CARB vs. No-CARB – The California Climate Accountability Package

By Stephen Franciosa, CPA

While deference may be given to the Kyoto Protocol¹ as the standard for reporting greenhouse gas emissions (GHG), the International Federation of Accountants and the International Auditing and Assurance Standards Board sounded the clarion call to disclose GHG emissions in 1977 and 1978. In the half-century since, there has been a cornucopia of standards and frameworks developed not only to address emissions, but climate risks as well. Recent bills enacted by the California Senate will add to the environmental-disclosures burden, which corporations may already be mandated to or voluntarily provide. As such, these expansive and expensive obligations might easily be considered punitive if not onerous.

The California Climate Accountability Package

The latest entries into the fray include Senate Bills 253 and 261 referred to as the California Climate Accountability Package.² SB 253, the Climate Corporate Data Accountability Act, would address Scopes 1, 2 and 3 GHG emissions while SB 261, the Climate Related Financial Risk Act, would address climate risks and measures adopted to reduce and adapt to the risks. Each act would be based respectively on the principles of the GHG Protocol³ and the Task Force on Climate Related Financial Disclosures (TCFD).⁴ According to early-stage proposals, covered entities would be those doing business in California whether or not they had a physical presence in the state. These acts are expected to cover well over 5,000 companies.

The template drafted by the California Air Resources Board (CARB) to report GHG emissions contemplates detailed disaggregation of emissions data beyond the GHG Protocol, which requires reporting of emissions only by material greenhouse gas species in aggregate form.⁵ It is worth noting that the GHG Protocol relies heavily on models and estimates for which companies must often use third-party information, industry averages and proxy data lacking verifiability and auditability. This forces entities to report emissions based on uncertain or unverifiable estimates.

Additionally, climate risk disclosures to be provided by companies to investors and other stakeholders would contain highly granular risk information on a number of subjects, including speculative projections about the resilience of each company’s climate strategies and various hypothetical climate-change scenarios.

I believe the administrative and accounting processes required to comply with the laws could prove to be onerous and expensive. While a company like PepsiCo is pushing back its climate goals,⁶ it may nonetheless be entirely responsive to the directives of the statutes. Exxon, on the other hand, has chosen to resist. If Exxon prevails, California would need to revisit these newly enacted laws.

PepsiCo and CARB

California passed these corporate climate laws in October 2023. In the May/June 2025 issue of the CPA Journal, Ed Esposito, CPA, in his article “California Provides a Welcoming Environment for the Evolution of International Climate Disclosures,”⁷ makes a compelling case for the California laws to be successful. He states that “Because the California laws are equivalent to the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards,⁸ they may come to be seen as the de facto standard on climate disclosures in the United States.”

In December 2024, CARB solicited feedback from a wide range of stakeholders so as to develop approaches to implement the bills. Included in the solicitation were references to applicability, regulation standards and data reporting.⁹ Between September and October 2025, CARB:

• Produced a preliminary list of covered entities (Scoping)
• Developed a draft reporting template (GHG Emissions)
• Published a draft disclosure checklist (Climate Risk)

Scoping

According to the Global Industry Classification Standard (GICS),¹⁰ companies that produce and distribute soft drinks and other non-alcoholic beverages are categorized in the sub-industry of the broader Consumer Staples sector. Prominent companies classified in this sub-industry include PepsiCo, Coca-Cola and Keurig Dr Pepper. PepsiCo is incorporated in North Carolina with the other two incorporated in Delaware. Yet each would be defined as having nexus in California, given their listing on the California Secretary of State Business Entity public database.¹¹

GHG Emissions

In its 2022 Environmental, Social and Governance (ESG) Summary, PepsiCo published indices and framework responses and other topic-specific disclosures. Scope 1, 2 and 3 GHG emissions are disclosed in the Climate Disclosure Project (CDP) Climate Change Questionnaire.¹²

Climate Risk

PepsiCo increasingly adopted TCFD recommendations. This framework helps organizations identify, assess, disclose and manage nature-related dependencies, impacts, risks and opportunities (DIROs).

Also, the Science Based Targets initiative (SBTi)¹³ requires companies in land-intensive industry sectors to set separate climate targets for their forest, land and agriculture (FLAG) emissions. PepsiCo includes disclosures related to FLAG in its annual ESG reports and climate transition plans. To meet its FLAG goals, PepsiCo collaborates with farmers to implement regenerative agriculture practices, which help reduce on-farm GHG emissions and sequester carbon in the soil.¹⁴

Considering the foregoing and with available information from PepsiCo’s Form 10K, its annual financial report, its ESG Summary¹⁵ and its CDP climate change questionnaire, I am certain the targeted disclosures sought in California’s SB 253 and SB 261 laws would be readily available.

Exxon and No-CARB

Exxon filed a suit in October 2025 against several officials with CARB, including Rob Bonta, California’s Attorney General.¹⁶ It argues that the laws overreach and impinge upon a company’s First Amendment right of free speech. The complaint argues that the bills are all the more suspect because they compel speech only by companies above a certain annual revenue threshold. Exxon contends that the First Amendment bars California from pursuing a policy of stigmatization by forcing it to describe and disclose its non-California business activities using the State’s preferred framing.

Exxon’s GICS includes companies in the energy sector that produce and distribute oil, gas and consumable fuels. Chevron, Shell and BP would likewise be companies in this sector. The company, headquartered in Texas, stated it does not currently explore for, produce, manufacture, or transport crude oil or natural gas in California. It has no refining operations in California and the vast majority of its principal business operations occur outside of the state. The company engages in negligible greenhouse gas-emitting activities in California. Exxon stipulates that it already reports emissions and advances policy views in its annual voluntary Advancing Climate Solutions¹⁷ reports.

Exxon further contends that the First Amendment “precedents are deeply skeptical” of laws that “distinguish among different speakers,” requiring speech by some and not others.¹⁸ The Court’s past rulings would forbid California from compelling speech that serves ideological goals, whether of certain investors or other constituencies, and recognizes no valid state interest in regulating Exxon’s speech to extra-territorially regulate its non-California activities.¹⁹ As such, Exxon would be required to make public statements estimating its climate-related financial risk beyond what is required by the Securities and Exchange Commission in Form 10-K filings.

Observations

Michael Littenberg, a corporate partner at the law firm Ropes & Gray, said the filing raised a key question of whether there would be a “pile-on effect” by other companies bringing similar challenges.²⁰ Also consider that the Chevron Doctrine, which established deference to federal administrative agencies, was successfully challenged in 2024.²¹

Interestingly, in an earlier lawsuit filed by the U.S. Chamber of Commerce and other business non-profit groups²², the judge allowed the First Amendment claim to continue. In an appeal to the Ninth Circuit, the plaintiff-appellants stated that the overarching intent of the California laws is to “embarrass” companies that do not fit California’s notion of “who’s green,”²³ and that each statute confirms on its face the State’s goal of stigmatizing companies for their supposed role in creating the “existential” threat of climate change.²⁴

As to SB 253, the plaintiff-appellants state that the law:

• Forces each company to claim “third-party emissions” (GHG Protocol’s Scope 3 disclosures) as its own emissions.
• Precludes businesses from taking account of “avoided” or offsetting emissions, also known as “Scope 4.”²⁵
• Goes much farther than a rule adopted by the SEC that declined to mandate Scope 3 disclosures and could require companies to renegotiate contracts with suppliers and customers.

As to SB 261, the plaintiff-appellants state that the law:

• Would obligate companies to address and speculate about various climate-related issues, including risks (and risk-management processes) ranging from cyclones to changes in government policies.
• Would require “scenario analysis” through modeling how the business would fair under hypothetical future climate conditions.
• Produce reports that would require predictive judgments about uncertain future events, inevitably shaped by subjective assumptions about climate science, economics and politics. These exercises would be required in spite of the TCFD acknowledging a “high degree of uncertainty” when assessing climate risk.

Potential Implications of CARB’s Disclosure Mandates

Could CARB have been shortsighted in mandating companies to publish such wide-ranging information and disclosures? While it may be too early to speculate how the appeal²⁶ to the United States Courts for the Ninth Circuit will be decided, the “unique” claim of a First Amendment violation might necessitate a Supreme Court ruling.

In the interim, how comprehensive will compliance and reporting be by the covered entities? Until the issue is concluded, I wonder if entities might choose to pay less-costly fines for non-compliance and await a conclusive ruling about the validity of the laws.

About the Author: Stephen Franciosa, CPA, is a sole practitioner on City Island in the Bronx, NY. His practice consists primarily of accounting and audit services to small non-profits. He is a member of AICPA, NYSSCPA, NCCPAP and the NYSSCPA Sustainability Accounting and Reporting Community. He has taught accounting and auditing courses at CUNY – Lehman College and Iona University.

Footnotes

1. The Kyoto Protocol

2. California Corporate Greenhouse Gas (GHG) Reporting and Climate Related Financial Risk Disclosure Programs

3. https://ghgprotocol.org/

4. https://www.fsb-tcfd.org/

5. Exxon Mobil Corp. v. Lauren Sanchez, 2:25-at-01462 (E.D. California), October 2025

6. Hudson, Clara. ”PepsiCo Is Pushing Back its Climate Goals. The Company Wants to Talk About It” Wall Street Journal, May 22, 2025.

7. “California Provides a Welcoming Environment for the Evolution of International Climate Disclosures.” CPA Journal

8. IFRS General Sustainability-related Disclosures

9. https://ww2.arb.ca.gov/sites/default/files/2025-01/ClimateDisclosureQs_Dec2024_v2.pdf

10. https://www.msci.com/indexes/index-resources/gics

11. https://www.sos.ca.gov/business-programs/business-entities

12. https://www.cdp.net/en/disclosure-2025

13. https://sciencebasedtargets.org/

14. https://www.pepsico.com/esg-topics/agriculture

15. https://www.pepsico.com/sustainability/report-downloads

16. Exxon Mobil Corp. v. Lauren Sanchez, supra p.1

17. https://corporate.exxonmobil.com/sustainability-and-reports/advancing-climate-solutions#Aboutthereport

18. Exxon Mobile Corp, supra p. 19.

19. Id p. 24.

20. https://www.nytimes.com/2025/10/25/climate/exxon-california-lawsuit-free-speech.html

21. Loper Bright Enterprise v. Raimondo, 603 U.S. 369 (2024)

22. U.S. Chamber of Commerce v. Liane M. Randolph, No. 2:24-cv-801 (9th Cir.), September 2025

23. Id p. 5.

24. Id p. 13.

25. https://plana.earth/glossary/scope-4-emissions

26. https://www.ca9.uscourts.gov/media/video/?20260109/25-5327/

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