California SB 261 Critical Updates: Get Compliant by January 2026
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Today, I would like to discuss some critical updates regarding California’s Climate-Related Financial Risk Act, commonly referred to as the California Senate Bill 261 (SB 261). For entities conducting business in California that generate $500 million or more in annual revenue, they will be required to disclose their climate-related financial risks and mitigation strategies by January 1, 2026, on both their website and on a public docket as published by the California Air Resources Board (CARB). Furthermore, these disclosures will be required to be updated every two years after the initial reporting date (January 1, 2026).
Based on feedback provided on California SB 261, a virtual public workshop was held on August 21, 2025, by CARB, to provide further clarification regarding the reporting requirements under its proposed legislation (SB 261).
I will provide a brief overview of some of the clarifications provided by CARB to help you determine if your entity will be required to comply with SB 261 and what maintaining compliance entails. You may also review a copy of the SB 261 guidance distributed by CARB during the workshop, here.
Key CARB Clarifications on California SB 261
Who is required to comply with SB 261?
There are two criteria that MUST be met to determine if an entity is required to comply with SB 261:
1. Must be a U.S.-based entity (public or private) conducting business in California, as defined by state law.
2. Has $500 million or more in total annual revenue.
CARB is considering leveraging the California Secretary of State’s business entity database to identify companies that may potentially be in scope to comply with SB 261. Furthermore, for entities that are not conducting business in California but have remote employees who telework in California, these entities are exempt from SB 261, as they are not considered to be doing business in California.
In addition, CARB has updated its definition regarding “revenue” as many of the feedback provided to CARB on SB 261 indicated that the initial definition of total annual revenue was too expansive. Currently, CARB considers revenue as “the total global amount of money or sales a company receives from its business activities and does not include operating costs or other business expenses[1]”.
[1] California Air Resources Board (August 21, 2025). SB 253/261/219 Public Workshop: Regulation Development and Additional Guidance: https://ww2.arb.ca.gov/sites/default/files/2025-08/SB%20253%20261%20workshop%20slides%208-21.pdf
What is considered an SB 261-compliant report?
CARB provides minimum reporting requirements that entities need to satisfy to be compliant with SB 261, which include the following:
Statement on the reporting framework applied (i.e., TCFD framework, ISSB Standards) to meet the disclosure requirements of SB 261.
Discussion surrounding the disclosures that have been complied with and those that have not.
Summarized statement regarding the reasons why disclosures have not been included and any plans for future disclosures.
Discussion covering the four pillars of climate-related risk disclosures as recommended by the TCFD Framework: governance, strategy, risk management, metrics and targets.
Furthermore, entities will need to disclose their process for identifying, assessing, and managing climate-related financial risks, including physical and transitional risks.
What is the implementation fee associated with California SB 261?
Entities complying only with SB 261 must pay an estimated implementation fee of $4,160 and an annual reporting fee of $1,403. Entities subject to both SB 261 and SB 253 will pay an estimated $2,596 implementation fee and $3,106 annual fee.
Refer to the CARB guidance published on August 21, 2025, to determine if your entity will also be subjected to the SB 253 requirements. You may find this guidance, here.
Wrap Up
As many of my regular readers are aware, I hold the Fundamental of Sustainability Accounting (FSA) Credential as issued by the IFRS Foundation, which is a globally recognized designation for professionals integrating sustainability and financial performance, and has provided me with ISSB Standards expertise.
If you need help preparing your California SB 261 report, schedule a free consultation with me. If you would like your draft report reviewed for alignment with ISSB Standards, contact me to discuss. ISSB Standards—specifically, IFRS S2-Climate-Related Disclosures—already include TCFD Recommendations, so you do not need to adjust your SB 261 report.
Resources Referenced:
(California Air Resources Board) SB 253/261/219 Public Workshop: Regulation Development and Additional Guidance: https://ww2.arb.ca.gov/sites/default/files/2025-08/SB%20253%20261%20workshop%20slides%208-21.pdf