As the deadline for reporting under California SB 261 approaches, we’re helping hundreds of organizations gather and analyze data to prepare their reports, and some common themes have emerged. Companies are asking for clarity about the timing of the law, who has to comply, and what, specifically, needs to be included in the report.?
Below, we share answers to the top questions we’ve heard from companies preparing their first SB 261 reports.*
?*Please note that these responses reflect our best judgment based on the information available to date and are not intended to provide legal advice; you should consult with your company’s legal counsel about how to best comply with the law.
SB 261 Timing and Deadlines
Q: Has CARB extended the reporting deadline for SB 261??
No. The first SB 261 reports are due January 1, 2026. We have not seen anything that indicates that the reporting deadline is being extended. It could be that the December 1-July 1 submission window is the period before which CARB will establish a more permanent filing repository. It also indicates that CARB will be collecting reports and monitoring compliance during that period. Companies that don't post by July 1, 2026, may find themselves exposed as potential enforcement targets.
Q: Does the GHG inventory need to be from 2025? Can we use what we filed in our 2024 sustainability report??
CARB clarified in its that, for the initial SB 261 reports, covered entities should report GHG emissions data for either their most recently completed fiscal year or the most recent year for which data is available, which may be the 2024 fiscal year.
Again, CARB has indicated that it will be looking for good faith efforts to comply. Specifically, CARB states, “it is reasonable to expect that initial climate-related financial risk reports submitted by January 1, 2026, may cover fiscal years (FY) 2023/2024 or FY 2024/2025, depending on the organization.”?
We’ve been asked if a company can use its 2021 TCFD report; while this is a good place to start, CARB’s guidance indicates that it will likely be looking for more recent information.?
Which Companies Have to Comply With SB 261?
Q: Do we have clarity on what “doing business in California” means??
CARB hasn't yet issued its rules to define what it means to "do business in California." They have indicated that they will issue proposed rules by the end of the year that will give a further sense of how they are thinking about this definition. They did issue some indicative guidance in FAQs they recently issued, where they pointed to the California Franchise Tax Board, which in turn points to the California Revenue and Taxation Code Section 23101.
Q: If a holding company with no independent operations has a number of subsidiaries, one of which is “doing business in California,” does that cause the parent company to also be “doing business in California,” such that it would have reporting obligations covering all of its consolidated subsidiaries?
CARB has indicated that a parent company with only one subsidiary doing business in California will not need to report for all its subsidiaries, but rather, the subsidiary doing business in California will be able to report on its own. In materials from its CARB states: "CARB staff is seeking input on a process where companies may choose to self-report on parent-subsidiary relationships to avoid reporting for multiple entities under the same parent company."
Q: Which entity of a company needs to report? The parent company, the affiliate operating in California, or others??
Any US entity that does business in California and meets the revenue threshold of $500M USD has a reporting obligation. However, SB 261, as amended by SB 219, provides that climate-related financial risk reports may be consolidated at the parent company level, and subsidiaries are not required to prepare separate climate-related financial risk reports.
Q: Is the $500M revenue threshold only for revenue generated from operations in California, or does it cover the total consolidated global revenue of the entity?
Total consolidated global revenue. If your subsidiary has revenue below $500M USD,? but your parent company exceeds the threshold, you will need to comply.?
What Does SB 261 Require Companies to Disclose??
Q: If CARB has not finalized its requirements, how do we know what to report?
The law is considered “self-implementing” for its first round, so you must adhere to the legislative text and the guidance provided in CARB’s FAQs, enforcement notice, and other guidance in the interim. Many companies are following the language of the law, the guidance CARB has issued, and the interpretive materials underpinning the TCFD and IFRS S2. CARB will be looking for good faith measures to comply in this first year, not perfection.?
Q: Do companies need to report on both physical and transition risks??
Yes, companies subject to SB 261 must report on both physical and transition risks.?
Q: Where can we find more clarity on the types of risks to include???
The law states: "Climate change is affecting California’s communities and economy with impacts including wildfires, sea level rise, extreme weather events, extreme droughts, and associated impacts to the global economy." That gives some indication of the types of risks that should be considered. The TCFD framework provides more detailed guidance.?
麻豆原创 partners with First Street to help companies identify the physical climate-related risks they face. Our assessment of transition risks evaluates companies’ exposure to factors related to the transition to a lower-carbon economy, including regulatory, commercial, financing, and other risks.
Q: Is the risk disclosure specific to California??
No, the disclosure should address climate risks within and outside of California.?
Q: Does the scenario analysis pertain just to US sites or global sites??
Our understanding is that SB 261 applies to physical risks wherever the company’s properties are and not solely those within the United States. That said, CARB has also made it clear that companies may use the best available information they have during this first reporting year, so if data as to climate risks for properties outside the United States is not available, it might make sense to start with a risk assessment of your US properties.?
Q: Do we need to assess risks in our supply chain?
If supply chain risks represent material risks to your business, you should consider their inclusion. SB 261 defines “climate-related financial risk”? to mean “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.”?
Q: Do we have to publish the financial impacts of the risks we identify? What is the expected level of granularity??
SB 261 refers specifically to the TCFD framework, which calls for companies to disclose the “actual and potential impacts of climate-related risks and opportunities” on businesses, strategy, and financial planning, where material. While SB 261 does not specify an exact quantitative threshold or required breakdown (for example, it does not mandate an itemized dollar value for each risk), it does require disclosure of material financial risks in sufficient depth to be decision-useful and reflective of board-level oversight.
The required granularity is thus consistent with TCFD expectations: Organizations should quantify risks and impacts where possible but may supplement with qualitative analysis when quantification is not reasonably feasible. Again, CARB has made it clear that it is not expecting perfection, particularly in the first year of reporting. If your company does not have quantitative information available, it seems reasonable to conclude that you should provide a qualitative assessment.?
Q: Is the expectation for a snapshot of the previous years, or is it forward-looking?
The law contemplates an assessment of risk both for the prior fiscal year and on a forward-looking basis, considering risks over the short, medium, and long term. The law doesn't define those time periods, but asks companies to disclose how they define “short, medium, and long term.” For many companies, these periods will align with their existing enterprise risk management frameworks.
Q: Is there a specific format we should use for our SB 261 report? Will there be a submission form/portal??
As mentioned above, CARB hasn’t published examples, but there are many examples of TCFD reports, and their length, format, and depth vary widely. We don’t expect that CARB will require any specific format, and it is our opinion that a first report should endeavor to address the four pillars and 11 recommendations of the TCFD, based on the information you have available.?
SB 261 and TCFD Alignment?
Q: How closely should disclosures align with TCFD’s framework? Do companies need to share information for each TCFD pillar??
California legislators built SB 261 on the framework developed by the TCFD, which was designed to gather decision-useful information that can be incorporated into financial filings. Reporting entities are expected to do their best to address the TCFD’s four pillars and 11 key elements, including sharing scenario analyses and transition plans, if they exist.?
Q: Do we need to perform a scenario analysis to fully align with TCFD??
Yes. However, this is an area where the “good faith” concept may provide flexibility. Our best assessment is that, in this first report, CARB will be satisfied with good faith efforts to cover the four pillars of the TCFD, even if it isn’t possible to conduct quantitative scenario analyses. In future years, CARB could raise its expectations.
Q: ISSB is more rigorous than TCFD, and TCFD is technically “retired.” Will SB 261 require alignment with ISSB in the future??
It does not seem likely. SB 261 has been enacted into law and points to the TCFD or ISSB. Any change that would require ISSB alignment would necessitate an amendment to the law.
Q: TCFD requires a lot more than just a list of climate risks. To what extent does SB 261 require entities to follow TCFD’s guidance regarding metrics?
Companies are required to disclose climate-related financial risks and mitigation strategies in accordance with the TCFD framework or an equivalent standard. This includes reporting on the TCFD’s “Metrics and Targets” pillar—not just listing climate risks, but also providing the relevant quantitative and qualitative metrics used to assess climate-related risks and opportunities. This includes:
- Scope 1 and scope 2 greenhouse gas (GHG) emissions, and if appropriate, scope 3 emissions (if they are material to the company’s risk profile).
- Related targets the company has set to manage climate-related risks and opportunities, and progress against these targets
That said, as discussed above, CARB is not looking for perfect reporting, particularly in the first year, but rather evidence that the company has taken good faith measures to comply. Specifically, SB 261 states: “If a covered entity does not complete a report consistent with all required disclosures pursuant to clause (i) of subparagraph (A), the covered entity shall provide the recommended disclosures to the best of its ability, provide a detailed explanation for any reporting gaps, and describe steps the covered entity will take to prepare complete disclosures.”
SB 261 Implementation and Enforcement
Q: How strict will California be in the first year?
Again, CARB isn’t looking for perfection in the first year. The law provides that CARB should consider companies’ “good faith” measures to comply when it assesses whether to bring enforcement actions under the law. In its , CARB clarified: “To provide a phase-in period for reporting, climate-related financial risk disclosures made pursuant to the upcoming statutory deadline (January 1, 2026) may be based on the best available information, including information from fiscal years 2023/2024 or 2024/2025 (see above). CARB also recognizes that data quality and data sources may change over the course of the year, if additional data collection methods are put in place later.“
Q: What does "good faith effort" mean?
SB 261 says: "(2) The state board shall adopt regulations that authorize it to seek administrative penalties from a covered entity that fails to make the report required by this section publicly available on its internet website or publishes an inadequate or insufficient report. The administrative penalties authorized by this section shall be imposed and recovered by the state board in administrative hearings conducted pursuant to Article 3 (commencing with Section 60065.1) and Article 4 (commencing with Section 60075.1) of Subchapter 1.25 of Chapter 1 of Division 3 of Title 17 of the California Code of Regulations. The administrative penalties imposed on a reporting entity shall not exceed fifty thousand dollars ($50,000) in a reporting year. In imposing penalties for a violation of this section, the state board shall consider all relevant circumstances, including both of the following:
(A) The violator’s past and present compliance with this section.
(B) Whether the violator took good faith measures to comply with this section and when those measures were taken."?
This doesn't provide a great deal of guidance as to what "good faith measures" means, so we are applying our best judgment.?
Q: Will private companies have to submit their disclosures publicly?
Yes. Private companies that are in scope of the law will have to publicly disclose their climate risk reports.
Q: Can we use our CDP report for SB 261 compliance?
Looking at your CDP responses is a sensible starting point because CDP incorporates the ISSB standards/ TCFD recommendations into its questionnaire and scoring. However, you will still be required to link to your disclosure on your website and enter information in the CARB docket, to be opened on December 1, 2025.
Q: What is the business value of SB 261 compliance??
The law is designed to go beyond being a check-the-box compliance exercise. It provides potential business value by enhancing risk management, easing access to capital, revealing opportunities, and driving long-term resilience, especially in the face of evolving transition risks. Transition risk under SB 261 refers to business impacts as the world moves toward a low-carbon economy. These include changes in regulations, customer demand, technology, and societal expectations. Even with political pushback, market demands continue to move global commerce toward decarbonization. This law will help companies to consider how those changes might impact their business.
SB 261 Disclosure Resources?
Q: Are there examples of compliant SB 261 reports we can look at?
While CARB hasn't posted any sample reports, the TCFD has, for years, published an annual review of filings, which can serve as a guide. ” also provides examples of companies that are reporting well to the TCFD/ ISSB standards. For additional examples, read our article “SB 261 Disclosure: What ‘Good’ Looks Like.”
Q: Are companies completing climate risk assessments to comply with SB 261? If yes, what resources are they using?
Yes. In our experience, many organizations are conducting climate risk assessments to comply with SB 261. 麻豆原创 supports customers in drafting SB 261 reports, including helping them assess their risks and evaluate their governance, strategy, risk management, and metrics and targets in line with the TCFD. We partner with First Street to conduct a physical risk assessment to inform that piece of our analysis. We also find that some companies have long had practices of preparing TCFD reports and are continuing with those practices in compliance with SB 261. Other customers are looking to law firms or other advisory firms to help them prepare.
We offer a climate-related financial risk report as a service, custom-built for SB 261 compliance. You can learn more here.
Q: Where can I find additional guidance from CARB??
You can find additional clarification in .?
