CARB Publishes FAQs: More Questions than Answers?

In its latest move to provide companies and other stakeholders with much needed guidance regarding the implementation of California’s climate-related disclosure regime, the California Air Resources Board (CARB) has unveiled a set of frequently asked questions (FAQs) to help companies navigate the new corporate greenhouse gas (GHG) reporting and climate-related financial risk disclosure requirements. These requirements, commonly known as SB 253 and SB 261, are designed to increase transparency and ensure that businesses are not only aware of and managing their climate-related economic impacts, but also understand the associated risks and risk mitigation measures.¹  Importantly, they are designed to provide consumers and investors with “accurate, comparable and decision-useful climate-related information” that is intended to help protect against losses associated with climate-related events and to assist companies as they transition to a low carbon footprint.

Generally speaking, the FAQs are the result of issues raised by stakeholders pursuant to a request for information issued by CARB in December 2024, as well as during a virtual public workshop held in May 2025. Feedback obtained by CARB through these channels appears to have played a key role in the incremental guidance reflected in the FAQs, which reflects a more practical and responsive approach to the real-world challenges companies face in connection with complying with the reporting requirements.

A key takeaway from the recent public workshop and FAQs is that, despite missing a July 1 deadline to issue implementing regulations (with such regulations now slated to be issued later this year), CARB is not backing away from existing reporting deadlines. Still, many questions require resolution, including specific reporting deadlines; confirming which alternative reporting frameworks (e.g., TCFD or ISSB) will be considered acceptable for compliance purposes; and defining “good faith efforts” by companies (see more details below). In addition, CARB continues to solicit public feedback in relation to whether scoping revenue thresholds should be modified; how corporate control relationships are implicated for reporting purposes (including in relation to non-U.S. based corporations with significant United States operations or subsidiaries); whether group or parent-level reporting will be permissible; and whether revenues generated outside of California should be considered when determining whether a company must submit reports. These unresolved issues continue to make it challenging for companies to determine whether they are subject to the reporting requirements.²

That said, CARB has signaled a more pragmatic approach to developing and implementing this regulatory framework. One example is the transitional flexibility provided in the inaugural reporting period. Recognizing that climate risk data often is collected on a fiscal year basis, the FAQs indicate that CARB will allow companies, at least during the initial reporting period, to submit information covering either fiscal years 2023/2024 or 2024/2025, as the case may be. This flexibility demonstrates CARB’s recognition of the complexities involved in data collection and processing.

Enforcement of these new requirements is another critical aspect addressed in the FAQs. CARB has outlined a phase-in period to assist companies in adjusting to the new reporting standards. During this period, “good faith” efforts to comply will be taken into account in relation to penalty assessments, and companies are encouraged to submit reports based on the best available information, including information that may stem from earlier fiscal years (e.g., 2023/2024 or 2024/2025, as noted above). CARB has underscored, including in an Enforcement Notice published in December 2024, that companies that have undertaken good faith compliance efforts will not be subject to enforcement during the inaugural reporting period. Nevertheless, CARB has not yet defined what constitutes “good faith” efforts in these circumstances. Overall, this balanced approach acknowledges the challenges associated with implementing this new obligation while maintaining the importance of compliance.

As the regulatory landscape continues to evolve, CARB remains committed to refining and improving the process. Future regulations may introduce additional or alternative requirements for report submissions and enforcement, ensuring that the program remains robust and effective in addressing climate-related financial risks. For instance, the FAQs also explore the possibility of exemptions for certain companies, a topic that has been a point of discussion and feedback from stakeholders. While the specifics of these exemptions still are under consideration, CARB’s openness to feedback and willingness to adapt highlights the collaborative nature of this regulatory process.

With reporting obligations fast approaching and many operational questions still unresolved, companies nevertheless can take proactive steps now to prepare. We recommend the following actions:

• Assess Applicability: A company must report if it meets the reporting thresholds and is “doing business in California.”
  • Determine whether your company meets the reporting thresholds.

1. 1. 1. An entity meets the GHG emissions reporting threshold (SB 253) if its annual revenue exceeds $1 billion.
      2. An entity meets the climate-related financial risk reporting threshold (SB 261) if its annual revenue exceeds over $500 million.

• • Determine whether your company is “doing business in California.” While CARB has not yet provided a clear answer on how this will be determined, according to the FAQs, CARB’s “initial staff concept” is that it will use the Franchise Tax Board definition which emanates from the California Revenue and Tax Code. For these purposes, an entity is considered to be “doing business in California” if the entity is engaging in transaction for financial gain or profit and any of the following conditions is met during any part of a reporting year:

1. 1. 1. The entity is organized or commercially domiciled in California.
      2. Sales in California exceed inflation adjusted thresholds of $735,019.
      3. Real property and tangible personal property of the entity in the state exceed the lesser of (i) $73,502 and (ii) 25% of the entity’s real property and tangible personal property.
      4. Amounts paid for compensation in the state exceed the inflation adjusted thresholds of (i) $73,502 and (ii) 25% of total compensation paid by the entity.

• Inventory Emissions: Begin tracking and documenting Scope 1, 2 and 3 emissions. Companies will need systems capable of supporting public reporting and eventual assurance requirements.
• Document Your Process: To take advantage of CARB’s “good faith” transition policy, companies should retain documentation showing what data was available by December 5, 2024, and the steps taken to gather emissions information.
• Prepare for Assurance: Engage with external assurance providers early to understand what documentation, controls and systems will be required to meet the escalating assurance requirements through 2030.
• Monitor Rulemaking: Keep a close watch on CARB’s rulemaking process and be prepared to engage during public comment periods as CARB continues to elicit public feedback from stakeholders.
• Coordinate Internally: Establish or expand cross-functional working groups across legal, sustainability, finance, operations and procurement to prepare for internal data collection, reporting and disclosure.

^{1 California’s disclosure statutes have been codified in California Health and Safety Code Sections 38532 and 38533, respectively.}

^{2 Uncertainty around which companies are in-scope for reporting purposes is not exclusive to California’s climate reporting laws. Indeed, companies potentially subject to the European Union’s (EU) Corporate Sustainability Reporting Directive (CSRD) also face this challenge. We analyze CSRD changes and scoping paradigms here.}