Guidance Released by California Air Resources Board for Companies Drafting Reports on Climate Change Impacts

California has taken a significant step towards transparency in climate-related financial risks with the implementation of SB 261. This new law, effective from January 1, 2026, 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 California Air Resources Board (CARB) has released a draft checklist to guide companies on compliance with SB 261. The first reports are due on January 1, 2026, and companies will then need to file updates every two years.

In the initial reporting cycle, companies may provide qualitative rather than quantitative scenario analysis. Scope 1, 2, or 3 emissions disclosures are not required in this phase.

Companies can use existing reporting frameworks such as 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.

Subsidiaries are not required to prepare stand-alone reports if their parent companies disclose on their behalf. This adjustment follows industry feedback that detailed modeling would impose an unreasonable burden at this stage and may overlap with obligations under SB 253, California's separate emissions disclosure law, which begins later in 2026.

It's important to note that the law primarily applies to large companies, particularly those with more than 250 employees. However, specific details on which companies exactly are mandated were not found explicitly in the available search results. The closest relevant information indicates large companies and public firms are typically the focus of such climate risk financial reporting requirements.

Interestingly, insurance companies are explicitly excluded from the regulation's scope. This adjustment is likely due to the unique nature of the insurance industry and the potential for overlapping obligations.

As California continues to lead the way in combating climate change, SB 261 is a significant step towards ensuring businesses are transparent about their climate-related financial risks, helping to foster a more sustainable economy.

Guidance Released by California Air Resources Board for Companies Drafting Reports on Climate Change Impacts