued for SB 253, which has a tentative reporting date of 10 August 2026. The best practices for businesses subject to the requirements of SB 261 would be to prepare to comply with the requirements of the Act on short notice if and/or when the stay is lifted.

The California Acts: SB 253 and SB 261

SB 253 and SB 261, both enacted in 2023, require business entities formed under the laws of California, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States to report specified greenhouse gas (GHG) emissions and climate-related financial risks. The disclosures required under these laws will purportedly improve transparency from companies regarding their GHG emissions and climate-related risk management practices to better inform the decision-making of California consumers, investors and members of the public.

SB 253, the Climate Corporate Data Accountability Act, applies to US companies with more than USD1 billion in annual global revenue that also do business in California, defined as having sales in California exceeding approximately USD735,000D, or having 25% of overall sales in California, or being organised or commercially domiciled in California. Initial reporting is due by 10 August 2026, which requires a report posted to the business’ website and reporting to CARB. Reporting entities must report their Scope 1 and Scope 2 greenhouse gas emissions in the initial 2026 report (subject to some leeway for entities that did not collect this data), and, starting in 2027 and annually thereafter, their Scope 3 greenhouse gas emissions from the reporting entity’s prior fiscal year. SB 253 adds Section 38532 to the California Health and Safety Code and is sometimes referred to by this section number.

SB 261, the Climate-Related Financial Risk Act, applies to US companies with more than USD500 million in annual global revenue that also do business in California, similarly defined as being domiciled in California or having approximately USD735,000 in California sales or 25% of overall sales in California. During CARB’s most recent meeting, on 18 November 2025, it stated that despite its own delays in the rule-making process, it would still require reporting on 1 January 2026. Later that same day, however, the Ninth Circuit Court of Appeals issued a temporary injunction preventing enforcement of this deadline, which is stayed for the time being. SB 261 requires businesses to biennially report any climate-related financial risks they have identified and any measures they have adopted to reduce and adapt to those risks. SB 261 adds Section 38533 to the California Health and Safety Code and is sometimes referred to by this section number.

US-based entities

Currently, the Acts only apply to US entities. As clarification, the Acts solely apply to business entities formed under the laws of California, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States. The exact text of SB 253 states as follows:

“‘Reporting entity’ means a partnership, corporation, limited liability company, or other business entity formed under the laws of this state, the laws of any other state of the United States or the District of Columbia, or under an act of the Congress of the United States with total annual revenues in excess of one billion dollars ($1,000,000,000) and that does business in California. Applicability shall be determined based on the reporting entity’s revenue for the prior fiscal year.”

If an entity is organised under the laws of a foreign jurisdiction, even if it has offices in the US or conducts a significant amount of business in California or the US, it does not need to comply with the requirements of the Acts. Most shipping companies, as foreign businesses, are not subject to the requirements of the Acts.

The California legislature would need to amend the Acts if it wanted to apply them to foreign companies, as the legislation is clear and this is not within CARB’s discretionary rule-making implementation of the Acts. While CARB was asked during a recent meeting if there have been discussions about applying the Acts to foreign companies which do business in California, no answer was given other than that the legislation currently only applies to domestic companies.

Companies with US subsidiaries will need to determine if such subsidiary is a “reporting entity” for purposes of the Acts; however, the 500-million-dollar (USD500,000,000) and one-billion-dollar (USD1,000,000,000) thresholds are assessed for each individual subsidiary only, and the parent company’s revenue is not considered.

CARB has published a preliminary list of companies that may be subject to the Acts on its website. Most international shipping companies are not included in this provisional list as they are foreign entities. However, inclusion in or exclusion from the preliminary list should not be relied on as a definitive determination, only as an initial guideline.

Doing business in California

The terminology “doing business in California” is not defined in either of the statutes. CARB intends to use the interpretation of “doing business in California” as found in the California Revenue and Tax Code Section 23101, which defines “doing business in California” as actively engaging in any transaction for the purpose of financial or pecuniary gain or profit and either:

• the entity is organised or commercially domiciled in California during any part of a reporting year;
• the entity has sales in California during the reporting year exceeding the inflation adjusted threshold of USD735,019 (2024); or
• the entity’s sales in California exceed 25% of the entity’s total sales.

The definition of “sales” includes sales by an agent or independent contractor of the entity (California Revenue and Tax Code Section 23101(b)).

Revenue

CARB will primarily rely on filings with the California Franchise Tax Board (FTB) to identify business entities which are covered under the statutes. Interest and investment income should not be included as it does not correlate with GHG emissions. Total annual revenue will be defined as “gross receipts” as set forth in the California Revenue and Taxation Code (RTC) Section 25120(f)(2). Section 25120 defines “revenue” as:

“The gross amounts realized (the sum of money and the fair market value of other property or services received) on the sale or exchange of property, the performance of services, or the use of property or capital (including rents, royalties, interest, and dividends) in a transaction that produces business income, in which the income, gain, or loss is recognized (or would be recognized if the transaction were in the United States) under the Internal Revenue Code, as applicable for purposes of this part. Amounts realized on the sale or exchange of property shall not be reduced by the cost of goods sold or the basis of property sold.”

The qualifying annual revenue thresholds for covered business entities are substantial, so depending on how close an entity’s qualifying revenues come to meeting the threshold amount should guide its further handling and preparation in meeting the reporting requirements. CARB has noted that it intends to use the lesser of an entity’s last two years’ revenue, as reported to the FTB, to avoid including companies that might otherwise fall under the requirements some years and not on others.

Exemptions

By statute, the following entities are excluded from the Acts’ requirements: federal, state and local government entities, and companies that are majority-owned by government entities, as well as companies regulated by the California Department of Insurance or engaged in the business of insurance of any other state.

In addition to the governmental entities and insurance companies that are exempt by statute, CARB has proposed exempting non-profit or charitable organisations, defined as tax-exempt under the Internal Revenue Code. CARB will also exempt entities whose only business in California is the presence of teleworking employees.

Subsidiaries of parent companies

CARB has recently clarified issues surrounding the application of the Acts to subsidiaries of parent companies. CARB has clarified that the revenue thresholds are those of each individual entity and the revenue of a parent should not be included in the calculation of the revenue of a subsidiary or vice versa. CARB will allow companies to disclose data in one single parent-level disclosure rather than requiring individual subsidiary disclosures. The parent-level disclosure can be used for a subsidiary regardless of whether the parent company is required to file a report under the Acts, for example if a parent company already reports GHG emissions under European regulations.

As clarification, CARB has provided definitions of “parent” and “subsidiary” for determination of whether a joint report is allowed only. Whether a parent or subsidiary is required to file a report under either Act is still determined based solely on the individual entity’s country of organisation and revenue, without considering the revenue or country of incorporation of an entity’s parent or subsidiary.

Each entity, whether a parent, subsidiary or otherwise, should determine: (i) Is it organised under the laws of the United States? If yes, (ii) Is it categorically exempted (non-profit or insurance company)? If no, (iii) Is it doing business in California (sales in California exceeding USD735,019 in 2024, or 25% of its overall sales)? If yes, (iv) Does its gross revenue exceed USD500 million or USD1 billion? If yes, only then must the entity file a report under one or both of the Acts. If that particular entity is a subsidiary then the parent entity may file a report covering the subsidiary, but the country of origin and revenue of a parent or subsidiary does not impact the other for determination of whether the Acts apply.

Annual fees

In addition to the reporting requirements, the Acts authorise CARB to assess an annual fee for the implementation and administration of the new programmes. CARB is considering a flat fee to be calculated as the total annual programme cost for each Act divided by the number of covered entities, estimating a fee of USD3,106 for SB 253 and USD1,403 for SB 261 based on initial estimates of the number of entities subject to the Acts. Companies that must report under both Acts will be subject to the fee for each. Fee assessment is estimated to take place in September 2026.

Timeline and requirements

As for the timeline, despite CARB’s delays in the rule-making process, initial reports under SB 261 were required to be posted on the company’s website by the statutory reporting deadline of 1 January 2026 (and every two years thereafter), and a link to that report was required to be submitted to the CARB docket by 1 July 2026. This January 1st deadline, however, has been temporarily stayed by the Ninth Circuit and the deadlines no longer apply while the injunction is in place. CARB will issue a new deadline after the appellate stay has been lifted.

Reports for SB 253 Scope 1 and 2 disclosures are due 10 August 2026. Scope 3 reporting begins in 2027. Entities must also submit a public link to CARB’s docket. CARB’s updated guidance emphasises that good faith efforts will be a key factor in early compliance, especially while the rule-making process continues.

CARB’s draft checklist for SB 253 reporting

CARB has posted a Climate Related Financial Risk Report Checklist as well as a Microsoft Excel Draft Scope 1 and 2 GHG Reporting Template to its website, which can be downloaded.

Reporting framework

Companies must identify which reporting framework is being applied. CARB’s Draft Checklist is built on the Task Force on Climate-related Financial Disclosures (TCFD) framework.

Minimum requirements are as follows:

• state the reporting framework selected (eg, TCFD, IFRS S2, etc);
• identify which recommendations and disclosures for the chosen framework are included and which are not; and
• provide an explanation for omissions and discuss any plans for future disclosures.

Governance

Reports must describe the organisation’s governance structure, if any, for identifying, assessing and managing climate-related financial risks.

Minimum requirements are as follows:

• describe governance processes and structure for identifying, assessing and managing climate risks;
• discuss management’s role in overseeing risks and opportunities; and
• describe Board oversight, if applicable.

Strategy

Reports should describe how climate-related risks and opportunities might impact corporate strategy. CARB does not require Climate Scenario Analysis (CSA) for the initial reporting year.

Minimum requirements are as follows:

• describe actual and potential impacts of climate risks and opportunities on operations, strategy and financial planning (where material);
• identify climate-related risks and opportunities over the short, medium and long term, and note which are considered material; and
• explain the resilience of the company’s strategy in relation to climate change.

Risk management

Reports must show how climate-related risks are incorporated into the broader corporate risk management framework.

Minimum requirements are as follows:

• describe how climate risks are identified, assessed and managed; and
• explain evaluation processes and integration into overall corporate risk management.

Metrics and targets

TCFD and IFRS S2 guidance recommends including GHG emissions data. However, CARB has specified that entities are not required to disclose GHG emissions in SB 261 reporting during the initial year, particularly if this data was not collected prior to the enactment of the Acts.

Minimum requirements are as follows:

• disclose metrics and targets used to assess and manage material climate-related risks and opportunities.

Evaluation of compliance

CARB has emphasised that initial compliance with the Acts will be evaluated based on a company’s good faith efforts in their reporting. Strict compliance with the Scope 1 and Scope 2 reporting for the initial year is not required for companies that did not collect this data. Companies are encouraged to submit inquiries to CARB at Climatedisclosure@arb.ca.gov.

Conclusion

While the California Air Resources Board (CARB) is still receiving feedback and drafting approaches to the implementation of the climate disclosure acts, the initial deadline for SB 261 (originally set for 1 January 2026) may be reset in the near future depending on the outcome of the Ninth Circuit appeal. CARB has now settled on how the key terms will be defined and has provided a checklist and form template for initial reporting under SB 253, which reports are due on 10 August 2026.

Most international shipping companies, as businesses formed under the laws of foreign jurisdictions, will not be subject to the requirements of the Acts. Shipping businesses with US subsidiaries will need to determine the applicability of SB 253 and SB 261 to each subsidiary, but the parent company’s revenue is not considered in assessing whether a subsidiary meets the 500-million-dollar (USD500,000,000) or one-billion-dollar (USD1,000,000,000) thresholds. The California legislature has not yet amended the Acts to apply to foreign companies, but proposed legislation affecting the shipping and maritime industries will be monitored by specialist firms and clients advised of any new developments.