2.

Release of FAQs Regarding CARB

The CARB is the agency responsible for overseeing the implementation of the California Climate Disclosure Laws, with a specific role in enacting implementing regulations for the CCDAA. Through the Amendment, the deadline for the CARB to establish these regulations was extended from January 1, 2025, to July 1, 2025. However, the development of these regulations is still in progress, with public workshops and comment periods concerning the implementation of the CCDAA and CRFRA being used to gather stakeholder opinions.

On July 9, 2025, the CARB released an FAQ document titled “Frequently Asked Questions Related to Regulatory Development and Initial Reports,” which addressed key implementation questions on the CCDAA and CRFRA:
 

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Progress of regulation development
 

• The CARB is currently in an unofficial data collection phase to develop the implementing regulations for the CCDAA and CRFRA.

• While the CARB aims to prepare a draft by the end of the year, gathering additional public input during the summer, the deadline for adopting the regulations – originally set for July 1, 2025 – has already passed.
   

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Covered entities
 

• During the development of the regulations, the CARB plans to specify the definitions for “revenue,” “doing business in California,” and “parent/subsidiary,” and is currently collecting feedback on initial definitions proposed during a public workshop held on May 29, 2025.
   

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Submission and verification of initial reports for CCDAA
 

• Considering the time required to implement new data collection, companies will be permitted to use information they already possess or are in the process of collecting for their initial 2026 reports for Scope 1 and 2 emissions.

• The verification and reporting schedule for Scope 1 and Scope 2 emissions will be finalized after further consultation.

• The CARB is also seeking stakeholder opinions on harmonizing reporting requirements with other jurisdictions to simplify overlapping obligations.
   

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Submission of initial reports to CRFRA
 

• Companies subject to the CRFRA are required to disclose their initial reports by January 1, 2026. Following this, biennial reports must be submitted.

• Given the view that climate risk-related data are generally collected on a fiscal year basis and that report preparation takes time, the initial report may include data from either FY2023/2024 or FY2024/2025, depending on the most reliable information available to the company.

• Reports must align with the CRFRA’s definition of “climate-related financial risk” and an entity’s chosen reporting framework (such as the TCFD).

• The CARB has discretion in enforcing regulations, and potential penalties for non-compliance will take into account various factors, including whether and when the company has made good faith efforts to comply.
   

Regarding “Covered Entities,” whether a company falls under the California Climate Disclosure Laws depends on meeting criteria such as “total annual revenue,” “doing business in California,” and exceeding a revenue threshold (USD 1 billion for the CCDAA and USD 500 million for the CRFRA). While the CCDAA and CRFRA do not provide specific definitions, the CARB recently suggested in the FAQ that “total annual revenue” should reference the definition of “gross receipts” under Section 25120(f)(2) of the California Revenue and Taxation Code (“RTC”), and “doing business in California” should reference the definition of “doing business” under the Franchise Tax Board (“FTB”).

The definitions are as follows:
 

3.

Implications for Korean Companies

The California Climate Disclosure Laws present complex challenges for Korean companies that operate in California or are part of its supply chain.
 

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Key Legal Interpretation Challenges
 
Although vague regulations have raised several practical questions, experts in the relevant field, following the recent announcement of the CARB’s FAQ, anticipate that the following standards will apply:
 

• Interpretation of the concept of “doing business in California”
  For “doing business in California,” a key standard for determining whether the law is applicable, the CARB has proposed adopting the FTB’s definition. This means the criteria are based on specific quantitative thresholds (sales, assets, and salaries) rather than a physical presence in California. Korean companies need to carefully analyze these criteria to determine whether they are subject to direct disclosure obligations.

•  Interpretation of “total annual revenues” and scope of parent companies
  “Total annual revenues” are not limited to sales generated in California but are interpreted as the global consolidated sales for the entire corporate group. This is likely based on sales reported in the consolidated financial statements. Detailed standards for certain industries, such as the financial industry, have not yet been finalized but are expected to be established during the development of the CARB regulations. Even for Korean parent companies not established under U.S. law, a careful review is required because the exemption for consolidated reporting could apply if the Korean parent company’s revenue exceeds the threshold and it is deemed to be “doing business in California.”
   

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Areas for Ongoing Monitoring

While the California Climate Disclosure Laws have been further specified through the amendment and subordinate regulations, several key elements relevant to an entity’s actual reporting remain ambiguous. Therefore, it is necessary to carefully monitor the following matters going forward:
 

• Detailed guidance on the disclosure entity and consolidated reporting
  While the California Climate Disclosure Laws apply to companies doing business in California that exceed the total annual revenue sales threshold, it remains unclear which entity is required to disclose information in cases of complex corporate governance structures with branches or subsidiaries. In addition, the California Climate Disclosure Laws have been amended to allow for consolidated reporting at the parent level, thereby reducing the burden on companies. However, the CARB has not yet provided detailed guidelines on the specific standards and procedures to be followed for such consolidated reports, nor on the extent to which Korean companies with places of business in California are subject to disclosure. Therefore, continuous monitoring is necessary.

• Finalization of the disclosure timing and requirements for submission of initial reports
  According to the CCDAA, reporting Scope 1 and 2 emissions must be completed by a date in 2026 to be set by the CARB, and reporting Scope 3 emissions must be completed by a date in 2027, also to be set by the CARB. These reports must be prepared based on the preceding fiscal year. However, since the CARB has not yet finalized the deadline for submission of the initial report or the reporting schedule, it is necessary to continue monitoring the situation to ensure they can respond immediately when the disclosure timing is finalized.
   

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Spread of Climate Disclosure Laws Across States
 
It is worth noting that climate disclosure bills are spreading in several states – led by California and also including New York, Washington, and New Jersey – despite the Trump administration’s “Anti–ESG” stance.
 

• In New York, the bill for disclosure of Scope 1, 2, and 3 emissions (SB S897C) and the bill for reporting climate-related financial risks (SB S5437) have been introduced. In Washington State, the bill for disclosure of Scope 1, 2, and 3 emissions (SB 6092) has been proposed. While many of these bills are still pending or have failed to pass, they often target companies doing business within the state with revenue thresholds (USD 1 billion for GHG emissions and USD 500 million for climate-related financial risks) similar to the California Climate Disclosure Laws.

• Similar climate disclosure bills have also been proposed in several other states, including Illinois and Colorado. Most of these bills were either indefinitely postponed (Session Sine Die) or failed to pass, but the possibility of reintroduction in the future cannot be excluded.
   

These trends signal that despite a weakening atmosphere for ESG regulations at the federal level, the movement toward mandatory climate risk management and disclosure is continuing at the state level. Therefore, Korean companies with diverse export and production bases should closely monitor trends in climate disclosure legislation in other states, even if they are not currently doing business or planning to establish a corporation there. It is advisable for companies to prepare a disclosure system that minimizes risks by being ready for the sudden introduction of disclosure requirements.
 

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Preemptive Response Strategies for Korean Companies

To prepare for these new regulations, Korean companies can consider the following strategies:
 

• Minimization of practical burden and costs through consolidated reporting
  If a Korean company has a California subsidiary, it may benefit from the consolidated reporting exemption. This exemption can significantly alleviate the subsidiary’s compliance costs and administrative burden.

• Phased approach based on good faith effort
  For areas with complex or incomplete data, such as Scope 3 emissions, it is efficient to adopt a phased reporting approach. Companies should prioritize reporting realistically obtainable data while leveraging the “good faith efforts” principle outlined in the California Climate Disclosure Laws. In other words, by utilizing the provision that exempts penalties for initial data inaccuracies – considering the complexity of the data if good faith efforts have been made – companies can prioritize reporting readily available data while gradually reorganizing their data and systems until disclosure becomes mandatory in Korea.

• Establishment of a company-wide data management system and collaborative structure
  It is important to establish a company-wide data collection and management system to calculate the company’s Scope 1, Scope 2, and Scope 3 emissions and to assess climate-related financial risks. In particular, since Scope 3 emissions require data across the supply chain, it is essential to closely cooperate with supply chain partners and establish a reliable data collection system. To this end, it is necessary to strengthen company-wide capabilities to fulfill disclosure obligations through close collaboration among all relevant departments, such as finance, environment, legal, and investor relations.