The Deadline for California’s Mandated Climate Risk Disclosures (SB 261) is Fast Approaching

Both SB 261 and SB 253 apply to corporate entities based on annual revenue thresholds and “doing business in California,” which will be officially defined in the implementing regulations. During public webinars in May and August 2025, CARB signaled that they are considering the following definitions: 

• Annual revenue is “the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.” This definition does not deduct operating costs or other business expenses and, according to CARB, is consistent with metrics used by major data reporting entities, such as Dunn & Bradstreet, Standard & Poor, and Data Axle. 
• “Doing business in California” may be indicated by any of the following: 
  • Being organized or commercially domiciled in California 
  • Having an “active” listing on the CA Secretary of State’s database 
  • Having $735,019+ of sales in CA, inflation-adjusted in future years OR >25% of total sales 
  • Having $73,502+ of total real and tangible property OR >25% of total property in state 
  • Having $73,502+ payroll compensation OR >25% of total payroll in CA 

Note that CARB is considering defining parent and subsidiary relationships based on ≥50% operational control. Parent entities can choose to report for their in-scope subsidiary companies for SB 261 and 253, if desired, or in-scope subsidiaries can report individually. 

CARB has stated that the following entities may be exempted from SB 261 compliance:  

• Non-profit and government entities 
• The CA Independent System Operator (CAISO) 
• Businesses whose only activity in CA consists of wholesale electricity transactions that occur in interstate commerce 
• Any company whose only business in CA is the presence of teleworking employees 
• Entities that are “in the business of insurance” are exempted from SB 261, but not SB 253

To comply with SB 261, companies need to publish a climate-related financial risk report biannually, on or before January 1, 2026, and pay an annual program administration fee (currently anticipated to be ~$3,000) to avoid a non-compliance penalty of $50,000 per reporting year. Note that each in-scope subsidiary is subject to the fee, and companies subject to both SB 261 and SB 253 must pay both program fees. SB 261 reports should use the most-recent and best-available data. Once reports are finalized, companies should submit a link to their publicly accessible report via CARB’s public docket, which is expected to open on Dec. 1, 2025, and close on July 1, 2026. 

Reports should apply either the 2017 TCFD recommendations or their successor framework, the International Financial Reporting Standards body’s second standard (IFRS S2, discussed in more detail in the following section). Regardless of the chosen framework, reports need to cover climate-related governance, strategy, metrics and risk management topics. Reports should include a qualitative or quantitative climate scenario analysis, assessing the resilience of the organization’s strategy and how risks and opportunities may change under two or more plausible future scenarios. Required disclosures include management and Board oversight of climate-related risks; the potential impacts of climate-related risks and opportunities on the company’s operations, strategy and financial planning; metrics used to manage climate-related risks and opportunities; and the integration of climate-related risks into the company’s ERM. 

Note that IFRS S2 compliance requires disclosure of Scope 1, 2 and 3 emissions, in accordance with the GHG Protocol. However, CARB has clarified that GHG emissions disclosures are not required in this first cycle of SB261 reporting, even if companies are following the IFRS S2 standard. This reporting exemption is due to the difference in eligibility requirements and reporting deadline between SB 261 and SB 253. 

Reach out to TRC for further guidance based on CARB announcements, reporting best practices and your company’s unique situation. 

In selecting required climate risk reporting frameworks, CARB is seeking to enable interoperability with existing international climate disclosure requirements, such as the European Union’s Corporate Sustainability Reporting Directive (CSRD), mandatory TCFD reporting in many countries and growing international momentum toward TCFD’s successor framework, IFRS S2. Therefore, CARB currently allows reporting entities to follow either the TCFD recommendations or IFRS S2’s more rigorous and detailed standards.  

If companies have not yet written a climate-related financial risk report, TRC recommends starting with a TCFD-aligned report and then evolving toward IFRS S2 compliance in future reporting cycles. Following the TCFD framework is an excellent step toward insightful climate risk analysis and transparent reporting. IFRS S2 compliance requires additional quantitative analysis, more specific metrics, transition plan details and more thorough governance disclosures. See additional details in the graphic below. TRC can help you evaluate gaps in IFRS S2 readiness and accelerate gap-filling progress, if desired. 

Key Disclosures Included in IFRS S2 Compliance vs. TCFD Recommendations

Several additional US states are currently considering laws similar to SB 261 and SB 253, including New York, New Jersey, Illinois, Colorado and Washington. What’s more, over 35 countries already have laws requiring TCFD- or IFRS-aligned climate risk reporting, with at least seven more nations currently drafting such laws. Even if companies do not currently operate in these states or countries, they may choose to publish climate risk reports, to prepare for future possible market expansions. 

An increasing number of companies are also choosing to voluntarily assess their climate-related financial risks, even if they’re not operating in states or countries implementing such laws. TCFD- or IFRS-aligned reporting is rapidly becoming a market and customer expectation. Additionally, in 2024, MSCI found that annual returns from climate risk “leaders” on their All Country World Index (ACWI) outperformed those of “laggards” by 2-3% annually over the last 10 years. By rigorously assessing climate-related risks and opportunities, companies can improve enterprise risk management processes, prepare for potential supply chain and productivity impacts, and boost corporate and community resilience. Organizations can also increase efficiency, uncover innovative revenue opportunities, enhance brand value, raise employee engagement, future-proof their portfolios and more. Therefore, climate risk reports represent a sizeable value creation opportunity above and beyond the current compliance needs.