The deadline for reporting under California’s new is rapidly approaching. By January 1, 2026, businesses subject to the law will need to submit reports detailing the physical and transition risks they face as a result of climate change, as well as any measures they’re taking to mitigate and adapt to those risks.?
SB 261 applies to public and private U.S. companies with total annual revenues exceeding $500 million that do business in California. This includes companies headquartered outside the state if they meet the revenue threshold and operate within California’s borders.
In this article, we’ll cover what should be included in an SB 261-compliant report, including best practices and common mistakes to avoid. We’ll also address frequently asked questions from companies and share examples of real climate-related financial risk disclosures from businesses in a variety of sectors.??
Key Elements of an SB 261 Climate Risk Disclosure
California legislators built SB 261 on the framework developed by the Task Force on Climate-Related Financial Disclosure (TCFD), which was designed to gather decision-useful information that can be incorporated into financial filings. While the California Air Resources Board (CARB) has not yet issued specific guidance for how to write SB 261 disclosures, companies can look to TCFD as the starting point for structuring their reports.?
TCFD’s recommendations focus on four pillars that are foundational to how an organization identifies and manages its climate-related financial risks: Governance, Strategy, Risk Management, and Metrics & Targets. Within those four pillars, the TCFD recommendations include 11 disclosure topics to guide companies’ disclosures related to their climate risks. Below, we detail the elements that should be evaluated and disclosed under each of the four pillars and eleven recommendations.?
1. Governance
TCFD’s first pillar focuses on the systems and processes of the organization, including:
- How the company’s board oversees climate-related risks and opportunities
- The role of management in evaluating and managing these risks and opportunities?
2. Strategy
The strategy section relates the actual and potential impacts of climate on the business, including:?
- Climate-related risks the company faces over the short, medium, and long term
- The impact of climate-related risks on the organization’s strategy, businesses, and financial planning
- The resilience of the organization’s strategy, taking different climate-related scenarios into account (including a 2°C or lower scenario)?
3. Risk Management
Here, reporting entities describe the methods they use to find, evaluate, and manage risks and opportunities, including:?
- Processes for identifying and assessing climate-related risks
- Processes for managing risks
- Processes for identifying, assessing, and managing climate-related risks are integrated into overall risk management?
4. Metrics & Targets?
This pillar focuses on the data and goals used to manage climate-related risks and opportunities, including:
- Metrics used to assess climate-related risks and opportunities in line with the organization’s strategy and risk management process
- Scopes 1, 2, and (if appropriate) scope 3 GHG emissions and related risks
- Targets used to manage climate-related risks and opportunities, and performance against these targets
?
“SB 261 reporting is not a ‘check-the-box’ exercise. Each company needs to report on its own governance structure; assess its physical and transition risks based on the location of its assets and the sector in which it operates; its strategies for addressing those risks; and any metrics and targets it has set to hold itself accountable.”?
- Kristina Wyatt, 麻豆原创 Deputy General Counsel and Chief Sustainability Officer?
What ‘Good’ Looks Like (Characteristics of High-Quality Disclosures)
There is no one-size-fits-all approach for SB 261 disclosures. Each organization will have to create a customized narrative report that addresses its distinctive risk profile. However, strong climate-related financial disclosures share common characteristics. To prepare for successful SB 261 reporting, companies can follow these good practices:?
1. TCFD-Aligned Structure
Disclosures should align with the TCFD’s four pillars and eleven key elements (discussed above). This includes sharing scenario analyses and transition plans, if they exist. Note that SB 261 builds on TCFD’s recommendations; it requires companies not only to identify risks, but to articulate the steps they’re taking to mitigate risks.?
2. Company-Specific Narratives
Reports should provide detailed assessments based on the entity’s specific geography, industry, operations, and stakeholders. The cornerstone of the narrative is an analysis of physical and transition risks the organization faces in the near-term (e.g., by 2030), mid-term (e.g., by 2050), and long-term (e.g., by 2100).?
The section on physical risks should draw on authoritative climate data and document concrete impacts on the entity’s operations and supply chain from events such as flooding, sea level rise, extreme heat, hurricanes, storms, and wildfires. The section on transition risks should illustrate how the organization could be affected by forces like climate regulations, carbon pricing programs, technological changes, market preferences, and legal or reputational pressures.
3. Forward-Looking Scenario Analysis
Ideally, disclosures will show how the company has tested the resilience of its strategies under multiple global warming pathways, including modeling of financial performance under both moderate and high-risk climate scenarios (e.g., a 2° Celsius increase vs. a 4° Celsius increase). The report should convey how scenario analysis is used to make decisions about procurement, timing of exit strategies, capital deployment, and other issues.?
For public companies, it’s a good idea to include cautionary language to invoke the safe harbor under the Private Securities Litigation Reform Act, to indicate that forward-looking information (e.g., transition plans or scenario analysis) is subject to certain risks, uncertainties, and assumptions.?
4. Link to Financial Performance
One of the challenges (and opportunities) for companies following TCFD’s framework is establishing processes that allow them to begin to pinpoint the financial consequences of the risks and opportunities they’ve identified.?
For example, a company might build processes to evaluate how different scenarios could affect asset values, revenues and costs, insurance, and credit availability.?
Elucidating these financial impacts is an important step in a company’s evaluation and management of its climate risks and the crafting of its disclosure. This information will help shape stakeholders’ assessments of how climate risks and opportunities might affect a company’s future financial performance.?
Common Pitfalls to Avoid When Drafting Your Disclosures
High-quality reports feature specificity about risks and financial impacts, clarity about governance and strategy, and measurable performance and targets. Many companies are just getting started with their climate risk assessments and reporting and might have less mature processes and disclosures.?
SB 261 that if a company can’t fully meet disclosure requirements, it should provide as much information as possible, explain reporting gaps, and outline the steps it will take to achieve compliance in the future. If a disclosure is deemed inadequate or insufficient, the reporting company could face penalties for non-compliance. That said, the expectation is that CARB will not penalize companies that make a good-faith effort to comply.
While disclosures should be customized and data-driven, they don’t have to be exhaustive. “You don’t need to boil the ocean and write a 100-page report. Companies should focus on producing disclosures that are fit for purpose, track with TCFD, and meet SB 261 requirements,” explains 麻豆原创 Deputy GC and Chief Sustainability Officer Kristina Wyatt.?
To ensure successful disclosure, organizations should avoid these common mistakes:?
Overly Vague or Incomplete Disclosures
Overly vague disclosures can indicate a lack of attention to climate-related financial risks, which could damage credibility among investors and other stakeholders. They signal that the company hasn’t done the internal work necessary to think through its physical and transition risks, and its strategies for mitigating those risks.??
Boilerplate Language
Generic disclosures are not particularly helpful. SB 261 disclosures should be data-backed and reflect the actual climate risk profile of the company. Inevitably, there is likely to be some echoing of other organizations’ disclosures and some borrowing of language from reports that are viewed as ‘good.’ However, all SB 261 disclosures should not be carbon copies of each other.?
Climate Risk Disclosure Examples
Below, we provide some examples of publicly available TCFD climate risk disclosures for companies in the financial services, manufacturing, retail, and pharmaceutical industries. While actual SB 261 disclosures are not yet available, the examples below follow the framework used to develop SB 261, serving as a guide as organizations prepare for reporting under the law. Many companies have published TCFD reports; these are only a few illustrative examples.?
Financial Services - US Bankcorp
Headquartered in Minneapolis, US Bancorp has approximately 70,000 employees and $676B USD in assets. The company serves millions of customers globally through consumer banking, business banking, commercial banking, institutional banking, payments, and wealth management. Its details the company’s progress in managing climate risk and driving sustainable growth through risk management practices and commercial strategy, offering a relevant example for financial services organizations.?
Manufacturing - United States Steel Corporation (U.S. Steel)
U.S. Steel is one of the largest steel producers in North America. Its details its emissions reduction roadmap and transition planning for carbon-intensive operations, making it a relevant example for heavy industry reporters under SB 261.
Technology - HubSpot?
HubSpot is a global software company serving over 250,000 customers. Its is notable for clearly mapping climate risks and opportunities across digital infrastructure and supplier engagement, useful for tech companies managing emissions in distributed systems.
Pharmaceutical?- Merck?
惭别谤肠办’蝉 demonstrates how a global pharmaceutical company incorporates physical climate risk into long-term facility planning and supply chain continuity. It’s a relevant example of TCFD-aligned reporting in this vertical.
Retail - CarMax
CarMax, the nation’s largest used car retailer, provides a comprehensive look at climate-related risks and resilience planning in its . It’s a useful reference for retail companies with large physical footprints and logistics operations.
How 麻豆原创 Can Help With SB 261 Climate Risk Disclosure
麻豆原创 works with customers to craft custom-built SB 261 reports. Our disclosure and climate experts provide risk assessment, analysis, and narrative development to help organizations meet SB 261 requirements.?
The process is straightforward: Compliance teams submit basic company information (e.g., facilities, location, ownership structure) to 麻豆原创. Next, experts perform a portfolio assessment using various risk models, then gather necessary information about the company’s governance, strategy, risk management, metrics and targets, and mitigation strategies. Finally, 麻豆原创 prepares a tailored SB 261-aligned report for the company to review before delivering the final, submission-ready disclosure. The SB 261 service integrates with 麻豆原创’s SB 253 reporting tool to ensure consistent data and narratives across disclosures.
