The Critical Steps to Navigate the 2026 California Climate Reporting Requirements

Abbey Raish: Thanks, Karen. My name's Abby Raich. I'm a partner in Kirkland & Ellis Sustainability Practice Group. I've been advising clients on a number of sustainability issues for several years. My background is actually as a capital markets and public company attorney, so have a lot of experience generally with regulatory compliance and disclosure considerations. Carry that into my practice today and have been doing lots of advising around the California Climate disclosure laws, so happy to speak to those in more detail today.

R. Charles Waring: Great, thanks Abby. So as our topics today, we're going to talk through kind of first set the stage on which companies need to comply. So what are the components here? And obviously one of the, I'm glad we have an attorney on the line here because one of the biggest questions that we get is the status of litigation and components here. So Abby, we will cover that as well as the current guidance and expectations for reporting. And then Corrine, we will talk through the high level overview of assessing climate related risks as well as some of the components that go into GHG emissions data gathering here. And then I'll round it out with talking about what is one of the main components as well is the limited assurance piece. So please submit your questions as we go through our presentation. We'll try to take a couple at each one of the section breaks here, but again, we will cover that. So we've got a couple of polling questions here that is just meant to help take a pulse here. So for the first poll here, has your company started preparing for California's new climate related rules, either 2 53, 2 61 or both? So just feel free to click on that and get, we just want to kind of have a pulse on where folks stand, where their companies as far as where they are in that process there.

So just we'll wait for a few more responses here before we share the results and we click that through. And not surprising, there's a lot of people that are still early in that journey here, so that's why we're glad that you're on our call today and hopefully we'll be able to give some insights to that. So with that, Abby, I will turn it over to you.

Abbey Raish: Thank you so much. I agree I'm not surprised by the poll results and I think a large portion of, I think a large part of what's driving that is the uncertainty around some of the aspects of the statutes and particularly the scoping, both of which are things that we'll touch on today. So laid out here in late 2023, California passed legislation that signed into law both SB 2 53 and SB 2 61. So SB 2 53 is a requirement that companies that are doing business in California and have total annual revenues of over a billion dollars to publicly disclose and verify their scopes, one, two, and three greenhouse gas emissions. We will get into details on the scoping in a little bit in terms of what it means to be doing business in California, but here I want to point out that the first report for scopes one and two, greenhouse gas emissions, we'll be due in 2026.

We are awaiting implementing regulations that will give the exact due date for the submission of that information, but the information that will need to be submitted will be information for fiscal year 2025 and the penalty tied to noncompliance is up to $500,000 per reporting year. And then SB 2 61 is the Climate Related Financial Risk Act that requires that companies that are doing business in California with total annual revenues over $500 million prepare and publicly disclose by posting on their website a climate related risk report. And it's required to be aligned with the recommendations of the task force on climate related financial disclosures of the TCFD or the IS SBS Climate Related Disclosure standards. So their S two disclosure standard, that report is due by January 1st, 2026. Again, it's not submitted directly to the regulator, it's to be posted on your website and the penalties for non-compliance there are up to $50,000 per reporting year.

Lemme go to the next slide. So here is sort of a handy scoping map, understood that there's still a lot of ambiguity particularly around doing business in California, but here we can kind of follow the map to see whether or not it's likely that an entity would be in scope. And in terms of, I see that we do have a question on when we're looking at total annual revenue for scoping. It's a very good question and in both statutes it references the previous fiscal year. So if you anticipate that you would have over $500 million in total annual revenue for fiscal 2025, then you would be in scope for 2026.

And I do want to point out that the total annual revenue is, it's not, we get this question a lot, is it California revenue? Is it US based revenue? No, they're talking about total global annual revenues for that entity. So that's another thing to confirm. All right, so I think we're going to go to the next poll question here, which is how closely are you tracking the ongoing litigation around California's climate disclosure rules? And we will discuss the status here just in a second of the litigation, but it is important to note that both of these statutes are currently subject to legal challenge and it's ongoing, so we'll give it just a minute here for folks to respond.

Abbey Raish: Right, so here we can see, I think the takeaway here is that folks are somewhat following the litigation, but we're not clear on how it's going to impact outcomes, and I think that's a fair takeaway because I don't think it's entirely clear how it will impact outcomes for particular entities, how the litigation will be resolved. I think the biggest point to think about is that regardless of the outcome of the litigation, we're not going to have an outcome prior to, it's very clear that we're not going to have an outcome prior to the first compliance deadline, January 1st, 2026.

So let's talk about total annual revenues and doing business in California. Neither of these terms is defined in the statute, which makes for a lot of ambiguity when folks are trying to conduct a scoping analysis. We have gotten some guidance from carb through a number of public workshops that they've held throughout 2025 and through the public comment process other California. So when we're talking about total annual revenues, again, we're talking about revenues globally, not limited to California, not limited to the United States. Other somewhat similar statutes in California use total annual revenues or use the term gross receipts as it's defined in the tax code. Total annual revenues is not defined in the tax code, so looking to revenues that are reported on financial statements could leave open some questions as obviously those things are defined differently in terms of how accounting standards work, but CARB has basically communicated that they're looking to define total annual revenues as gross receipts are defined in the tax code.

Then they also later in the year said that they're looking at aligning their interpretation of total annual revenues. It's similar to those that third party databases are able to pull from public information. So the total global amount of money or sales that a company receives from its business activities, so essentially defining it as business income. All that's to say that this still remains subject to the final guidance that we're anticipating receiving from CARB later this month. And so we're hoping that the implementing regulations that are due for SB 2 53 will be accompanied by some guidance that we can apply to both the scoping for SB 2 53 and 2 61 in terms of informing how CARB will be interpreting total annual revenues. Doing business in California was also one that I think has been really giving folks the most trouble in terms of confusion. There are other statutes in California that use the tax codes definition of doing business, which involves some pretty low annual sales thresholds, employee payroll thresholds, and later in the year in August its most recent public workshop CARB has put forth a new proposed definition of doing business, which is whether or not the entity itself is registered with the California Secretary of State and has active status on that database.

The reason that they gave for switching to this definition is they wanted something that was publicly searchable and it sounds like they are not able to get for purposes of their own scoping analysis and all of the information from the California Tax Franchise Board that they would need. So they wanted something where there was maximum transparency and the information was publicly searchable. So this isn't a final definition. I think that we will hopefully get a final definition when final guidance comes later this year, But CAR has given every indication that they're planning to move forward with this definition for doing business. So that really means that an entity basis on an entity by entity basis, what you'd be looking to do is search the California that you at the California secretary website confirm whether that entity is registered to do business and has active status. And then does that entity itself have, Hey, Abby business income or total revenues in

R. Charles Waring: Abby? I think we're having a little difficulty with your audio and so it was getting a little bit of a choppy there. So maybe if you just do a little bit of a refresh here and I'll kind of keep us going and as Abby was mentioning, there's still a lot of questions I think that we're anticipating the guidance and will you all continue to see what's the detail from there? I think we'll wait for her to get back in. And I think that the next piece here is that there is, is ongoing litigation here, but as Abby was mentioning before, is that the litigation is not expected to be resolved until after the due dates for the first round of reporting. So I think that, and again, I'm not going to pretend I'm an attorney here, but from a standpoint of that this is something that there has been litigation and that there has been aspects related to things that have dropped off, there's still pending litigation, but again, that is not anticipated to be fully resolved until the deadlines, which the pending deadlines are January 1st, 2026 as well as June 30th, 2026. So Abby, you joined us back. I have, is

Abbey Raish: This any better?

R. Charles Waring: Yes, that's much better. So I pretended to be an attorney, but I was not practicing law, so I will turn it back to you for the status of the legal challenge here.

Abbey Raish: Yeah, I think that the key, you covered the key takeaway, which is that we are not going to have a resolution to this prior to compliance deadlines, so I would not advise that anybody count on litigation to get you out of these obligations. In the near term, there have been a number of legal theories put forth the status of those is essentially only the First Amendment challenge remains, which is essentially a theory that the state cannot compel the speech that remains TBD, we're not going to have the next proceeding until 2026, and so we would advise that folks continue to prepare for compliance just because we're not going to have a resolution prior to that.

One final point that I wanted to cover was the September 24th list of preliminary entities that was published. Many of you attending today may have found your company included on that list, others may not have. I think it's important to understand what was feeding into the list in order to highlight the fact that it absolutely was not exhaustive. CARB has acknowledged that it was certainly not complete based on the information they were using for the scoping, and they have urged everyone to please rely on their own scoping analysis in order to confirm whether or not you have disclosure obligations for 2 53 and 2 61. What they did was they searched the California Secretary of State's database, identified the active entities, and then they used a third party report that they purchased to get an idea of whether or not the revenues, the reported revenues, whether or not in many cases, public companies, obviously their annual revenues are public information and that was easy to get.

There are plenty of entities that are in scope and their revenue information is not public. And so this third party provider scraped from as much public information as they had to be able to inform their idea of whether or not those entities exceeded the relevant revenue thresholds. That's how this list was compiled. So certainly public companies, that's pretty easy, but privately held subsidiaries, portfolio companies of private equity sponsors, et cetera, those are all entities where it's possible they could be in scope, but CARB is going to be in the dark on that just because they don't have the relevant revenue information. So that's really the key takeaway we want to highlight here is that I don't think CARB did anybody any favors by publicizing that list. I understand why they pulled it together. They were trying to inform their fee regulation and get an idea of the fees that they'd be looking at with the number of in scope entities.

But I think for the rest of the market it's really just kind of created a lot of confusion. So I will move on to the next. I just wanted to make sure that we highlight here in the materials that have been circulated that we included a number of carb resources that outlines the guidance that they've provided here in 2025. The workshops where they walked through what they're expecting in terms of compliance disclosures, particularly the August 21st workshop materials are very helpful there as well as the climate related financial risk disclosures draft checklist from early September. It really helpfully outlines what they're expecting in terms of an initial compliance report for 2 61.

R. Charles Waring: Did you want to ask some questions, Abby? I think there's two questions that I want to capture from a q and A here for you. So the first question is, do common control rules apply to identifying entities in the new laws

Abbey Raish: In terms of the subsidiaries that would need to be included in a Topco or a parent company that's in scope in their report?

R. Charles Waring: Probably yes.

Abbey Raish: Yes. So it's a very good question. One of the points, one of the points that's sort of gray area in terms of what CARB is planning to provide further guidance on is apparent subsidiary relationship. I think in the public workshops that they have held this year, they've been pretty clear on the fact that that's the issue in terms of scoping that they have the least clarity on at carb and they've acknowledged that in terms of scoping in which entities are in scope, the statutes at this point, we haven't received any guidance. It's any different. The statutes allow for scoping on an entity by entity basis, right? So the entity itself, whether it's in the chart, the parent or the the entity itself in order to be in scope needs to be registered based on the guidance that we have today needs to be registered with the California Secretary of State and at that entity level needs to exceed the relevant revenue threshold. So there may be cases in which the parent exceeds the revenue threshold, but the parent itself is not registered with the California Secretary of State and then the subsidiary, the subsidiary is registered, but itself does not exceed the revenue threshold.

R. Charles Waring: Great. So maybe one other question here more in terms of from a private equity standpoint. So if for a backed company, so is it the total revenue of the overall PE firm, the triggers the revenue thresholds for reporting, or is it the individual company revenues in which the PE firm is invested? That would be the consideration point.

Abbey Raish: This is a very good question. So for a PE sponsor, again, we're going to be looking on an entity by entity basis. So it's very likely that you may have portfolio companies that are in scope based on their registration with the California Secretary of State and the revenues for that company, that portfolio company for the PE sponsor, again, it's going to be which entities do you have that are registered themselves and for which those entities have revenues that exceed the threshold. It understood that it's a bit of a gray area in terms of total annual revenues for PE firms because I feel like they report entities relatively, there can be some pretty significant variation in the way that revenues are reflected on their annual financial statements. And so hoping that we receive a bit more guidance on that point when carb comes back to everybody later this month. But at this point I would say it's both. You need to look at each entity individually. And I should also clarify, and Corinne may be covering this as well, that if you have more than one entity in scope, in your structure chart, maybe apparent and two significant subsidiaries old statutes allow you to report at the consolidated level so you can satisfy the reporting obligations of multiple entities with one report.

R. Charles Waring: Great. Thanks Abby. And if you could continue submitting questions, but we're now going to switch to Corinne to kind of talk a little bit more of how to go about some of these aspects of Corinne.

Corinne Hanson: Sure, thank you. Yeah, the one other thing I'll add on that last point is that while we are all waiting, surely with bated breath for carb two actually commit to releasing the guidance that we've been expecting. Generally speaking, the guidance that they've issued so far has indicated to follow suit with your traditional financial accounting. So if you are reporting in one particular way complicated entity structures within a private equity firm, you want to try to mirror that structure with your attorneys to determine whether or not you need to be compliant with California regulations and by which entity. And with that, I'm going to dive into SB 2 61 for a period here we will turn back to SB 2 53. In a moment we get back in the assurance conversation, but when I talk about SB 2 61, I'm talking about California's climate related Financial Risk Act. And so it compliments SB 2 53, but instead of emissions, it focuses on climate related financial risk.

It covers entities with $500 million in annual revenue that do business in California. Again, same definition there, whether or not they're headquartered there. So a slightly wider net than SBT five three covers. It does begin sooner. Starting in January of starting on January 1st, 2026, companies must publish a biannual climate related financial risk report, which is aligned with TCFD or ISBs I-F-R-S-S two principles. And so that report must describe the company's material climate related risks, both physical and transition risks. I'm going to talk in a little bit more detail in a moment about what that means, the process for identifying those risks, how you end about assessing that, the measures that you're adopting and the governance structures internally to mitigate them. And those reports have to be filed publicly through a carb posted portal. Essentially that requirement there is that the portal itself is a register, so you will post publicly your TCFD submission on your site and then submit that link to the register.

That's the guidance that we've been given so far. I did see a question coming in previously. Does it suffice if you've already included TCFD align submission in your corporate ESG reporting? Do you need to do a second submission and how you will need to share that link with carb? There's been no specific guidance about whether or not, if it's already included in your reporting, it can count toward my guidance to clients has been, make sure you're safe. So if you can stomach posting a separate page on your website so it's extremely clear, rather than sending car a link to your full ESG report or page that has a ton of additional detail, make it very, very clear. Avoid the fines, avoid the headache, post a separate page and just copy paste exactly what you've already done within your existing reports.

The state does have an authority to assess a filing fee, but car hasn't finalized that amount and early indications suggest it be modest, sorry, especially in this first year. CAR has also indicated a lot of leniency expected. So we've been getting these posted FAQs that we've referenced intermittently throughout the last year. So essentially what they're signaling is that if a company is doing its due diligence to follow through with a climate risk assessment, they'll be granted some leniency in the details in which that's done, the coverage within the entity, which risks are being assessed, what's been determined material. So a lot of room for improvement year on year, especially with SB 2 61.

And so I want to talk a little bit about what it looks like tactically, we get a lot of questions from folks. Okay, great. You're telling me I need to go assess my risks? How do I go about doing that? And I will say to folks who don't have a degree in climate science or don't have, this is their full-time job. I relate and understand the gripes and concerns here. I think it's extremely fair. It's been the content of a lot of the pushback from companies trying to operate their businesses as usual, and they are feeling burdened by the exercise of assessing climate risk. And so I like to say that SB 2 53 as it pertains to carbon accounting, really technical, highly detailed, SB 2 61 for all intents and purposes should be simpler. Yes, you need to rely on external resources, A lot of publicly available open source resources, consolidating those can be a real headache.

This is one of the reasons that we did develop an offering around this at Green Places. So we can help you with your TCFD reporting, your SB 2 6 1 reporting, whatever you might need. But essentially what we're doing is aggregating open models around climate risk and projections of different scenarios. But we're doing this in a way that, especially on the client side, really is much more simplified and streamlined. So we start by collecting key internal information, things like enterprise risk assessments, business continuity plans, your insurance coverage, board oversight materials. If you already have a really robust risk assessment function that makes this easier. But if you don't, this is really a disclosure exercise so you're not being graded or marked for performance here. This is a gathering data exercise that you can understand what you do and don't have and are you equipped to assess risks as they relate to climate change.

And these are really climate related financial risks. It's in the name. And so we always want to direct folks to understanding this doesn't necessarily need to be additional risks. This is understanding can your business continue to operate as you expect it to under shifting regulatory and fiscal landscapes. And so that information feeds into A-T-C-F-D aligned report. We map to governance strategy and risk assessment around climate. Then together with our clients, we synthesize those findings into an SB 2 61 compliant public disclosure. It's much, much shorter than all of the documentation that we typically aggregate, usually just a few pages. Again, keeping this as simple as possible so that the carb knows exactly what they're looking at. And it falls a similar framework to other disclosures. So think of this as translating an internal understanding of climate risk into a clear public facing document that regulators, investors, and customers can interpret consistently the ideas that we bucket base things in similar organizational structures across many different industries, across many different entity structures.

It'll get easier for us to understand does a company have a handle on their own ability to understand the risks to the business, their customers, and the environment in which they operate within. And so just to demystify that a little bit further, the TCFD framework is intentionally relatively abridged streamlined. It's these four categories. The TCFD framework is now embedded into I-F-R-S-S two, the ISSV overtook management of the TCFD and has created a slightly more robust framework I-F-R-S-S two, and that really sits at the heart of SB 2 61. It's called out specifically in the bill text and it asks for companies to disclose across these four items governance. And so that really refers to who oversees climate related disclosures or issues, which board committees, executives or working groups are responsible for managing your understanding of climate risk and preparedness against IT strategy, how do identify climate risks and opportunities affect the business model and your financial planning?

And so these should be your existing strategy documents and where within them climate change is referenced, if at all. Risk management pertains to how those risks are integrated into broader risk enterprise systems. And so one thing we work with a lot of clients who go, we really don't have a sophisticated robust risk enterprise system. Maybe we do some tabletop exercises each year, but this doesn't really exist. Again, all you're doing in year one is disclosing can provide recommendations about how to make that more robust in years two and so forth. And then metrics and targets. So what indicators and goals are being tracked to measure progress? We often get the question from folks, is it required for us to do our carbon emissions calculations for SB 2 61? And same thing, is it required for us to do a TC FD framework reporting for SB 2 53?

They're related, they're sister pieces of regulation here. But you can see on the slide here, even within metrics and targets, one of the recommended disclosures is scope one, two and three emissions. So it's requested within the TCF 3D framework because it's one of the most common metrics that companies can disclose against carbon is that unifying metric and measure across all companies, across all sectors. And so it's recommended, it's not required. Again, you can say, we haven't chosen to disclose this yet or we're not prepared to disclose this yet. It's too burdensome, whatever it might be. If you're not also required, if you don't fall within that billion dollar annual threshold for SB 2 53, you can certainly get away with not doing it in year one, but certainly best practice and certainly commonly expected of the TCFD framework to be also disclosing your carbon emissions. This framework is intentionally flexible.

Companies aren't expected to have everything in place on day one. The first report is meant to set a baseline and show stakeholders and understanding of climate risk and then your ability to manage it systematically. But again, year on year improvement is expected. We are expecting that leniency in year one from carb. And so the idea here is to just meet the compliance exercise in year one at bare minimum and then understand by looking at all of the different TCFD disclosures within your industry to understand what's expected, how to improve, and which of those disclosures are fine still being assessed against IE, which of those are deemed incomplete by carb in the next couple of years. The last thing I want to talk about is just when we talk about risks, what do we mean? So this is the part that I ideally like to demystify for our clients a bit.

Companies under SB 2 61 are explicitly requested to disclose physical and transition risks. So what do I mean by that? Physical risks are just what they sound like, something more tangible. Physical risks. They tend to be acute events like either acute or chronic. And so acute events are things like wildfires, floods, heat waves, things that happen over a short period of time, big weather events and chronic changes like rising temperatures or water scarcity. Again, have physical impacts on your operations, your supply chain, your customers, your employees. And so it's what we think of when we think about looking at climate change directly and its impact on the planet. Transition risks are a little bit different, definitely less physical, less tangible. So they stem from policy, technological and market shifts. So for example, new carbon regulations, much like SB 2 61 and SB 2 53, changes in consumer behavior demand, the rising cost of capital for high emitting activities, et cetera, that will impact your operations.

So there's interplay between the two, but they are distinct. We provided the simplified table lots of resources from TCFD and ISSB around understanding those. The lot doesn't prescribe a very specific format, but it is best practice to link each materialist to a potential financial impact. Again, we're talking about climate related financial impacts. We want to try to assess dollar values to your business operations such as asset impairment, revenue disruption, increased operating costs. An example I like to give, we work with a lot of law firms. Several of those firms have bases in LA that were disrupted by the LA wildfires. They have actual recorded costs of disruptions to employees, rebuilding the buildings, et cetera. Those kinds of costs are exactly what we're talking about. It's truly unfortunate that now many companies have real examples of that on their ledgers from the last couple of years, but also helpful in terms of disclosures.

So it's that kind of thing that we want to look at. And if you don't have a real experience, you can look to comparisons such as those in your assessments. Car's recent draft checklist also encourages companies to describe risk management responses like supply chain adaptation or resilient investments. So those also can be included in your disclosures. And one thing that I'll point out is the more difficult part, the part that is sort of aided by an ability to understand climate science and climate models is the climate modeling over time. So you're looking at the projection of these risks over time, their impact to your business. So that's something that we find we can be really helpful with in scenario one. It's a less climate adverse scenario modeled out by the IPCC. Physical risks tend to be lower because we've done something to address climate change, but transition risks are higher, so there's less global warming because we've made changes to policy, but there are more strict regulations and it accelerated transition to clean energy for example.

But in scenario two, we refer to this as worst case scenario, climate models, physical risks are higher due to unabated carbon emissions growth, which implies that nothing is really happening on the transition side and thus the risks there are much lower. So you will see that trend when you do your climate modeling. Your projections. Fiscal risks are largely dictated by locations and employees, and that's what we use to feed into the models that we've developed at green places. Transition risks are largely dictated by industry and scaled by customer base. And so with that, we've got another poll. I know we have a couple of questions, so I'll turn to those in a moment. But where is your organization in terms of assessing climate related risks? So where are you in your journey to understanding how climate related financial risks are impacting your business, your customers? A, have you completed the assessment? Are you in progress right now? Are you planning to start within the next 12 months, deadlines, demand, or do you have no plans yet? This doesn't pertain to you perhaps or you've decided to wait, take the fine, see what happens in year one with carb. We've definitely spoke with a number of clients who are less risk averse or are keen on that approach. We'll just give folks one more second to respond here.

I see one question I'll answer as folks are answering here from Joseph Nunez. Are any other US states or countries following California's posture soon or thinking about implementing ESG guidelines? The short answer here is yes, several. The long answer is that this administration obviously has been quite hostile to EG disclosures. We saw the SEC's rule voluntarily stayed, and so there are lots of copycat regulations on the book, New York, Illinois, New Jersey, Colorado, certainly internationally, we've got lots of regulations popping up. So the expectation is that yes, we will see these, but whether or not they succeed in the next couple of years is more of the question mark. But they do tend to copycat California directly. So that's good for businesses. If businesses do have to comply with California regulations, they're well set up to respond to the other state regulations. Okay, I'm going to click through here.

All right, so what we're seeing is the vast majority of folks on the line have no plans yet. A couple of you are planning to start within the next 12 months in progress. Now we're talking just about SB 2 61 here. And so I think for those of you who have no plans yet, likely what you're responding to is the requirements for just that $500 million threshold or have indeed decided we're going to wait and see what happens with the fines in the first year. I give kind of unconventional advice here for somebody who works in climate and someone who advises businesses, which I think it's a fair consideration. The fines for SB 2 61 are relatively low. However, what I will say is that this work has been going on from a voluntary perspective for many, many years. Every single client that I've ever done a climate risk assessment with has ended that assessment saying, okay, I have a better understanding of the impact to our core business operations.

It's relatively inexpensive to do so. It should be embedded directly within your own existing risk assessment framework. And climate risks are obviously real to your business operations, to your customers, to your stakeholders. Investors care a lot about this, see the oil and gas industry and lots of legislation around stranded assets and concerns there. And so I would encourage folks, whether you do this as a tabletop exercise internally at your own company or you reach out to a partner, highly, highly encourage certainly risk assessment process if not a full blown exercise where you calculate your carbon emissions. And so with that, I'm going to hand back over, oh, I'm so sorry. I am going to continue here. I'm going to talk really briefly about SB 2 53. Again, thank you Abby for going into this in great detail. So I won't do too much. But just as a reminder, the difference here is that SB 2 53 is California's emissions disclosure law.

So it's the first in the US to mandate public greenhouse gas reporting for large companies doing businesses in the state, over a billion dollars in revenue doing business in California. The specific Sierra that under the law companies must disclose their scope one and scope two emissions starting in 2026, followed by scope three in 2027. And the reason I call that out is because I think it's extremely common that not everyone who has been asked to disclose these understands necessarily scope one to emissions. The distinctions here, the challenges in calculating these emissions and gathering this data. And so scope one emissions pertain to all of your direct emissions, anything associated with anything you can bust on site in scope two are all of your indirect emissions emissions that are associated with purchasing electricity. Scope three is conveniently everything else. And so that's why there's this division here.

There's pressure to collect, calculate, disclose your emissions scope one, two, and then a movement toward the more complicated scope three arena. After that carb did miss its July 20, 25 rulemaking deadline. So of course companies are feeling a little bit scattered, needing to respond without carbs, additional workshop guidance. However, the Greenhouse Gas Protocol is the entity that covers the standard for these disclosures. That's not changing. The work that we're doing is extremely similar. And so the key takeaway here is that we're looking for annual standardized admissions reporting. So if you need to disclose against SB 2 53, you're following the exact same protocol there. And with that, Charles, I'm going to pass back over to you to talk a little bit more in detail about that assurance process, what is limited versus reasonable mean, and we can cover any questions.

R. Charles Waring: Great, thanks Corin. So one of the pieces here is that there's that for companies that are reporting their greenhouse gas emissions, we'll have also requirements to have that scope one and Scope two have a limited assurance report performed over it. And I love talking with this audience here because I can get into a little bit of the weeds as far as what does that really mean? First and foremost, the limited versus reasonable assurance. The limited is the opinion that is more common with review procedures. So whether if you're a public company and you have a quarterly filing, those are performed under the review aspect. Or again, if there was a smaller company that didn't need a full audit financials, but more of a review. It's really the difference is in the opinion essentially, and we've got the wording up there on the screen, but essentially I'd say in a limited assurance engagement, we're saying that we're not aware of anything that would be a material modification based upon what the company or management has represented there. And so that is different from the reasonable assurance standard, which is slated to be the follow on in subsequent years. But the reasonable assurance standard is that which is more common with a financial statement audit or a SOC reports. Those are the reasonable assurance. And what that means is that there's a differing level of procedures that the assurance provider has to perform.

There's still things that need to be performed so that we can get comfortable with what is the values, the data points that management's putting forth. But the biggest thing that I often have a question around is what is needed for the internal controls piece. So the company needs to identify and have a set process, defined process with internal controls in place, which as the assurance provider, we need to be aware of, but we're not performing tests of those controls. And I say that because you still need to have that process. It can't be that we're writing something on the back of a napkin, we're just taking it from here to there. It needs to follow a concise, defined, formal process that we can understand that from the transaction recording to the reporting side of it. The other piece here that I'll mention is that there's still, as both Corinne and Abby have made reference to, we're still waiting for more guidance to come forth from California.

But in the last round there was indications as far as what's necessary from the assurance provider and they identified that it's a third party. So it can't be an internal audit function. It has to be from a third party from the company there, and it needs to follow standards that are robust, that are publicly available and go through a rulemaking process and as well as having an independent requirement there. So we as an accounting firm, our reports and assurances performed under the A-I-C-P-A standards, which we feel that is one of the more objective and well-known standards out there.

The other question that I often get is, so what is this process? What is the timeline here? And I step back into the CARB has the requirement for the report with the assurance reports to be filed at the end of June, so it's 6 30 20 26. One of the pieces though is that this does take time to perform a process, perform the procedures related to limited assurance, which is a combination of recalculations, understanding the processes, validating the data, and that is something that companies need to first have their final numbers in place. So one of the things that we really suggest is that a lot of that understanding of that process is performed really now in Q4 and really teeing up so that if there was something that was a big red flag that there was an opportunity to address it or respond. But ultimately what we're finding is that most companies are trying to work to get those scope one and two emissions numbers by the end of Q1.

Now that can be sometimes a heavy lift because in prior years they might not have assurance requirement. We've got clients that will take up to five or six months to perform that, but you need to think of your friendly auditor there because it will take at least two or so months to go through that process to validate and to ultimately issue that report there. So that's one of the biggest things that we are having conversations with clients about. So I know we're coming up on time here and I'm just trying to look in the chat. I think that, so one of the questions related to assurance when agreed upon procedures, a EP type report fall into any of the buckets of procedures. The AI CPA has defined a process and it's really a assertion based report. So it would fall under a TC tool five where management would perform or produce an assertion. They're asserting to what is the values for scope one and two, and then there's procedures that would be performed. So an A UP is not the suggested approach because it also has to rely on a consideration that it would be filed with CARB or also for management's consideration there.

Corinne Hanson: I see too a question, will CARB accept CDP reports for SB 2 61? It's a great question because they've been a little bit vague about accepting any valid framework. The guidance that I've been giving clients is no, in fact, we will accept CDP as an input to develop your SB 2 61 submission, but they're distinct enough that I wouldn't expect to just post your CDP report and expect CARB to understand that that is in fact TCFD aligned, especially because it references addressing climate risk, but it isn't specific enough in terms of your overall planning, all metrics aligned to it, et cetera.

Abbey Raish: I would add to that too, that CARB has been pretty clear about to the extent that there are aspects of the TCFD framework that you're not addressing in your compliance report, they do expect you to acknowledge, for instance, if you haven't conducted scenario analysis, they expect you to comply or explain. So you need to include an explanation of why scenario analysis is not included in your 2 61 report and how you may plan to consider including it or address that disclosure requirement in this feature. So I think it speaks to another reason of why CDP or similar reports can inform your compliance report, but not necessarily stand in place.

Another question that I saw here was, will companies that do not meet the thresholds for 2 61 and 2 53 B impacted, will they need to prepare information for their business partners? And it's a really good question. How will the trickle down effect from these statutes impact companies that are outside of scope? The key one here that comes to mind for me is scope three for 2 53. So companies that are in scope of 2 53 and are going to be expected to report their Scope three emissions starting in 2027, that'll be their fiscal 2026 information. Certainly will, I think you can expect for business partners that you have that are in SOAP of 2 53 will look to request this information from their business partners. Obviously there are ways of estimating 2 53, but to the extent that you can get this information directly, that's going to be preferred. And so I think we can expect to start seeing requests for this information coming from business partners. Certainly even we may start seeing it as a requirement in certain business agreements and contracts, that type of thing going forward to inform compliance for companies that are in scope. So that's a good question,

R. Charles Waring: Abby. I see another question here. The list that California had come out with seems to exclude many of the AM law firms who are trading California. Is this a specific omission?

Abbey Raish: No. Again, that list CARB has acknowledged is not comprehensive. And they specifically noted that while there are going to be some exceptions for entities that are in scope, the list does not reflect any exceptions. So for instance, certain state entities and that type of thing, the list is purely informed by looking at the Secretary of State website and then the third party revenue report that they paid for. So to the extent that revenue information for those firms is not a public, that's likely why. If they are in fact registered to do business in the state and have active status, the limitation on revenue information is likely why they're not reflected list.

R. Charles Waring: And I'll say a last call for any questions. But otherwise, I think that we have addressed everything in the queue here. So I'll just say thank you everyone for attending today. Corrine Abby, thanks again for participating with me. I think that this is something that is a great topic that we have a lot of questions and I appreciate having both of you on our call today. So again, I really appreciate everyone's attention and feel free to reach out to any three of us here to talk or if you've got other questions for follow up.

Corinne Hanson: Excellent. Thanks everyone.

^{Transcribed by Rev.com AI}