On September 2, 2025, the California Air Resources Board (CARB) released a draft checklist to guide companies within the scope of SB 261 in preparing climate-related financial risk reports. This law, codified in Health and Safety Code § 38533, mandates that companies with annual revenues exceeding $500 million and doing business in California publicly disclose their climate-related financial risks and the measures they are taking to reduce and adapt to those risks. The first reports are due January 1, 2026, and must be updated every two years. For a more detailed discussion of SB 261, see our previous client alert.
Who Must Report and How
The reporting requirement applies broadly to large companies operating in California, with an exemption only for insurance companies regulated by the California Department of Insurance or those in the insurance business in other states. Companies must post their climate risk reports on their own websites and submit the link to a public docket maintained by CARB, which will be open from December 1, 2025, to July 1, 2026. This centralized docket is intended to promote transparency, allowing the public to easily access and review all submitted reports. If a parent company prepares a consolidated report, its subsidiaries are not required to submit separate reports.
Choosing a Reporting Framework
CARB’s checklist recognizes that companies may already be reporting climate-related risks under various frameworks. To accommodate this, the law allows companies to choose among several established approaches, including the Task Force on Climate-related Financial Disclosures (TCFD), the International Financial Reporting Standards Sustainability Disclosure Standards (IFRS S2), or other government or regulated exchange frameworks. Whichever framework is selected, CARB’s guidance states that the company must clearly state which one it is using, specify which recommendations and disclosures are included or omitted, and provide reasons for any omissions. Companies are also encouraged to outline any plans for future disclosures.
Minimum Disclosure Requirements
CARB’s checklist establishes a set of minimum requirements for what must be disclosed for SB 261’s initial reporting period. These requirements are designed to ensure that reports provide meaningful information to investors and other stakeholders, focusing on what is material to the company’s operations and financial outlook. CARB explicitly recognizes that the exact details in a given disclosure report will necessarily vary based on the company that is reporting and permits discretion on the part of the preparers. That said, CARB encourages companies to use a lens of decision-usefulness for investors and other company stakeholders when exercising this discretion, ensuring that reports reflect a company’s efforts to assess and communicate risk.
Governance
Companies must describe their governance structure for managing climate-related financial risks. This includes explaining how management oversees these risks and opportunities, and, if the company has a board of directors, how the board is involved in oversight. The goal is to clarify who within the organization is responsible for climate risk management and how accountability is maintained.
Strategy
At minimum, the report also should discuss the actual and potential impacts of climate related risks and opportunities on the company’s operations, strategy, and financial planning. Companies must identify climate-related risks and opportunities over the short, medium, and long term, and describe how these factors influence their business decisions. Importantly, companies should also address the resilience of their strategies in the face of future climate change, considering different climate scenarios. While CARB is not requiring a detailed quantitative scenario analysis at this time, the checklist encourages a qualitative discussion, especially if it is relevant and feasible for the company.
Risk Management
Because effective risk management is a cornerstone of credible climate-related financial disclosures, companies must explain how they identify, assess, and manage climate related risks, including the processes they use and how these are integrated into their overall risk management systems. CARB notes that this transparency helps build confidence among investors and stakeholders that climate risks are being managed proactively and consistently.
Metrics and Targets
In addition to narrative disclosures, companies in this first reporting period are required to share the metrics and targets they use to assess and manage climate-related risks and opportunities. These metrics should be material to the company’s efforts to reduce and adapt to climate-related risks. For the initial reporting period, CARB does not require companies to report greenhouse gas emissions (Scope 1, 2, and 3), acknowledging that collecting this data may be challenging within the legislative timeline and may be duplicative of the forthcoming SB 253 requirements.
Additional Guidance and Principles
CARB is explicit that its checklist is intended as a baseline and does not have the force of law; the statute and any future regulations will take precedence if a conflict arises between the checklist and the statute or regulations. When preparing their reports, companies are encouraged to consult the detailed guidance provided by their chosen reporting framework, such as TCFD or IFRS S2, for sector-specific recommendations and definitions of materiality.
Still, CARB’s checklist emphasizes several key principles to guide disclosures: disclosures should focus on material risks and measures, be useful for decision-making by investors and stakeholders, and be transparent and publicly accessible. Companies have flexibility to tailor their reports to their circumstances and stakeholder interests but must ensure that the information provided is clear, relevant, and meets the statutory requirements.
