Guidance Released by California Air Resources Board for Companies Drafting Climate-Related Financial Reports
California's Air Resources Board (CARB) has released a draft checklist to guide companies for compliance with SB 261, California's new climate risk disclosure law. This law, set to take effect in 2026, will require companies with annual gross revenue over $1 billion operating in California to report on climate-related financial risks and actions. Companies with annual revenues above $500 million also fall under the law's purview.
The new law adds another layer to the patchwork of reporting requirements for global investors, providing greater visibility into how U.S. companies are assessing climate risks. California's approach to climate disclosure offers a preview of how frameworks could be operationalized in the United States absent federal rules.
The draft checklist outlines minimum expectations under SB 261 across four categories: Governance, Strategy, Risk Management, and Metrics and Targets.
In the Governance category, companies are required to describe board and management oversight of climate risks and opportunities. The Strategy category mandates disclosures outlining identified climate risks and opportunities across short, medium, and long-term horizons.
The Risk Management category requires reports to explain processes for identifying, assessing, and managing climate risks. The Metrics and Targets category requires companies to disclose metrics and targets used to measure and manage climate risks.
Subsidiaries are not required to prepare stand-alone reports if their parent companies disclose on their behalf. However, 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.
Full enforcement of climate reporting rules has been delayed for FY 2025. In the meantime, companies may provide qualitative rather than quantitative scenario analysis in the initial reporting cycle.
Insurance companies are explicitly excluded from the regulation's scope. Over 5,000 companies are expected to fall under SB 261, creating a de facto national standard given California's economic weight.
CARB describes the checklist as a "starting point," emphasizing that firms should tailor disclosures to material risks while maintaining comparability across sectors. The first reports are due on January 1, 2026, with biennial reporting thereafter.
Companies can use existing reporting frameworks like the Task Force on Climate-related Financial Disclosures (TCFD), IFRS S2, and equivalent systems endorsed by exchanges or national governments. California's climate disclosure package is being watched closely by regulators worldwide.
As we move towards a more sustainable future, SB 261 is a significant step forward in ensuring transparency and accountability in climate risk management. Companies operating in California will need to adapt to these new disclosure requirements to stay competitive and demonstrate their commitment to addressing climate change.
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