SB 261 Compliance Countdown: What California Businesses Must Do Now

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California's Senate Bill 261 (SB 261), also known as the Climate-related Financial Risk Act, mandates that large companies assess and publicly disclose their climate-related financial risks. SB 261 is one of three climate-related bills in California enacted in 2023, which collectively require companies to report on their greenhouse gas emissions (SB 253), climate-related financial risks (SB 261), and voluntary carbon offset activities (AB 1305).

With the first SB 261 reports due by January 1, 2026, it is key that businesses understand the bill’s compliance requirements to prepare effectively. The easy-to-follow roadmap at the end of this article will help companies put an actionable plan into place to prepare for compliance and meet the upcoming deadline.

Covered Parties

Who must comply with SB 261?

SB 261 applies to U.S.-based corporations, partnerships, limited liability companies, and other business entities with total annual revenues exceeding $500 million that do business in California. Notably, the law excludes insurance companies from its scope. 

On May 29, 2025, the California Air Resources Board (CARB) held a public workshop to discuss the implementation of SB 261. The session provided updates on compliance timelines, reporting frameworks, and definitional clarifications crucial for entities preparing for the upcoming disclosure requirements. In its May workshop, CARB outlined the SB 261 applicability criteria as: 

  • Revenue Threshold: Entities with total annual revenues exceeding $500 million in the prior fiscal year are subject to SB 261. This threshold considers global revenue, not just revenue generated within California. 

  • Doing Business in California: CARB proposes adopting the definition of "doing business" from the California Revenue and Taxation Code Section 23101. Under this definition, an entity is doing business in California if it meets any of the following conditions: 

    • Is the company organized or commercially domiciled in California?

    • Engages in transactions for financial gain within the state.

    • Has California sales exceeding $735,019 (for 2024)?

    • Owns real or tangible personal property in California exceeding $73,502 (for 2024). 

    • Pays compensation in California exceeding $73,502 (for 2024)

Reporting Requirements

What must be done?

For entities subject to SB 261, the parent company or all subsidiaries must prepare a biennial climate-related financial risk report that includes:  

  • A description of climate-related financial risks, aligned with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations or equivalent standards.

  • Measures adopted to reduce and adapt to identified climate-related financial risks.

While the TCFD has been succeeded by the International Sustainability Standards Board (ISSB) and its IFRS S2 Climate-related Disclosures Standard, organizations preparing disclosures under California’s SB 261 can still use the TCFD framework as a valid and effective starting point. The TCFD’s four-pillar structure of Governance, Strategy, Risk Management, and Metrics and Targets remains aligned with SB 261’s expectations and provides a clear, practical roadmap for identifying and reporting climate-related risks and opportunities. CARB, which oversees SB 261 implementation, has emphasized the importance of aligning disclosures with internationally recognized frameworks like TCFD and IFRS S2 to support consistent and streamlined reporting for entities operating across multiple jurisdictions.

That said, the global momentum is clearly shifting toward the ISSB’s IFRS S2 standard, which builds upon and strengthens the TCFD framework with more detailed and standardized disclosure requirements. While IFRS S2 is rapidly emerging as the new global baseline for climate-related reporting, organizations that are not yet able to fully comply can still utilize the TCFD framework, so long as they identify any gaps relative to IFRS S2 and outline plans for addressing them. This phased approach enables companies to gradually enhance their climate reporting capabilities and data infrastructure while staying aligned with both SB 261 requirements and broader sustainability reporting trends. Early alignment with IFRS S2 also positions organizations for long-term success as regulatory expectations evolve globally.

Climate-related financial risk disclosure reports must be publicly accessible on the company’s website and submitted to CARB. Companies must also submit a statement affirming the report’s disclosure of climate-related financial risk to California’s Secretary of State. Alongside these disclosure submissions is an annual administrative fee paid to CARB. 

CARB plans to continue engaging with stakeholders through additional workshops and public comment periods. This collaborative approach is intended to refine the implementation process and address concerns from affected entities. 

Reporting Timeline

When is the deadline?

The first climate-related financial disclosure risk report for SB 261 is due on January 1, 2026, and will be required every two years thereafter. In June 2024, Governor Newsom’s administration proposed a bill to delay the implementation timeline of SB 261 and other California climate bills by two years, following the governor's concerns that the timelines for SB 253 and SB 261 were infeasible. The California legislature rejected this proposal on September 9, 2024. In its May workshop, CARB reaffirmed that the initial reporting deadline for SB 261 remains January 1, 2026. Despite ongoing discussions about the specifics of the reporting requirements, no extensions or delays are anticipated.

Bill Enforcement

What are the penalties?

Failing to publish a disclosure or publishing an inadequate disclosure can result in administrative penalties of up to $50,000 per year. While SB 261 does not include specific safe harbor provisions, it directs the overseeing body of CARB to consider a company’s compliance history and “good faith efforts” when imposing penalties. In the initial reporting period of 2026, CARB announced it will only administer penalties for non-compliance, not incomplete reporting. The agency is expected to exercise enforcement discretion, particularly for entities actively working toward fulfilling their disclosure obligations. This enforcement approach emphasizes the need for companies subject to SB 261 to start preparing now. 

In addition, entities that do not fully comply with TCFD- or IFRS S2-aligned disclosure requirements may invoke the “comply or explain” provision, allowing them to provide a reasonable explanation for any omission in their report. 

While SB 261 is self-executing and does not mandate CARB to implement regulations, the agency is contemplating whether to provide formal regulations or guidance to assist entities in compliance. Stakeholder feedback is being requested to inform this decision.

SB 219

How has SB 261 changed?

Both SB 261 and SB 253 were modified in September 2024 by SB 219. SB 219 modified SB 261’s annual fee, originally paid upon filing the disclosure, to follow a payment schedule assigned by CARB. The amendment also removed the requirement for CARB to contract with a nonprofit to conduct an analysis of the submitted disclosures and monitor federal regulatory actions, instead authorizing CARB to pursue such contracting at its discretion.

Compliance Roadmap

How does a company prepare?

Below are 7 steps that a business can follow to ensure it is prepared to comply with SB 261 by January 1, 2026:

  1. Assess Applicability: Determine if the company meets the revenue threshold and conducts business in the state of California.

  2. Establish Governance: Form a cross-functional team to oversee climate risk assessment and reporting.

  3. Conduct Risk Assessment: Evaluate climate-related financial risks using IFRS S2 or equivalent frameworks.

  4. Develop Mitigation Strategies: Identify and implement measures to manage identified risks.

  5. Prepare the Report: Compile findings into a comprehensive report, ensuring clarity and transparency. Companies already producing climate risk disclosures for other jurisdictions may adapt those reports to meet the requirements of SB 261, provided they align with IFRS S2 or equivalent standards.

  6. Ensure Public Accessibility: Publish the report on the company’s website and submit the report to CARB. Submit a statement to the California Secretary of State that the report prepared and filed discloses climate-related financial risk in accordance with SB 261.

  7. Pay the Fee: Pay CARB’s annual administrative fee according to the schedule published by CARB.

Note that steps 3, 4, and 5 can be significant tasks for a company’s internal team, as they require both time and extensive knowledge of the chosen standard. Engaging external support that can provide targeted expertise and clear guidance on standard alignment can help ease the burden on internal stakeholders and ensure timely compliance.

KERAMIDA has established a straightforward process for SB 261 compliance that helps streamline the steps above and simplify the path forward. From identifying gaps and assessing risks to preparing a clear and comprehensive report, we help companies meet these requirements while reducing the pressure on their internal teams. Take a closer look at our approach with our SB 261 Compliance Process.

Conclusion

SB 261 represents a significant step in California’s efforts to address climate change by enhancing corporate transparency regarding climate-related financial risks. Companies meeting the criteria must act promptly to assess risks, develop mitigation strategies, and prepare for the upcoming reporting deadlines.

KERAMIDA has extensive experience working with clients to prepare reports that comply with TCFD, IFRS S2, and other standards. Contact us or call (800) 508-8034 to speak with one of our ESG compliance reporting experts to get started.

Author

Kendra Roesner, MPA-MSES
Senior Analyst, Sustainability
KERAMIDA Inc.

Contact Kendra at kroesner@keramida.com

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