Over the last few years, California enacted climate-related disclosure laws that may impact Arizona companies doing business in our neighboring state. Compliance with these laws is required to start in 2026, and Arizona businesses should be aware. Specifically, there are two broad categories of mandated climate-related disclosures under California law.
First, companies may be required to disclose their greenhouse gas (GHG) emissions under the California Climate Corporate Data Accountability Act (SB 253). Under SB 253, U.S. partnerships, corporations, limited liability companies and other business entities with total annual revenues exceeding $1 billion that do business in California must disclose their scope 1 and scope 2 GHG emissions from the prior fiscal year starting in 2026. Businesses must disclose their scope 3 GHG emissions from the prior fiscal year starting in 2027. Companies covered by SB 253 are required to provide limited assurance of their GHG disclosures by an independent third-party assurance provider by 2026 and reasonable assurance by 2030.
GHG emissions are commonly measured and reported based on their scopes. Scope 1 emissions are a company’s direct emissions (like from vehicles owned by the company). Scope 2 emissions are indirect emissions generated from electricity, heating and cooling, or steam purchased for the business’s own consumption. Scope 3 emissions, which can be difficult to quantify, are indirect emissions generated by a company’s activities not covered in Scope 2. Scope 3 emissions are often considered value chain emissions as they occur from sources not owned or controlled by the company. SB 253 requires companies follow existing GHG standards and guidance when reporting under the law, including the guidance provided by the Greenhouse Gas Protocol.
Second, companies may be obligated to disclose “climate-related financial risks” under California SB 261. This law applies to U.S. partnerships, corporations, limited liability companies and other business entities with more than $500 million in total annual revenue that do business in California. Under SB 261, covered companies must report their climate-related financial risks and the measures they adopt to reduce and adapt to climate-related financial risk by January 1, 2026.
SB 261 defines “climate-related financial risk” to mean “material risk of harm to immediate and long-term financial outcomes due to physical and transition risks.” Transition risks are risks a company may face relating to transitioning to a lower-carbon economy. Climate-related financial risks include risks to “corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.”
On May 29, 2025, the California Air Resource Board, the state’s lead agency for climate change programs and air pollution control efforts, held a public workshop on California’s climate-related disclosure laws as part of its rulemaking process. CARB revealed its current thinking on pending regulations for the laws, provided an update on its processes, and invited stakeholders’ questions and comments. According to the laws’ authors, California State senators Scott Wiener and Henry Stern, the state is “holding firm” to disclosure deadlines. Significantly, the deadline to comply with SB 261 remains January 1, 2026.
During the CARB workshop, there was a robust discussion about defining key concepts in the laws, including the terms “doing business in California” and “revenue.” Multiple stakeholders raised an important question for many Arizona businesses: whether a company that remotely employs employees located in California would be considered “doing business” in the state if that is the company’s only contact with California. Additionally, stakeholders sought clarification on whether a parent entity with no California contacts would be required to disclose if its subsidiary are covered entities under the laws.
CARB did not provide concrete guidance during the workshop, but it emphasized its intention to leverage existing reporting frameworks, such as International Sustainability Standards Board (ISSB) standards and the Greenhouse Gas Protocol, to streamline companies’ reporting obligations across jurisdictions. CARB intends to release a draft regulation “by the end of the year,” but they also stated an intention to release information throughout the year as they have it. CARB continues to accept public comments and encourages stakeholder feedback. CARB’s materials from the workshop, including its initial thoughts about key concepts, are available on its website.
Preparing climate-related disclosures takes time and might require specialized resources. Therefore, Arizona businesses doing business in California — public and private — are encouraged to evaluate their reporting obligations carefully and consider preparing now.
Gittings Global – NE153914
Spencer Fane attorney Kami Hoskins creates and implements effective solutions for employers navigating complex labor and employment law issues, providing meticulous defense in state and federal courts as well as before the Equal Employment Opportunity Commission, National Labor Relations Board and the Arizona Attorney General’s Office.
