On September 2, the California Air Resources Board (CARB) published its long-awaited draft guidance on compliance with California’s Climate‐Related Financial Risk Act (S.B. 261) (codified in Health & Safety Code Section 38533).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 The FAQs provided some additional guidance on CARB’s expectations for reports under S.B. 261; however, the draft guidance published on September 2 (previewed at CARB’s August 21 webinar) constitutes the first significant guidance dedicated to S.B. 261 published by CARB.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 Companies should thus ensure that they familiarize themselves with the draft guidance and refer to it when preparing their initial reports.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 SB 261, considering the nearness of the January 1 deadline and the potential duplication for companies required to report emissions under SB 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 climatedisclosure@arb.ca.gov. 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.
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