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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. This law mandates that firms with annual revenues above $500 million that conduct business in California must report on climate-related financial risks and the steps they are taking to manage them.
The first reports are due by January 1, 2026, and companies will then need to file updates every two years. Subsidiaries are not required to prepare stand-alone reports if their parent companies disclose on their behalf. Insurance companies are also excluded from the regulation’s scope.
To ease compliance, CARB will allow companies to use existing reporting frameworks, including 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.
One notable clarification in 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. Companies may also provide qualitative rather than quantitative scenario analysis, a change that follows industry feedback.
The draft checklist for SB 261 outlines minimum expectations across four categories:
Describe board and management oversight of climate risks and opportunities.
Outline identified climate risks and opportunities and the resilience of corporate strategy under different climate scenarios.
Explain processes for identifying, assessing, and managing climate risks.
Disclose metrics and targets used to measure and manage climate risks.
California’s new law requires companies to integrate climate considerations into their governance and financial planning. The state’s alignment with global frameworks such as TCFD and IFRS S2 positions its rules within the mainstream of international standards. For global investors, the new law provides greater visibility into how U.S. companies are assessing climate risks.
