On November 19, 2025, the California Air Resources Board (“CARB”) held a third working group session to present its implementing regulation proposals for SB 261 and SB 253. Shortly after the session started, the Ninth Circuit published an order that granted an injunction against the enforcement of SB 261, pending the ongoing appeal.
Below are three questions to help companies navigate the current state of the California climate rules in light of the Ninth Circuit order and the latest guidance from CARB.[1]
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What does the Ninth Circuit injunction mean for me?
| As to SB 253 |
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| Since the Ninth Circuit did not grant an injunction as to SB 253, in-scope companies should still plan to prepare these reports for submission by the currently proposed August 10, 2026 deadline. See further below for the latest guidance updates on compliance with SB 253, which supplements our prior alert published on September 15, 2025. |
| As to SB 261 |
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| The Ninth Circuit order on November 19, 2025 simply granted an injunction as to SB 261 and omitted any explanatory discussion or commentary. The request from the plaintiffs in the plaintiff’s motion for injunction pending appeal on September 15, 2025 states[2]: “The Court should enjoin Defendants from applying or taking any action to enforce SB 253 or SB 261 against Plaintiffs’ members pending appeal.” The lack of any specific statement clarifying exactly what the injunction covers in the Ninth Circuit’s order means there are some areas of ambiguity, particularly as the wording is slightly different in other parts of the plaintiff’s motion (for example, in some places, it does not limit the injunction request to only enforcement against “Plaintiff’s members”). While we would not expect CARB to distinguish enforcement between members of the U.S. Chamber of Commerce and non-members, it does represent a point of potential uncertainty as to the Ninth Circuit’s intent. What is clear is that the injunction applies to CARB’s ability to enforce SB 261 during the duration of the injunction but does not actually stay the law. SB 261, as codified, remains in effect and CARB is just prohibited from enforcing the rule until the injunction has been lifted. While we think highly unlikely, this means that CARB technically could start enforcing SB 261 against companies who have not published their climate-related financial risk reports on their websites by January 1, 2026 once the injunction is lifted. Additionally, because the January 1, 2026 deadline is part of the legislative text, CARB does not have authority to delay or change that compliance date, meaning that in-scope companies that do not publish their reports by the deadline would be non-compliant with the rule — regardless of the existence of any injunction. Assuming the injunction is lifted and the rules remain in place (i.e., are not found unconstitutional on the plaintiff’s First Amendment claims), one reasonable approach CARB could take would be to set a grace period following the injunction for Covered Entities to upload their climate-related financial risk reports, and any company doing so during that grace period would not face enforcement for having missed the January 1, 2026 deadline. However, we are still awaiting a statement from CARB in response to the Ninth Circuit’s order as of the date of this alert. |
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CARB will not publish final implementing regulations until sometime in Q1 2026, so how should I think about whether I am in-scope for either of these rules now?
Based on the November working group session, much of the guidance on being a Covered Entity (for purposes of SB 261) and a Reporting Entity (for purposes of SB 253) in our prior alert are still accurate, with certain updates that we have set forth below. Although none of this guidance has been formally approved by the CARB board, we expect that these will be substantially what CARB submits to the board for approval in the first quarter of 2026.
| TOPIC | UPDATE |
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| Revenue Test | In response to comments received by CARB, CARB has modified the revenue test to have a two-year lookback period, looking at the lesser revenue amount in the last two years. In order to be considered in-scope for either SB 261 or SB 253, a U.S. business entity must meet the applicable revenue threshold in both years. Revenue will be calculated in accordance with the California Revenue and Taxation Code’s (“RTC”) definition of “gross receipts,” and entities filing with the Franchise Tax Board (“FTB”) should look at the applicable revenue amounts in such filing to help guide their determination. |
| Doing Business in California | CARB largely confirmed its prior proposal from August, and any U.S. business entity that meets the “doing business in California” definition under the RTC (excluding the property and payroll prongs) will satisfy this prong for purposes of both SB 261 and SB 253. For the avoidance of doubt, sales under this definition includes sales by agents, independent contractors and pro rata/distributive shares from pass-through entities. CARB confirmed that any entities filing with the FTB should review their filing as a guide: if the reason for filing with the FTB is not solely because of triggering the property and/or payroll prongs of the RTC test, then that entity would likely be deemed to “do business in California” for purposes of these climate rules. |
| Parent and Subsidiary Relationships | CARB clarified that each entity should look at its own revenue and whether it does business in California to determine whether it meets the thresholds, without consolidating with other entities in the corporate structure. However, CARB noted that in certain parent/subsidiary relationships (such as parent holding companies), revenue should be consolidated: if the parent and subsidiary file with the FTB as a unitary filing, then the revenue should be consolidated and the subsidiary’s revenue attributed to the parent company (but this does not necessarily absolve the subsidiary from separately being deemed in-scope itself). If the parent and subsidiary file separately with the FTB, then their revenues should not be consolidated. On the other hand, unitary filings do not necessarily mean in all cases that revenue should be consolidated: CARB raised the example that an LLC entity may be included in a unitary filing, but the LLC entity should still look at its own numbers to determine whether it is in-scope with the rules. |
| Use of the Preliminary List of Reporting/ Covered Entities | CARB clarified that the Preliminary List of Reporting/Covered Entities they published on September 24, 2025 should not be used as a compliance tool to determine whether a company is in-scope for either or both of the climate rules. Rather, it is a tool for CARB (absent better tools currently available, such as the FTB database, which CARB intends to use in the future once it can do so) to estimate fee payment amounts under each of SB 261 and SB 253. CARB emphasized that companies should look at the proposed definitions and entities’ FTB filings to help determine in-scope status. However, filing with the FTB is not considered the “end all be all” test — if an entity for some reason did not file with the FTB but still otherwise satisfies the requirements, it is still in-scope and must comply with the climate rules. |
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In light of the Ninth Circuit order, should I still plan on finalizing my SB 261 report?
Although the Ninth Circuit order enjoins CARB from enforcing SB 261 against companies temporarily, the injunction does not impact the effectiveness of the law. Until there has been confirmation that the legislation has been struck down or permanently stayed, a Covered Entity should still be prepared to submit its SB 261 report.
At the November working group session, CARB confirmed that it believes it has provided sufficient guidance for companies to prepare their climate-related financial risk reports under SB 261 and was not planning to publish further guidance besides the updated checklist it published as of November 17, 2025. Besides a clarification on the substance to be included in the report based on CARB’s proposed minimum requirements for this first year with respect to Covered Entities that are still in the early stages of evaluating climate-related risks, much of the guidance for SB 261 summarized in our prior alert still remains the same.
[1] This alert is not comprehensive and supplements the prior guidance and considerations that we provided in our prior alerts on SB 261 and SB 253, respectively. The information included in this alert updates such prior guidance and considerations and should be read in tandem with the prior alerts.
[2] Chamber of Commerce of the United States of America, et al., v. Randolf, et al., 25-5327, (9th Cir.), Motion for Injunction Pending Appeal submitted by the Plaintiffs on September 15, 2025 at 30.