SB 261 California is part of the state’s Climate Accountability Package, requiring large companies to publicly disclose climate-related financial risks and explain how they’re managing them.
This isn’t about carbon emissions. It’s about the financial impact of climate change—and whether your company has a strategy to survive it.
SB 261 focuses on long-term business resilience in a world shaped by wildfires, heatwaves, regulatory shifts, and decarbonization pressure.
It’s modeled after the Task Force on Climate-related Financial Disclosures (TCFD), the global benchmark for climate risk reporting.
Who Must Comply with SB 261?
You need to comply with SB 261 California if your business:
Has more than $500 million in total annual revenue, and
Does business in California, even if it’s headquartered elsewhere
This includes public and private companies across industries—unless you’re in the business of insurance, in which case you’re exempt.
A few important notes:
SB 261 applies to parent companies and subsidiaries
If a parent company discloses risk at the group level, a qualifying subsidiary doesn’t need to file separately
The law covers U.S.- and non-U.S.-based firms as long as they operate in California
What Is Climate-Related Financial Risk?
SB 261 defines it as material risk of harm to short- or long-term financial outcomes due to either:
In short: if climate change could impact your cash flow, value chain, or investor relationships, you need to address it.
What Does the SB 261 Report Include?
By January 1, 2026, companies must publish a climate-related financial risk report that covers:
The climate-related financial risks your business faces
How you’re reducing or adapting to those risks
Alignment with the TCFD framework or an equivalent standard
If you can’t provide all the required information, you must:
State which sections are incomplete
Explain why the data isn’t available
Describe how and when you plan to fill the gaps
Reports must be publicly accessible on your company website to meet SB 261 California compliance requirements.
When Do You Need to Report?
Date
Requirement
January 1, 2026
First SB 261 report due (published on company website)
Every 2 years
Ongoing biennial disclosure cycle
There’s no assurance requirement (yet), but expect increasing scrutiny from investors, boards, and regulators over time.
The California Air Resources Board (CARB) will also review company reports and publish its own findings every two years.
What Frameworks Does SB 261 Use?
SB 261 relies on the TCFD framework, which is organized around four key pillars:
Pillar
Focus Area
Governance
Board and management oversight of climate-related risks
Strategy
How climate risks/opportunities affect your business model
Risk Management
Processes to identify, assess, and manage climate risk
Metrics & Targets
How you measure and monitor climate-related impact
You can also comply using ISSB (IFRS S2) standards, or equivalent government-mandated frameworks that meet TCFD-level disclosure requirements.
What Are the Penalties for Non-Compliance?
SB 261 gives CARB the authority to penalize companies that:
Fail to publish a report
Publish a report deemed “inadequate” or “insufficient”
Maximum penalty: $50,000 per reporting year
The state will consider whether the company acted in good faith—i.e., made an effort to comply, disclosed limitations, and planned improvements.
How SB 261 Compares to Other Climate Disclosure Laws
Requirement
SB 261
SB 253
SEC (Proposed)
CSRD (EU)
Applies to
Revenue > $500M
Revenue > $1B
Public companies
Companies meeting EU thresholds
Focus
Climate-related financial risk
GHG emissions
Both (proposed)
ESG risks & impacts
Standard
TCFD
GHG Protocol
TCFD + GHG
ESRS (EU Sustainability Standards)
Frequency
Biennial
Annual
Annual (proposed)
Annual
Scope 3 Required?
No
Yes
Possibly
Yes
SB 261 is focused and strategic. It doesn’t duplicate SB 253 or CSRD—it complements them.
How Sprih Can Help
Sprih supports companies preparing for SB 261 through:
Climate risk mapping across physical and transition dimensions
Customizable templates aligned with TCFD and ISSB S2
Collaboration tools to involve legal, risk, and sustainability teams
Integration with existing emissions data and scenario analysis
Readiness reviews and gap assessments for board visibility
You don’t need to start from scratch. We’ve already helped businesses in logistics, real estate, and food sectors prepare actionable, investor-ready reports that meet SB 261 expectations.
Ready to assess your climate risk strategy?
Talk to our climate expert to get started on your compliance journey.
FAQs
What is SB 261 and what does it require companies to disclose?
SB 261, known as the Climate‑Related Financial Risk Act, mandates covered companies to prepare and publicly disclose a climate‑related financial risk report every two years. This report must detail the physical and transition risks posed by climate change and the measures the company has taken to mitigate or adapt to those risks, following the Task Force on Climate‑related Financial Disclosures (TCFD) framework or an equivalent standard.
Which companies are subject to SB 261 reporting requirements?
Any U.S.-based corporation, LLC, partnership or similar entity with annual revenue exceeding USD 500 million and “doing business in California,” except insurance companies, is covered by SB 261.
When is the first SB 261 report due and how often must reporting occur?
The first climate‑related financial risk report is due on or before January 1, 2026 (based on fiscal year 2025 data), with subsequent reports required biennially (every two years) thereafter.
How are the risks defined under SB 261?
SB 261 defines climate-related financial risk as material harm to short- or long-term financial outcomes caused by either physical risks—such as wildfires, floods or extreme heat—or transition risks, including carbon pricing, regulatory changes and shifting consumer demand.
What must the risk report include if full disclosure isn’t possible?
If a company cannot provide all required disclosures, it must explain which sections are incomplete, describe why the data is unavailable, and outline the steps it will take to fill those gaps in future disclosures.
Are there penalties for non‑compliance, and what enforcement mechanism exists?
Covered entities that fail to publish a report or submit an inadequate one may face administrative penalties of up to USD 50,000 per reporting year. CARB will contract with a nonprofit reporting organization to review disclosures and identify any inadequate reporting.
Is third‑party assurance required for SB 261 reports?
Currently, SB 261 does not mandate third‑party assurance on risk reporting. However, if the report includes descriptions of greenhouse gas emissions or voluntary emissions mitigation, those sections may be subject to third‑party verification standards applied under SB 253 requirements.
How can companies begin preparing for SB 261 compliance before final guidance is issued?
Companies are advised to align early reporting efforts with the TCFD framework or IFRS S2 standards. They should begin identifying and assessing physical and transition risks, and develop mitigation/adaptation strategies in advance of regulatory clarity from CARB, expected by mid‑ to late 2025.
