California Air Resources Board clarifies requirements for companies above $500 million revenue operating in the state.
First climate-related risk reports due by January 1, 2026; biennial reporting thereafter.
Scope 1–3 emissions excluded initially, with alignment to other regulations such as SB 253 to follow.
Sacramento Moves First on Climate Disclosure
The California Air Resources Board (CARB) has released its draft checklist to guide companies as they prepare for compliance with the state’s new climate risk disclosure law, SB 261. The measure requires firms with annual revenues above $500 million that conduct business in California to report on climate-related financial risks and the steps they are taking to manage them.
The first reports are due January 1, 2026, marking one of the earliest state-level requirements for climate risk transparency in the United States. Companies will then need to file updates every two years.
Clarifications on Scope and Method
The guidance answers a series of questions raised by businesses since the passage of SB 261. CARB confirmed that subsidiaries are not required to prepare stand-alone reports if their parent companies disclose on their behalf. Insurance companies are also explicitly excluded from the regulation’s scope.
To ease compliance, CARB will allow companies to use existing reporting frameworks. These include the Task Force on Climate-related Financial Disclosures (TCFD), the International Financial Reporting Standards Foundation’s IFRS S2, and equivalent systems endorsed by exchanges or national governments.
Emissions and Scenario Analysis
One of the most closely watched aspects of the guidance is the decision not to require Scope 1, 2, or 3 emissions disclosures in the first reporting cycle. CARB noted that such requirements could be duplicative with SB 253, California’s separate emissions disclosure law that begins later in 2026.
Similarly, companies may provide qualitative rather than quantitative scenario analysis. The adjustment follows industry feedback that detailed modeling would impose an unreasonable burden at this stage and may overlap with obligations under SB 253.
RELATED ARTICLE: California Delays Full Enforcement of Climate Reporting Rules for FY 2025
Four Pillars of the Checklist
The draft checklist lays out the minimum expectations under SB 261 across four categories:
Governance – Companies must describe board and management oversight of climate risks and opportunities, including how climate factors are embedded in governance structures.
Strategy – Disclosures must outline identified climate risks and opportunities across short, medium, and long-term horizons, their impact on operations and planning, and the resilience of corporate strategy under different climate scenarios.
Risk Management – Reports must explain processes for identifying, assessing, and managing climate risks, and how these processes integrate with overall enterprise risk management.
Metrics and Targets – Companies are required to disclose metrics and targets used to measure and manage climate risks, including any adopted to adapt or reduce exposure.
CARB describes the checklist as a “starting point,” emphasizing that firms should tailor disclosures to material risks while maintaining comparability across sectors.
Implications for Business Leaders
For executives and investors, California’s approach offers a preview of how climate disclosure frameworks could be operationalized in the United States absent federal rules. The Securities and Exchange Commission has yet to finalize its own climate disclosure regulations, leaving states like California to set the pace.
With over 5,000 companies expected to fall under SB 261, the law creates a de facto national standard given California’s economic weight. Firms outside the state but with significant California operations will be captured, pressing C-suites to integrate climate considerations more directly into governance and financial planning.
Wider Policy and Global Context
California’s climate disclosure package, including SB 261 and SB 253, is being watched closely by regulators worldwide. The state’s alignment with global frameworks such as TCFD and IFRS S2 positions its rules within the mainstream of international standards while also pushing the U.S. market toward greater comparability.
For global investors, the new law adds another layer to the patchwork of reporting requirements. Yet, it also provides greater visibility into how U.S. companies are assessing climate risks—information increasingly material to portfolio management, insurance pricing, and credit analysis.
Looking Ahead
As the 2026 deadline approaches, companies will need to assess governance readiness, map exposure to physical and transition risks, and prepare for eventual alignment with more demanding emissions reporting. For boards and executives, California’s checklist provides an early signal of where disclosure expectations are headed: integrated into strategy, grounded in risk management, and transparent to markets.
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