SB 253/SB 261 Update: What CARB’s 15-Day Modifications Mean for Business Compliance Plans

U.S.-based entities with at least $1 billion in global annual revenue that do business in California should revisit their 2026 SB 253 compliance plans following the release, by the California Air Resources Board (CARB), of 15-day modifications to its proposed regulations. The modifications provide additional time and flexibility within the first program year, allow parent companies to submit consolidated reports, and clarify how companies should assess whether they are covered.

Does SB 253 Apply to Your Business?

SB 253 applies to “reporting entities,” defined as (1) U.S.-based entities, (2) with at least $1 billion in global annual revenue, (3) doing business in California. SB 253 requires annual public disclosure of Scope 1 and Scope 2 greenhouse gas (GHG) emissions beginning in 2026 and Scope 3 emissions beginning in 2027.

“Doing business in California” means actively engaging in transactions for financial or pecuniary gain and either being organized or commercially domiciled in California or meeting California’s annually adjusted sales threshold ($757,070 in 2025). The modifications clarify that these thresholds will be evaluated at the individual covered-entity level. Corporate groups should assess each potentially covered entity based on the entity’s own revenue rather than consolidated revenue.

How Do the 15-Day Modifications Change 2026 Compliance Plans?

Under the prior proposal, Scope 1 and Scope 2 reports were due August 10, 2026. The following changes affect compliance plans already in development:

• Extended Reporting Deadline: The Scope 1 and Scope 2 deadline is now November 10, 2026, three months later than previously planned. CARB Staff have indicated that they will publish additional guidance materials by September 1, 2026.
• First-Year Reporting Flexibility: For the initial reporting year, an entity may report Scope 1 and Scope 2 information collected on or before December 5, 2024, or provide a statement that such information was not available. This option did not exist under the prior framework.
• Scope 3 Reporting: Scope 3 emissions reporting will not be required in 2026. Companies should focus immediate compliance efforts on Scope 1 and Scope 2 reporting.
• Consolidated Parent-Level Reporting: Parent companies may submit consolidated reports and fee payments on behalf of qualifying subsidiaries. Corporate groups that had planned separate submissions should evaluate whether consolidated reporting is available and appropriate.
• Entity-Level Applicability: Companies should revisit any coverage analysis performed solely at the consolidated-group level because the applicable revenue and California nexus tests will be applied to each covered entity individually.

Looking Ahead: What to Expect in 2027

CARB Staff have proposed phasing in Scope 3 requirements beginning with reporting in 2027. Additional concepts under consideration for the final regulations include:

• Proposed Scope 3 Phase-In: CARB Staff have proposed requiring reporting entities to initially report five categories: purchased goods and services (Category 1), fuel- and energy-related activities (Category 3), waste generated in operations (Category 5), business travel (Category 6), and employee commuting (Category 7). Other categories would initially be voluntary.
• Proposed Assurance Requirements: CARB Staff have proposed requiring limited assurance for Scope 1 and Scope 2 beginning with 2027 reporting; the 2026 cycle continues to benefit from previously announced enforcement discretion related to the assurance requirements.
• Proposed Detailed Disclosures: Future reporting requirements are expected to include disclosures of not just emissions totals but also the methodologies behind them, including calculation methodologies, emission factors, assumptions, data limitations, methodology changes, and separate reporting of biogenic emissions and carbon credits or offsets.
• Proposed Materiality Flexibility: At its July 21 workshop, CARB Staff discussed allowing companies to omit emissions or categories not expected to influence a user’s understanding of the inventory, provided the exclusions are disclosed and explained. However, this concept is not currently reflected in the draft regulations.

The proposed selection of five reporting categories for reporting Scope 3 emissions may not capture the most significant Scope 3 emissions sources for every industry. Although Category 1 is likely to be important for many companies, Categories 5, 6, and 7 may contribute comparatively little to the overall emissions inventories of some businesses. A uniform phase-in based on these categories could therefore direct compliance resources toward categories that are relatively easy to quantify but offer less potential for identifying or achieving meaningful emissions reductions.

For certain industry sectors, categories that would remain voluntary during the initial phase could substantially outweigh one or more of the five proposed mandatory categories. Category 11—use of sold products—includes emissions associated with the expected lifetime use of relevant products sold during the reporting year. The emissions associated with this category would likely overshadow emissions associated with business travel, employee commuting, or operational waste. For example, the lifetime fuel consumption of many goods, such as a household appliance, may be more significant to the manufacturer’s Scope 3 inventory than the air travel undertaken by its employees.

The proposed phase-in also excludes Category 4 (upstream transportation and distribution) and Category 9 (downstream transportation and distribution). Depending on a company’s business model, emissions from transporting raw materials and distributing finished products throughout domestic and global supply chains may constitute a significant portion of the company’s value-chain emissions. Omitting these categories from the initial mandatory reporting set could shift early compliance attention away from transportation and distribution activities that may present more substantial opportunities for emissions reductions.

These considerations indicate that some companies may be interested in supporting a more sector-specific or materiality-based phase-in that allows—or requires—companies to prioritize the Scope 3 categories most significant to their particular operations, products, and value chains. Companies and industry groups may wish to provide CARB with sector-specific data illustrating whether the five proposed categories would capture their most significant Scope 3 emissions sources. The proposed flexibility could be important, particularly if CARB adopts a fixed set of initially mandatory Scope 3 categories that may not be material for every reporting entity.

SB 261

SB 261 separately requires biennial climate-related financial risk reports from large U.S. public and private companies doing business in California. Enforcement of SB 261 is currently suspended by a Ninth Circuit injunction while the appeal of the lower court’s decision remains pending.

Business Takeaways and Next Steps

The 15-day modifications provide some relief compared to CARB’s earlier framing of the rules: specifically, a later deadline, first-year flexibility, consolidated reporting options, and clearer entity-level applicability rules. Companies should reassess which entities are covered, evaluate consolidated reporting options for subsidiaries, and identify what Scope 1 and Scope 2 data was collected on or before December 5, 2024.

Affected companies should submit comments on the modifications by August 11, including through relevant industry groups, and participate in CARB’s six virtual, sector-specific listening sessions planned through August and early September. Engaging with CARB through comments and listening sessions is the most effective way to influence requirements before they are finalized.

Companies should also distinguish between comments addressing the 15-day modifications and feedback concerning CARB Staff’s separate proposal related to Scope 3 emissions. As part of the latter process, companies should evaluate whether Categories 1, 3, 5, 6, and 7 represent their most significant Scope 3 emissions sources. Where other categories—such as use of sold products or upstream or downstream transportation and distribution—comprise significant shares of a company’s reportable emissions, companies and industry groups should consider providing CARB with supporting sector-specific information and recommending an approach that accounts for materiality and emissions-reduction potential.

Overall, the extended timeline for reporting can be leveraged to finalize Scope 1 and Scope 2 reporting and to begin evaluating Scope 3 readiness for 2027. That evaluation should extend beyond the five categories identified in CARB Staff’s initial proposal so that companies can identify the categories most likely to drive their overall Scope 3 inventories and decarbonization strategies. Companies with questions about how these requirements apply to their circumstances should consult with counsel.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.