Ari Selman, Elizabeth Goldberg, Levi McAllister, Rick Rothman, and Carl Valenstein are partners at Morgan, Lewis & Bockius LLP, and Rachel Mann is an associate at the firm.

The California Air Resources Board (CARB) issued a set of frequently asked questions (FAQs) on July 9, 2025, aimed at clarifying implementation details of the state's landmark climate disclosure laws—the Climate Corporate Data Accountability Act (CCDAA, S.B. 253) and the Climate-Related Financial Risk Act (CRFRA, S.B. 261). Although this FAQ document still leaves some important questions unanswered, it provides key insights into how companies can prepare to comply with these first-of-their-kind reporting requirements.

These two California laws impose greenhouse gas emissions and climate risk disclosure obligations on a broad range of entities doing business in California. Under the new laws, CARB—the state agency responsible for protecting public health through air quality and climate programs—is tasked with developing and enforcing regulations to implement both disclosure laws, including defining key terms, setting reporting requirements, and overseeing compliance by covered entities.

These FAQs issued by CARB provide important guidance for companies that are assessing whether they are covered by these laws and, if so, how and when they must comply with the requirements.

While the FAQs are non-binding and CARB has not yet finalized implementing regulations, the document provides important clues as to how CARB may ultimately interpret key terms in the statutes, including revenue thresholds, the definition of "doing business in California," and the implications of parent-subsidiary relationships. The guidance also outlines the expected reporting timelines and assurance requirements for covered entities.

Who is covered?

The CCDAA and CRFRA apply to companies formed under U.S. law that exceed certain annual revenue thresholds and do business in California:

  • CCDAA (S.B. 253):Covers entities with annual total revenues exceeding $1 billion nationwide that "do business in California." Covered companies must report their Scope 1, Scope 2, and, eventually, Scope 3 greenhouse gas emissions.
  • CRFRA (S.B. 261):Covers entities with annual total revenues exceeding $500 million nationwide that do business in California. Covered companies must prepare and publish biennial climate-related financial risk reports in accordance with frameworks such as those of the Task Force on Climate-related Financial Disclosures (TCFD).

Neither the regulations nor the FAQs clarify whether non-U.S. parent companies must comply with these laws due to their relationships with covered subsidiaries.

At CARB's "kick-off workshop" held on May 25, CARB sought feedback on: (i) whether parent company revenues should be considered in determining whether the CCDAA and CRFRA apply to subsidiaries doing business in California; (ii) whether the regulations should adopt an approach similar to that implemented by theCalifornia Cap-and-Trade Regulationwhich requires covered entities to disclose information related to their corporate associates (i.e., entities with 50% or more ownership or control); and (iii) whether requirements on covered subsidiaries should extend to parent companies located outside California.

The resolution of these issues could have significant implications for multinational corporate groups with operations in California.

What does "doing business in California" mean?

CARB's initial staff concept is based on the definition of "doing business" in Section 23101 of the California Revenue and Taxation Code, as used by the California Franchise Tax Board. Under that approach, a company is considered to be "doing business" in California if it:

  • is actively engaging in any transaction in the state for the purpose of financial or pecuniary gain or profit; and
  • is organized or commercially domiciled in the state, or meets one of several amount thresholds during any part of the reporting year (e.g., sales in California exceeding $735,019; compensation paid in the state exceeding $73,502 or 25% of the company's total compensation paid, whichever is lower; or real and tangible personal property exceeding $73,502 or 25% of the company's total real and tangible personal property, whichever is lower).

Importantly, even if a company has minimal physical presence in California, it may fall within this definition if these financial thresholds are met. CARB has solicited stakeholder input on this approach and on whether exemptions should apply in limited circumstances.

What is required of covered companies?

The reporting obligations and deadlines under each law differ:

  • Greenhouse gas emissions reporting (CCDAA):
    • Scope 1 and Scope 2 emissions reporting begins in 2026 (specific dates to be determined through "additional public consultation and rulemaking processes"), covering the prior fiscal year. Companies must obtain limited assurance from an independent third-party verification body starting in 2026, with reasonable assurance required starting in 2030.
    • Scope 3 emissions reporting begins in 2027 (specific dates to be determined through "additional public consultation and rulemaking processes"), also covering the prior fiscal year.
  • Climate risk disclosure (CRFRA):
    • Covered entities must publish their first climate-related financial risk report by January 1, 2026. The report may be based on the best available information from fiscal years 2023-24 or 2024-25.
    • CARB will establish a public repository between December 1, 2025, and July 1, 2026, in which companies must post the location of their public reports. This public repository is designed to support transparency by providing a centralized location for the public to access all climate risk reports.

CARB emphasized flexibility in choosing reporting frameworks, encouraging the use of TCFD principles and materiality judgments consistent with other financial disclosures. According to CARB's statements regarding exercising its enforcement discretion during the initial reporting cycle, companies that make good-faith efforts to comply with climate-related financial risk reporting requirements using best available data (e.g., based on fiscal year 2023-24 or 2024-25 data) may receive some leniency.

What should companies do now?

While CARB's implementing regulations are still being developed, CARB has stated that it is "committed to developing a regulation by the end of the year." Therefore, companies potentially subject to either law should begin preparations immediately by taking the following steps:

  • Assess applicability:Evaluate the scope of the company's total revenues and California business activities, including sales, payroll, and physical assets. Consider whether any U.S. subsidiaries may independently meet the revenue thresholds, or whether parent-level revenues may be implicated.
  • Monitor regulatory developments:CARB is actively soliciting public comments and will hold additional workshops this year. Interested stakeholders should subscribe to CARB updates and consider submitting feedback, particularly on applicability and regulatory definitions.
  • Prepare reporting infrastructure:Potentially covered entities should assess their existing or needed data collection, verification, and reporting systems to report greenhouse gas emissions and climate risk data in accordance with TCFD or other recognized frameworks.
  • Coordinate across corporate structures:Parent companies and subsidiaries should consider information-sharing agreements in case reporting obligations extend to multiple entities, and strive to coordinate with other regulatory requirements, including non-U.S. laws.

Conclusion

The FAQs issued by CARB in July 2025 provide some additional guidance on California's new climate disclosure requirements. While key regulatory questions remain unanswered, the direction is clear: companies doing business in California shouldexpect to disclose detailed emissions and climate risk information starting in 2026. Now is the time to assess the potential applicability of these laws and prepare accordingly.