California Air Resources Board Offers Direction as to Application of California Climate Disclosure Laws
On May 29, 2025, a virtual public workshop held by the California Air Resources Board ("CARB") offered direction on how it interprets certain elements of California's climate disclosure laws. While CARB has a July 1, 2025, deadline to develop and adopt implementing regulations, it is unlikely that CARB will be able to do so.
Senate Bills ("SB") 253 and 261 require entities with annual revenues of at least $1 billion and $500 million, respectively, to disclose certain information about greenhouse gas emissions and climate-related financial risks. For additional details, see our Alert, "California's Climate Disclosure Laws Move Forward After Governor Newsom's Proposal to Delay Implementation Fails."
Key insights from the workshop include:
Timing and Format of the Upcoming Regulations
Although SB 253 requires CARB to adopt implementing regulations by July 1, 2025, CARB signaled it will likely propose them by year-end, initiating a formal rulemaking process that allows one year to finalize. For SB 261, CARB is still determining whether to issue formal regulations or guidance, with timing uncertain.
Defining "Doing Business in California"
CARB offered its interpretation of "doing business in California," a term used but not defined in the California climate bills. CARB proposed using the definition from the California Revenue and Tax Code, excluding entities without "meaningful economic activity." A company would be considered "doing business" if it engages in transactions for financial gain and meets any of the following (2024 figures, adjusted annually):
- Is organized or commercially domiciled in California;
- Has more than $735,019 in sales in California;
- Owns property in California worth the lesser of over $73,502 or 25% of its total property; or
- Pays more than $73,502—or 25% of total compensation—through California payroll.
Defining "Revenue"
CARB also proposed defining "revenue" as "gross receipts" under the state tax code and is soliciting input on whether parent-level revenue should include revenue from subsidiaries and whether alternative definitions may be more appropriate.
Defining the Parent–Subsidiary Relationship
CARB is considering adopting a 50% ownership/control threshold, consistent with California's Cap-and-Trade Program. This definition would affect whether a company files a consolidated report or separate reports for each subsidiary. The law is clear that consolidation of parents and subsidiaries is an option rather than a requirement, but the staff presentation was somewhat ambiguous on whether the staff expects to require consolidated reporting in some (undefined) circumstances.
Although the formal information-gathering period has ended, CARB indicated continued openness to stakeholder feedback. Companies should monitor developments closely as the rulemaking process continues.
