California enacted two significant climate disclosure laws, Senate Bill 253 (SB 253), the Climate Corporate Data Accountability Act, and Senate Bill 261 (SB 261), the Climate-Related Financial Risk Disclosure Act. These laws, effective in 2026, impose novel and wide-reaching disclosure and reporting obligations on large business entities “doing business” in the state.
SB 261 applies to entities “doing business in California” with annual revenues over $500 million. These entities must publicly disclose climate-related financial risks[1] and mitigation efforts every two years via a report on a public-facing website. Disclosure “reports” are due January 1, 2026, with a public docket opening December 1, 2025, for regulated entities to post links to their public-facing reports.
New CARB disclosure guidance
The California Air Resources Board (CARB) published the “Climate-Related Financial Risk Disclosures: Draft Checklist” (Draft Checklist) on September 2, 2025, following its second public stakeholder workshop (August 21, 2025).[2] The Draft Checklist is intended to help covered entities prepare for upcoming compliance deadlines and answers to many frequently asked questions (FAQs) on SB 261 applicability and requirements.
Key Guidance Areas of the Draft Checklist
- Disclosure requirements. Covered entities must address governance, strategy, risk management, and metrics/targets in their climate-related financial risk reports, including:
- Governance: A description of the organization’s governance structure for identifying, assessing, and managing climate-related financial risks, including board and management oversight.
- Strategy: A disclosure of the actual and potential impacts of climate-related risks and opportunities on the company’s operations, strategy, and financial planning. This includes a discussion of the resilience of the company’s strategy under various climate scenarios, which may be qualitative.
- Risk management: An explanation of how the company identifies, assesses, and manages climate-related risks, and how these processes are integrated into overall risk management.
- Metrics and targets: A disclosure of the metrics and targets used to assess and manage relevant climate-related risks and opportunities, where material.
- Applicability. Insurance companies regulated by the California Department of Insurance or in the business of insurance in any state are exempt from SB 261.
- Reporting data period. For the initial report, companies should use the most recent and best available data, as SB 261 does not specify calendar or fiscal year reporting.
- Use of existing reports. Companies may leverage existing climate risk disclosures if they meet SB 261 requirements and are posted on the company’s website, with a public link submitted to CARB’s docket.
- Parent and subsidiary reporting. Parent companies may report on behalf of their subsidiaries, potentially eliminating the need for separate subsidiary disclosures. However, companies should carefully evaluate corporate relationships, reporting boundaries, and timelines to ensure that disclosures are consistent, do not conflict with other reporting obligations, and do not unintentionally convey misleading or incomplete information.
- Greenhouse Gas (GHG) emissions reporting. Disclosure of Scope 1, 2, and 3 GHG emissions is not required for the initial compliance period but may be included if appropriate and third-party verified. Companies should, however, monitor additional GHG emission report requirements under SB 253 and other frameworks.
- Alignment with voluntary frameworks: Entities may use Task Force on Climate-related Financial Disclosures (TCFD), International Sustainability Standards Board (ISSB), or other regulated frameworks[3] to meet disclosure requirements. However, they must clearly identify the framework used and explain any omissions, as well as any plans for future disclosures, using the selected framework as the reference point.
CARB’s approach to climate disclosures
CARB’s Draft Checklist signals a strong intent to harmonize California’s disclosure requirements with leading global frameworks and regulatory trends. The approach mirrors international efforts such as the European Union’s Corporate Sustainability Reporting Directive (CSRD) and Sustainable Finance Disclosure Regulation (SFDR), the United Kingdom’s Climate-Related Financial Disclosure Regulations (CFDR), Australia’s Sustainability Reporting Standards, and Mexico’s Sustainability Reporting Standards—all of which build on TCFD and ISSB principles.
The Draft Checklist reinforces global best practices, emphasizing:
- Materiality: Focus on financially significant risks and opportunities
- Scenario analysis: Assess resilience under plausible climate futures
- Integration: Embed climate risk into governance and enterprise risk management
- Transparency: Ensure public posting and, where applicable, third-party verification
This alignment reflects growing recognition of the financial impacts of climate risks, ranging from extreme weather to regulatory shifts on supply chains, asset values, and capital access, as well as increasing investor and stakeholder demand for forward-looking, detailed disclosures.
CARB’s pending rulemaking
While CARB’s Draft Checklist and other guidance is helpful to determine the likelihood of compliance obligations under SB 261 and prepare for compliance deadlines, CARB still needs to issue draft regulations to fully implement reporting and disclosure requirements. CARB plans to release proposed regulations implementing SB 253 and SB 261 by the end of the year, allowing only a short window for interpretation for the January 1, 2026, deadline.
Practical steps for legal, sustainability, and compliance teams
Given the scope and complexity of California’s climate disclosure rules and the fast-approaching deadlines, companies should act now to assess whether the requirements apply to them and begin strengthening their governance, strategy, and risk management frameworks as needed. Early preparation is essential to ensure compliance and to align with evolving regulatory and stakeholder expectations. Companies can take several proactive steps now, including:
Review the Draft Checklist and CARB Guidance
Familiarize yourself with CARB’s Draft Checklist, accompanying guidance, and the underlying voluntary frameworks such as TCFD and ISSB, which inform the expected disclosure approach.
Determine Applicability and Assess Compliance Readiness
Conduct a threshold analysis—including affiliated entities—to determine if your organization meets the revenue threshold and California business presence criteria. Evaluate your current climate risk governance, data collection, and disclosure practices against CARB’s expectations. Identify gaps and develop a roadmap to strengthen governance and risk management systems.
Begin Preparing for Disclosure
Determine whether an existing report can be leveraged to meet SB 261 requirements or begin drafting a new climate-related financial risk report. Ensure alignment with your chosen framework and focus on material risks, strategic impacts, and risk management processes.
Looking ahead
CARB’s guidance and requirements are evolving. Companies should stay informed, track regulatory updates, and engage in the rulemaking process as appropriate. Businesses can sign up for CARB’s rulemaking alerts here.
- Under SB 261, a “climate-related financial risk” means material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health. California Health and Safety Code §38533(a)(2).
[Back to reference] - CARB held its first public workshop on May 29, 2025, and subsequently issued guidance in the form of FAQs addressing both SB 253 and SB 261. See Nixon Peabody’s prior alert on this guidance here.
[Back to reference] - More specifically SB 261 provides that reporting entities may use (i) the Final Report of Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) (June 2017) published by the TCFD (or any successor), (ii) the International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board (IFRS S2), or (iii) a report developed in accordance with any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the US government.
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