Elizabeth Haskins
Shareholder
Baker Donelson
Environmental and energy litigation, regulation, and compliance
Email: ehaskins@bakerdonelson.com
California is
gearing up to implement and enforce two groundbreaking climate disclosure laws:
the Climate Corporate Data Accountability Act (CCDA) and the Climate-Related
Financial Risk Act (CFRA). In July 2025, in lieu of anticipated implementing
regulations, the California Air Resources Board (CARB) released preliminary
guidance to help businesses prepare for CCDA and CFRA reporting deadlines that
remain in place for 2026. CARB's "Frequently Asked Questions Related to Regulatory
Development and Initial Reports"(FAQ) guidance document outlines proposed definitions for key
terms like "total annual revenue" and "doing business in
California," and previews how initial enforcement and 2026 reporting will
work. Formal regulations are still in the works. In the meantime, CARB is
actively gathering stakeholder feedback -- especially on whether companies with
minimal California operations should be included.
This preliminary
guidance follows a virtual public workshop hosted by CARB on May 29, 2025,
where stakeholders provided feedback on the implementation of the CCDA and
CFRA.
Originally, CARB had
issued an Information Solicitation on Dec. 16, 2024, soliciting public comments on how to define
"doing business in California," and was expected to adopt final
regulations clarifying this term by July 1, 2025. However, the newly released
FAQs suggest that the rulemaking timeline has shifted, with CARB asserting that
it is still "in the early stages of regulatory development" and
"in the informal, information-gathering stage" for implementing the
statutes. Implementing regulations are now anticipated by the end of 2025.
Despite this delay, CARB reaffirmed that initial reports under the CFRA will
still be due by Jan. 1, 2026, and that initial reports under the CCDA will
still be due in 2026 for FY 2025 on a date to be set by CARB through the
regulatory process.
With this revised implementation
roadmap in place, companies should begin assessing whether they fall within the
scope of California's climate disclosure laws and prepare to meet upcoming
compliance obligations.
Background: California's
climate disclosure laws
Under the CCDA,
California Health and Safety Code Section 38532, companies doing business in
California with total annual revenues of more than $1 billion are required to
annually disclose their Scope 1, 2 and 3 greenhouse gas (GHG) emissions.
Separately, the CFRA, California Health and Safety Code Section 38533, mandates
that companies operating in California with annual revenues exceeding $500
million must biennially disclose their climate-related financial risks.
For a more detailed
breakdown of who is affected by SB 253, the specific reporting requirements and
the penalties for noncompliance, see our article: "Red Tape or Green Future? Unpacking California's Climate
Disclosure Laws and the Pushback" available at
https://www.bakerdonelson.com/red-tape-or-green-future-unpacking-californias-climate-disclosure-laws-and-the-pushback.
What's new: CARB's
preliminary guidance on definitions and reporting requirements
In July 2025, CARB
released updated guidance addressing key components of the CCDA and CFRA. The
FAQ document outlines proposed definitions and early implementation guidance
while seeking stakeholder input on several areas of concern, including how the
laws may impact companies with minimal California presence.
Guidance on key
definitions
CARB's July FAQ
outlines potential definitions critical to determining whether a business is
subject to the CCDA or CFRA and explicitly invites feedback from stakeholders
on both the scope and impact of these definitions.
1. "Total
annual revenue"
Both the CCDA and
CFRA apply to businesses based on "total annual revenue" thresholds.
CARB proposes defining this term in line with California Revenue and Taxation
Code Section 25120(f)(2) -- i.e., as gross receipts. Under this definition,
companies exceeding the revenue threshold and determined to be "doing
business in California" would be required to comply with the applicable
reporting obligations.
However, CARB is
also soliciting input on whether exceptions should be made in certain cases --
such as when a business exceeds the revenue threshold, but the
majority of its operations occur outside California.
2. "Doing
business in California"
CARB's proposed
definition aligns with the Franchise Tax Board's criteria under California
Revenue and Taxation Code Section 23101. Under this framework, a company is considered to be "doing business in California"
if it meets any of the following criteria:
• Engages in any
transaction for the purpose of financial gain within California
• Is organized or
commercially domiciled in California
• Exceeds specified
thresholds related to California sales, property or payroll as of 2024:
• Sales:
Sales that exceed $735,019 (or 25 percent of total sales)
• Property:
$73,502 (or 25 percent of total property)
• Payroll:
$73,502 (or 25 percent of total payroll)
Again, CARB is
seeking stakeholder feedback on the implications of this definition, as well as
whether certain exemptions should be considered to avoid over-inclusion of
entities with only marginal California connections.
Guidance on
reporting requirements and timelines
CARB's July 2025
guidance also clarifies expectations around initial reporting timelines and
enforcement discretion, with different approaches for CCDA and CFRA compliance.
CARB is seeking stakeholder feedback on how to streamline reporting in
accordance with GHG reporting and climate risk disclosure requirements in other
jurisdictions while meeting the CCDA's and CFRA's statutory requirements.
1. CCDA: Scope 1
and Scope 2 emissions reporting
While the first
report pursuant to the CCDA is due in 2026 for FY 2025, CARB has not yet
established the exact due date. Recognizing the significant preparation needed
for emissions reporting, CARB has reaffirmed in the FAQs that it will exercise
enforcement discretion for the first reporting year. Specifically, companies
may report Scope 1 and Scope 2 emissions from the prior fiscal year using data
that was already being collected or available at the time of the December 2024
Enforcement Notice. This will allow reporting entities to use existing data to
comply with the CCDA in 2026 and use CARB's implementing regulations to guide
future new data collection processes once those regulations are ultimately
issued.
2. CFRA:
Climate-related financial risk reporting
In contrast, CARB
has confirmed that the first climate-related financial risk report required
under the CFRA must be publicly available by Jan. 1, 2026. Key details include:
• CARB will open a
public docket on Dec. 1, 2025, for covered entities to post the location of
their public link to their first climate-related financial risk report.
• This docket will
remain open until July 1, 2026, although the report must be made publicly
available on a covered entity's website by Jan. 1, 2026.
• Recognizing that
climate risk-related data is often collected on a fiscal-year basis and that it
takes time to process climate information into a report, these reports may be
based on "the best available information" from either the 2023-2024 or
2024-2025 fiscal year, giving businesses some flexibility in sourcing their
disclosure data.
• CARB also
recognized that data quality and data sources may change over the course of a
year if additional data collection methods were put in place later and will use
its enforcement discretion so long as companies make good faith efforts to
comply with the CFRA.
Legal challenges
continue
As discussed in our article, the U.S. Chamber of Commerce, the California Chamber of Commerce and
other business groups have filed suit against CARB in federal district court,
challenging the constitutionality of SB 253 (the CCDA) and SB 261 (the CFRA).
The lawsuit asserts three claims: (1) that the laws compel speech on climate
change in violation of the First Amendment; (2) that the laws violate the
Supremacy Clause by attempting to supersede federal regulations, such as the
Clean Air Act; and (3) that the laws violate the constitution's limits on
extraterritorial regulation, including the Dormant Commerce Clause.
On Feb. 3, 2025, the
U.S. District Court for the Central District of California issued rulings on
these claims:
• SB 253 challenges: The court dismissed the Supremacy Clause and Dormant Commerce Clause challenges to SB 253 without prejudice on ripeness grounds. It reasoned that the law does not yet impose direct obligations on companies, as it requires CARB to first issue implementing regulations. Because those regulations have not been finalized, the court found it premature to assess potential constitutional or interstate commerce concerns.
• SB 261 challenges:
Unlike SB 253, SB 261 imposes immediate requirements on reporting entities,
making the Supremacy Clause and Dormant Commerce Clause claims ripe for review.
The court dismissed the Supremacy Clause claim against SB 261 with
prejudice, finding that the law does not regulate emissions or impose liability
for failure to reduce emissions but merely requires disclosure of
climate-related financial risks -- an area not preempted by the Clean Air Act.
The court found that the plaintiffs were unable to identify any federal law
that preempted the mere disclosure of climate-related financial risks. Lastly,
the extraterritoriality claim was originally dismissed without prejudice,
with the court concluding that the plaintiffs had not plausibly alleged a
significant burden on interstate commerce. However, because the plaintiffs did
not file a second amended complaint, the dismissal of the Dormant Commerce
Clause challenge to SB 261 is now with prejudice.
With these rulings,
the lawsuit now centers solely on the alleged First Amendment violations. While
CARB extended its July 1 deadline to finalize implementing regulations,
plaintiffs may renew their Supremacy Clause and Dormant Commerce Clause
challenges to SB 253 once those regulations are issued.
Additional
developments on the federal side may bolster the plaintiffs' First Amendment
argument or prompt future litigation challenging the CCDA and CFRA. For
example, while SB 253 and SB 261 do not rely directly on the U.S. EPA's 2009
Clean Air Act GHG Endangerment Finding (74 Fed. Reg. 66496 (Dec. 15, 2009))
(Endangerment Finding), the EPA's recent proposed rule to rescind the
Endangerment Finding -- and thus the scientific basis for federal regulation of
mobile source climate-related emissions -- could provide opponents to the CCDA
and CFRA with an additional line of argumentation. These opponents could argue
that, absent a clear scientific consensus or compelling government interest,
California's climate disclosure mandates lack sufficient justification.
However, this argument may be tenuous, as the state's laws do not rely solely
on EPA findings and are grounded in broader financial risk disclosure concerns
rather than emissions regulation.
Separately, the
plaintiffs in the federal district court challenge filed a motion for a
preliminary injunction to halt CARB's enforcement of both laws, arguing that
compelled disclosures on the "controversial issue" of climate change
would cause irreparable harm. Oral arguments were held on July 1, 2025, but no
order has been issued.
According to the
current schedule, the litigation is expected to continue into 2026 -- beyond the
laws' initial compliance deadlines -- with trial slated for the latter half of
2026.