CARB Publishes Draft Guidance for Initial Reports Under California’s Climate‐Related Financial Risk Act (S.B. 261)

Update: On November 18, 2025, in connection with the U.S. Chamber of Commerce’s challenge to S.B. 253 and S.B. 261 on First Amendment grounds, the Ninth Circuit Court of Appeals issued an injunction barring enforcement of S.B. 261 pending appeal. However, the Court denied the Chamber’s request for an injunction to bar enforcement of S.B. 253. Oral argument in the appeal is currently scheduled for January 9, 2026. The S.B. 261 reporting deadline remains unclear but will presumably be sometime in 2026 if the Court concludes that S.B. 261 passes constitutional muster.

Update: On September 24, 2025, the California Air Resources Board (CARB) published a “preliminary list” of reporting/covered entities under S.B. 253 and S.B. 261 based on the statutory requirements of being US-based, meeting the annual revenue threshold of $500 million or more, and doing business in California.

CARB developed the list using matched California Secretary of State (SoS) registered business data with a proprietary dataset. CARB noted in its announcement that “the SoS dataset used in staff’s analysis includes only active filings through March 2022 and may be missing companies. Due to a lack of a universal unique ID to match entities across datasets, staff used a partial match of company name fields between the datasets.” Additionally, CARB noted that the list does not include the potential exemptions discussed at the August. 21, 2025 workshop.

CARB also clarified that this preliminary list is not determinative of whether an entity has reporting obligations, stating that “each potentially-regulated entity remains responsible for compliance with statutory requirements, regardless of whether it was included in staff’s preliminary list or outreach.” Companies should therefore continue to evaluate the applicability of S.B. 253 and S.B. 261 based on the statutory criteria and draft guidance from CARB.

To help validate the information in CARB’s preliminary list of entities, CARB is seeking stakeholder feedback through a survey tool. CARB is encouraging entities that believe they may be subject to these requirements, or may qualify for an exemption, to complete the survey on a voluntary basis.

On September 2, CARB published its long-awaited draft guidance on compliance with California’s Climate‐Related Financial Risk Act (S.B. 261) (codified in Health & Safety Code Section 38533). Companies subject to S.B. 261 must publish their initial climate-related financial risk report on their website by January 1, 2026, and post the location of the link to the report on CARB’s public docket.

S.B. 261 requires companies to disclose climate-related financial risk and the measures adopted to reduce and adapt to climate-related financial risk in biennial reports prepared in accordance with certain frameworks; however, the law does not describe the specific information companies must include in those reports. Subject companies have thus been eagerly awaiting guidance from CARB on what information they must include in their initial reports. CARB previously published a set of FAQs addressing certain aspects of S.B. 261 and its sister law, the Climate Corporate Data Accountability Act (S.B. 253) (codified in Health & Safety Code Section 38532). The FAQs provided some additional guidance on CARB’s expectations for reports under S.B. 261; however, the draft guidance published on September 2 (previewed at CARB’s August 21 webinar) constitutes the first significant guidance dedicated to S.B. 261 published by CARB.

The January 1, 2026, reporting deadline under S.B. 261 is fast approaching. Although CARB’s guidance is in draft form, major changes are unlikely considering that, as we describe below, the guidance generally reiterates the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Companies should thus ensure that they familiarize themselves with the draft guidance and refer to it when preparing their initial reports.

Details:

S.B. 261 requires subject companies to disclose their climate-related financial risks (defined by the law to include material risks) in accordance with one of the following frameworks:

• The Final Report of Recommendations of the TCFD (June 2017) (“TCFD Recommendations”) (or any successor),
• The International Financial Reporting Standards Sustainability Disclosure Standards, as issued by the International Sustainability Standards Board (IFRS S2), or
• A report developed in accordance with any regulated exchange, national government, or other governmental entity, including a law or regulation issued by the U.S. government.

S.B. 261 does not elaborate on the content of these frameworks or what companies must disclose at a minimum to comply with the law. Additional uncertainty arises from the fact that the TCFD Recommendations are (as their name indicates) recommendations and not phrased as mandatory reporting requirements. Subject companies have thus faced challenges in determining what specifically must be disclosed in their initial reports.

The draft guidance is more high-level than most companies were likely hoping for, though it does state explicitly what CARB considers to be “minimum requirements.” Presented as a “Draft Checklist,” CARB explains that the guidance is intended as a “starting point” and “baseline” for reporting entities. Companies may choose to provide more detail depending on their circumstances and chosen reporting framework.

The Draft Checklist is essentially a high-level overview of the four thematic “pillars” of the TCFD Recommendations (Governance, Strategy, Risk Management, and Metrics & Targets).

In brief, the Draft Checklist outlines the following steps/minimum disclosure requirements:

1. Select reporting framework.

• Companies must state explicitly in their report which statutorily permissible reporting framework they are applying. This requirement and other language in the draft guidance indicate that companies must report in accordance with a single framework.
• Companies must state which recommendations/disclosures they include in their report, summarize reasons for excluding any recommendations/disclosures, and discuss any plans for future disclosures.

2. Governance: Companies must describe their governance structure (if any) for identifying, assessing, and managing climate-related financial risks, including board and management oversight.

3. Strategy: Companies must describe the actual and potential impacts of climate-related risks and opportunities on the company’s operations, strategy and financial planning (where material), including short, medium, and long term climate-related risks and opportunities; the impacts of identified risks and opportunities on operations, strategy, and financial planning; and the resilience of the company’s strategy, if any, taking into consideration the future impacts of climate change under various climate scenarios.

• As previewed during the August 21 webinar, the draft guidance affirms that scenario analysis is not required; companies are expected to discuss the resilience of their strategy in the context of future climate change, but may do so in qualitative terms.
• CARB encourages companies to include qualitative scenario-based assessment where feasible and relevant.

4. Risk Management: Companies must describe how they identify, assess, and manage climate-related risks, including a description of the process used and how those considerations and processes are integrated into their overall risk management.

5. Metrics & Targets: Companies must disclose the metrics and targets used to assess and manage relevant climate-related risks and opportunities adopted to reduce and adapt to climate-related risk (where material).

Though the Draft Checklist mainly reiterates the core TCFD Recommendations, there are several points that companies should pay attention to:

• GHG Emissions: The TCFD Recommendations instruct companies to report Scope 1 and 2 emissions regardless of materiality. As previewed by CARB during the August 21 webinar, CARB is not requiring companies to include GHG emissions in their initial reports under S.B. 261, considering the nearness of the January 1 deadline and the potential duplication for companies required to report emissions under S.B. 253.
• “Climate-related opportunities”: S.B. 261 requires reporting on “climate-related financial risk” and “measures adopted to reduce and adapt to climate-related financial risk” and does not reference “climate-related opportunities.” However, the draft guidance refers in multiple places to both climate-related risks and opportunities (consistent with the scope of the TCFD Recommendations). It thus appears that CARB expects companies to address both climaterelated risks and opportunities, even though the only discussion of climate-related risks is explicitly required by statute. Further clarification from CARB on this point is needed.
• Materiality: The draft guidance provides limited additional guidance on materiality beyond that already provided in the FAQs. In the FAQs, CARB stated that companies should apply the principles of their chosen reporting framework. (The TCFD Recommendations direct companies to determine materiality for climaterelated issues consistent with how they determine the materiality of other information included in their financial filings.) In the draft guidance, CARB states that “[r]eporting entities should focus on disclosing climaterelated financial risks, and measures adopted to reduce and adapt to climate-related financial risk, that are material to their operations and financial outlook, using the lens of decision-usefulness for investors and other stakeholders.”
• Report format: The draft guidance does not address the format of the report, including whether CARB prefers it to be a standalone report. Considering CARB’s comments regarding reducing the administrative burden for companies, we expect CARB to adopt a reasonably flexible approach that prioritizes the substance of the reported information.

CARB is accepting feedback on the August 21 public workshop, where it previewed the S.B. 261 draft guidance, until September 11, 2025. CARB has also invited feedback on implementation proposals for S.B. 253 and S.B. 261 as part of CARB’s informal rulemaking process via email at [email protected]. Companies subject to S.B. 261 should consider whether to provide feedback to CARB on the draft guidance and continue to monitor for further information and guidance from CARB as they prepare for the January 1, 2026, deadline.

B&D's ESG and Climate Change practice groups help clients navigate complex and interrelated legal and reputational issues in the fast-moving area of sustainability. Our experience and capabilities extend to: required or voluntary disclosures, interactions with sustainability rating agencies, supply chain and product stewardship, interactions with suppliers and customers, responsible sourcing, human rights, climate change law and policy, GHG emissions credit trading, environmental justice, facility issues, and more. Coupled with B&D’s robust Clean Air Act regulatory, enforcement, and litigation practice, we offer companies significant and well-rounded capability to understand and incorporate emerging GHG legal and regulatory requirements across their enterprises. With an office in San Francisco, B&D advises clients throughout California on environmental issues affecting their facilities, operations, and products. For more information, please contact the authors.