Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates

CARB Issues Draft Regulations Implementing Climate Disclosure Laws

Skadden Publication

Raquel Fox Caroline S. Kim Liz Malone Sydney E. Smith

Executive Summary

  • What’s new: On December 9, 2025, the California Air Resources Board issued draft regulations for SB 253 and SB 261, clarifying requirements for climate disclosures, revenue thresholds, record-keeping, fees, penalties and exemptions.
  • Why it matters: The proposed regulations help companies determine if the two climate disclosure laws are applicable, particularly to those “doing business in California,” and clarify compliance obligations for entities meeting specific revenue and operational thresholds.
  • What to do next: Companies should consider reviewing the draft regulations to assess applicability, maintain records demonstrating compliance with revenue and “doing business in California” thresholds, and consider participating in the public comment period ending February 9, 2026.

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On December 9, 2025, the California Air Resources Board (CARB) issued draft regulations for Senate Bill 253, Climate Corporate Data Accountability Act (SB 253) and Senate Bill 261, Greenhouse Gases: Climate-Related Financial Risk (SB 261). The proposed regulations provide new details that help companies determine if the two climate disclosure laws are applicable.

As expected, the proposed regulations clarify what it means to be “doing business in California” and confirm that the SB 253 deadline of August 10, 2026, remains unchanged for reporting Scope 1 and Scope 2 emissions.

Doing Business in California

SB 253 and SB 261 apply to entities “doing business in California.” Under the proposed regulations, this term is defined as “actively engaging in any transaction for the purpose of financial or pecuniary gain or profit.” The definition is based on terms in the California Revenue and Taxation Code (RTC).1

Specifically, an entity is doing business in California if it:

  • Is organized or commercially domiciled in California; or
  • Has sales in California, in the applicable taxable year, equal to or less than the inflation-adjusted threshold of $735,000 (for 2024) or 25% of the entity’s total sales.2

Revenue

The proposed regulations define “revenues” based on the definition of “gross receipts” in the RTC.3 The regulations also provide that an entity’s revenue is determined by the lesser of the entity’s two previous fiscal years of revenue.

Parent-Subsidiary Relationships

The proposed regulations define “subsidiary” based on an ownership interest in or control of an entity by direct corporate association. “Control” over an entity is established if the purported parent has:

  • Greater than 50% of ownership of any class of listed shares, the right to acquire such shares or any option to purchase such shares of the other entity.
  • Greater than 50% of common owners, directors or officers of the other entity.
  • Greater than 50% of the voting power of the other entity.
  • For a partnership, greater than 50% of the interests of the partnership.
  • For a limited partnership, greater than 50% of control over the general partner or greater than 50% of the voting rights to select the general partner.
  • For a limited liability corporation, greater than 50% of ownership in the other entity regardless of how the interest is held.

Many entities sought additional guidance on whether the applicable revenue thresholds should include the revenue of all subsidiaries owned by a parent. Although not addressed in the draft regulations, CARB previously indicated that a subsidiary should determine if its revenue exceeds the statutory thresholds ($500 million for SB 261 and $1 billion for SB 253) and, if so, then it should determine whether its parent will provide a consolidated report on behalf of its subsidiaries doing business in California.4

Other Provisions

  • Record-Keeping
    • The regulations require entities to maintain records demonstrating that they meet the revenue and “doing business in California” thresholds for five years, and to provide these records to CARB if requested.
  • Fees
    • Beginning in 2026, entities will receive a fee determination notice and will have 60 days to pay the fee. Entities that fail to pay the fee will be subject to a late fee sufficient to cover CARB’s additional administrative costs.
    • While parents may file a consolidated report on behalf of one or more subsidiaries, the fee is assessed on each reporting entity. Thus, it is important for businesses filing a consolidated report to identify which subsidiaries are “doing business in California” and covered by the consolidated report.
  • Penalties
    • Entities may be assessed penalties for failure to pay fees. Each day a fee remains unpaid constitutes a separate violation.
  • Injunctions
    • CARB may seek injunctions for violations, including failure to pay required fees.
  • Exemptions
    • The draft regulations include exemptions for the following: nonprofit organizations, government entities, entities regulated by the Department of Insurance, entities whose only California business is wholesale electricity transactions, and entities whose only California presence is employee compensation or payroll expenses, including teleworking employees.

Next Steps

The proposed regulations were issued after the pending appeal of the Ninth Circuit’s injunction, which stays the enforcement of SB 261.5 Although SB 261’s deadline is no longer in effect and CARB has issued an advisory notice stating it will not enforce SB 261 in light of the Ninth Circuit’s injunction, companies may voluntarily post their reports to CARB’s public docket.

CARB also issued a Staff Report and a Notice of Public Hearing to consider adopting the proposed regulations, which is set for February 26, 2026. The public meeting will take place in person in Sacramento, California, with an option to participate virtually. The proposed regulations will be published by the California Office of Administrative Law on December 26, 2025, commencing a 45-day public comment period that will end on February 9, 2026.

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1 See Section 23101(a) of the RTC.

2 See Sections 23101(b)(1) and 23101(b)(2) of the RTC.

3 See Section 25120(f)(2) of the RTC.

4 For example, see the flow charts on pages 29 and 30 provided in CARB’s presentation from the November 18, 2025, workshop found here: CARB Nov 18 Workshop Presentation.

5 For additional information, see our November 21, 2025, client alert “Ninth Circuit Enjoins California Corporate Climate Risk Disclosure Law, but the Waiting Game Continues.”

This memorandum is provided by Skadden, Arps, Slate, Meagher & Flom LLP and its affiliates for educational and informational purposes only and is not intended and should not be construed as legal advice. This memorandum is considered advertising under applicable state laws.

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