What is the California Climate-Related Financial Risk Act (SB 261)?
SB 261 is codified at California Health and Safety Code section 38533. It covers a corporation, partnership, limited liability company, or other business entity formed under U.S. law when its prior-fiscal-year revenue exceeds USD 500 million and it does business in California. Insurance businesses are excluded. The United States reporting guide explains how SB 261 fits beside other U.S. rules.
A public report is due every two years and must use the 2017 Task Force on Climate-related Financial Disclosures (TCFD) recommendations, a successor, or an accepted equivalent such as the IFRS Sustainability Disclosure Standards. It must cover material risks from climate hazards (physical risks), risks from policy, market or technology change (transition risks), and measures adopted in response. If disclosures are incomplete, section 38533(b)(1)(B) requires the best available disclosures, a detailed explanation of each gap, and steps toward completion.
Why does SB 261 matter to you?
CARB administers the law. Investors, lenders, parent-company teams, and customers may also ask for risk information. For each material risk, name the affected operation or financial line, who oversees it, how it enters normal planning and risk management, what you measure, and what you have done about it. A generic list of droughts, floods, or policy changes does not show how the risk could affect the business.
Section 38533(f)(2) authorizes administrative penalties of up to USD 50,000 in a reporting year for a missing, inadequate, or insufficient public report. CARB cannot currently enforce SB 261 under the court injunction described below.
How does SB 261 work?
Start with the legal entity. Record its place of formation, prior-fiscal-year revenue, facts showing that it does business in California, and whether the insurance exclusion applies. Do not use a foreign parent's global revenue as a substitute for the entity-level test.
Choose and name the reporting framework. Identify material physical and transition risks over short, medium, and long periods. Explain their actual or potential effects on operations, strategy, and financial planning. Describe board and management oversight, how risks enter the company's normal risk process, the resilience of its strategy under relevant climate scenarios, the metrics and targets used, and measures already adopted. CARB says scenario discussion may be qualitative. A parent may publish one consolidated report for covered subsidiaries.
What mistakes should you avoid?
- Applying the revenue threshold to a foreign parent without testing the U.S.-formed entity that may be covered.
- Treating the original 1 January 2026 date as enforceable now, or treating the injunction as repeal of the statute.
- Naming climate hazards without explaining their material financial effects, time periods, oversight, and adopted responses.
- Claiming full TCFD or IFRS alignment while leaving omitted disclosures and completion steps unexplained.
Is SB 261 currently enforceable?
No. On 18 November 2025, the Ninth Circuit enjoined enforcement of SB 261 while the appeal in Chamber of Commerce v. Sanchez, case 25-5327, remains pending. CARB says it will not enforce the 1 January 2026 statutory deadline and currently accepts reports voluntarily. Check both the court order and CARB guidance before relying on a later date.
Does SB 261 cover a business formed outside the United States?
Not by itself. Section 38533(a)(4) requires formation under U.S. federal, state, or District of Columbia law. A foreign parent may have a U.S.-formed subsidiary that must be tested separately, and a qualifying subsidiary can be included in a consolidated parent report.
Can a parent company publish one SB 261 report?
Yes. Section 38533(b)(2) permits a consolidated parent report. A covered subsidiary does not need a separate report when the parent reports for it, but the public filing should identify the subsidiaries included and cover their material climate-related financial risks.