This article was updated on March 26, 2026, to reflect developments following the Ninth Circuit’s November 18, 2025, injunction halting enforcement of SB 261, subsequent CARB hearings and enforcement advisories, and CARB’s initial regulatory adoption on February 26, 2026.
In October 2023, the state of California passed two climate-related bills into law: the Climate Corporate Data Accountability Act (CCDAA, SB 253) and the Climate-Related Financial Risk Act (CRFRA, SB 261). Together, these new legislative actions impose much more significant climate disclosure obligations on companies doing business in California, starting as early as 2026. While SB 253 mandates the disclosure of GHG emissions aligned with the GHG Protocol, SB 261 focuses on climate-related financial risks.
Below we’ll cover:
- Latest updates to SB 261
- What disclosures are required under SB 261?
- What is SB 261’s timeline for implementation?
- Does SB 261 apply to my company?
- We anticipate being a covered entity under SB 261 but have not developed a comprehensive climate and/or sustainability plan. Where do we start?
- Does my company reporting need to follow TFCD recommendations or IFRS S2?
- Is a climate risk scenario analysis required under SB 261?
- What companies should do while SB 261 is enjoined?
Latest updates to SB 261
Key recent developments related to SB 261 include:
- On November 18, 2025, the U.S. Court of Appeals for the Ninth Circuit granted an injunction halting enforcement of California’s SB 261, the Climate‑Related Financial Risk Act, pending resolution of an ongoing constitutional challenge brought by several business groups. As a result, CARB is currently prohibited from enforcing SB 261’s January 1, 2026 reporting deadline, The injunction applies broadly and suspends penalties and reporting obligations during the pendency of the litigation.
- Oral argument was held on January 9, 2026, but as of March 2026, the injunction remains in place, and no new SB 261 compliance deadline has been established.
- Despite the injunction, CARB has continued its implementation activities, including holding a public workshop on November 18, 2025 and issuing a December 1, 2025 Enforcement Advisory confirming it will not enforce SB 261 while the injunction is active.
- CARB has opened a voluntary public docket allowing companies that wish to publish climate‑related financial risk reports to submit links to their disclosures, which CARB will review prior to posting publicly.
- On February 26, 2026, CARB adopted initial regulatory language for both SB 253 and SB 261; however, CARB confirmed that SB 261 remains unenforceable unless and until the injunction is lifted
Prior, in May 2025, the California Air Resources Board (CARB) held a virtual public workshop to describe the bill requirements, anticipated rulemaking timeline, and to solicit further public comments. While CARB has not finalized its rulemaking, a Frequently Asked Questions (FAQ) document was published on July 9, 2025 to provide interim guidance on the process, goals, and applicability of both SB 253 and SB 261.
Relevant updates to SB 261 include:
- Proposed definitions of “revenue,” “doing business in California,” and for “parent” and “subsidiary” companies; CARB is soliciting public feedback on these to include in the regulation.
- In December 2025, CARB began hosting a public docket for covered entities to post the link to their climate disclosure report. This provides a centralized location from which the public may access all covered entities’ reports. While the reporting is still voluntary, a significant amount of companies have provided their climate-related financial disclosures within the SB 261 Docket for the public to view.
- While the SB 261 bill text specifies that companies should disclose their climate related financial risks in accordance with TCFD (or subsequent publication), the FAQ document suggests leniency in choosing a reporting framework, as long as companies are disclosing material climate-related financial risks. Health and Safety Code § 38533(a)(2) defines “climate-related financial risk” as material risk of harm to immediate and long-term financial outcomes due to physical and transition risks, including, but not limited to, risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health.
- Initial climate-related financial risk reports may cover fiscal years (FY) 2023-2024 or FY 2024-2025, depending on the organization and the availability of data at the time of publication.
- To provide a phase-in period for reporting, CARB is unlikely to assess penalty fines for inadequate and/or incomplete reports—through it is not precluded from doing so—as long as an entity’s climate-related financial risk disclosures are published with good faith measures to comply with the reporting requirements. It is understood that data quality and sources may not have been developed before the FY reporting period.
What disclosures are required under SB 261?
The bill requires companies that fall within its scope to prepare a climate-related financial risk report once every two years.
Crucially, it calls for the report to be created in alignment with the recommendations set forth by the Task Force for Climate-Related Financial Disclosures (TCFD), published in 2017, or any subsequent publication thereto. The TCFD recommendations are the foremost standard for climate-related financial disclosures and have been utilized and recognized by frameworks and governments around the world. They are structured around four thematic areas that represent core elements of how organizations operate: governance, strategy, risk management, and metrics and targets around climate-related risks and opportunities.
In short, under SB 261, the climate-related financial risk report should:
- disclose the company’s material climate-related financial risks, in alignment with the TCFD’s recommendations
- disclose measures adopted to reduce and adapt to that risk
- explain any reporting gaps and describe plans to address them
- be publicly available on the company’s website
SB 261 also requires the state board to issue administrative penalties to companies that fail to make their disclosures publicly available or that publish insufficient data.
Lastly, reporting companies are required to pay an annual fee to cover the state board’s implementation of the bill.
What is SB 261’s timeline for implementation?
SB 261 originally required covered entities to publish their first climate‑related financial risk report by January 1, 2026, with biennial updates thereafter. However, enforcement of this deadline is currently suspended due to the Ninth Circuit’s injunction. No revised mandatory compliance date has been established as of March 2026, and reporting while the injunction remains in place is voluntary.
Does SB 261 apply to my company?
Mandatory reporters include any U.S. corporation or business entity that does business in California and whose total annual revenues exceed US$500 million. For subsidiaries, reports may be consolidated at the parent company level. Several thousand companies are expected to fall within the bill’s scope.
SB 261 specifically excludes entities that are in the business of insurance (or are subject to regulation by the Department of Insurance).
We anticipate being a covered entity under SB 261 but have not developed a comprehensive climate and/or sustainability plan. Where do we start?
This situation is more common in industries and business models that have not typically needed to disclose climate or sustainability metrics in the past, like privately-held and professional services firms. To start, it is best practice to:
1. Conduct a gap analysis to a framework like TCFD.
This includes mapping existing statements, reporting, processes, and policies to the disclosure data points in the standard. There may be a need to include multiple disciplines within the company to gather needed information, such as legal, human resources, risk management, facilities, and procurement. Benchmarking peer firms is another way to identify what other firms in your industry are disclosing around climate resiliency, which can help prioritize focus areas.
2. Identify which gaps may be closed before the reporting deadline.
While there is no specific performance required under TCFD-alignment, and it is acceptable to disclose that there is no target (or policy, process, etc.), a company will need to communicate how and when it intends to close the gaps. Because the climate-related financial risk reports will be available to the public—and are likely to be used a tool of comparison against peers when making financial and investment decisions—it is good business practice for a company to make concerted efforts to close as many gaps as possible before publishing its report.
3. Prepare and publish a climate-related financial risk report.
Prepare your climate-related financial risk report and make it publicly available, typically on a company’s website. TCFD provides a straightforward outline of its disclosure guidelines, and a company may utilize this format to comply with SB 261.
Companies may conduct the reporting process internally, or engage outside consultants to help provide guidance and support around climate-related financial risk identification and disclosure.
Does my company reporting need to follow TFCD recommendations or IFRS S2?
The SB 261 bill text specifies that entities should publish their climate-related financial risk reports in accordance with TCFD, equivalent jurisdictional standard, or subsequent publication. Because TCFD was disbanded in October 2023, the subsequent publication is likely to become the ISSB IFRS S2 climate standard, which builds upon and expands the TCFD recommendations. CARB will allow entities to use the TCFD framework to comply with the first reporting cycle, and it is still unknown whether the minimum reporting standard will remain TCFD or be augmented to IFRS S2 in the next biennial reporting cycle.
Is climate risk scenario analysis required under SB 261?
While climate-related scenario analysis is a best practice mechanism to evaluate, mitigate, and communicate long-term climate resiliency, the TCFD recommends, but does not require scenario analysis of physical and transition risks (and opportunities). CARB has also confirmed that scenario analysis is not required under the first reporting cycle during its August 21, 2025, public workshop. If a company has developed a process to assess physical risk and transition risk, and taken the next step to include future scenarios, these should be articulated in the climate-related financial risk report. This type of climate resilience assessment also provides companies an advantage in IFRS S2 disclosure compliance since scenario analysis is required under the standard.
Previous legal challenges
Since its passage, SB 261 has been the subject of sustained constitutional litigation. In January 2024, multiple business associations filed suit against CARB challenging both SB 253 and SB 261 on First Amendment and related grounds. After an initial denial of preliminary injunctive relief at the district court level, the plaintiffs sought emergency relief from the Ninth Circuit.
On November 18, 2025, the Ninth Circuit granted an injunction pending appeal with respect to SB 261, pausing enforcement of the law statewide. Importantly, SB 253 was not enjoined and remains in effect.
What should companies do while SB 261 is enjoined?
While enforcement of SB 261 is currently on hold, companies should continue to monitor legal and regulatory developments closely and consider whether voluntary preparation or disclosure aligns with their broader climate risk management, governance, and stakeholder expectations. SB 253, as well as other emerging climate disclosure regimes in the U.S. and abroad, continue to signal a clear direction of travel toward expanded climate related transparency.
To summarize, companies should:
- Continue internal climate‑related financial risk assessments aligned with TCFD or IFRS S2
- Evaluate readiness to publish on a voluntary basis, particularly if subject to investor or lender expectations
- Track Ninth Circuit developments and potential lifting of the injunction
- Maintain alignment across SB 253, ISSB, and other global climate disclosure frameworks to avoid duplicated effort
ADEC ESG supports global companies as they work towards their sustainability goals and rise to meet ever-growing ESG reporting requirements. From voluntary frameworks like CDP and EcoVadis to regulatory mandates like the CSRD and SB 261, our experts provide our clients with an integrated perspective informed by in-depth ESG reporting and disclosure experience. Talk to our team today to find out how we can help you meet your ESG goals.
This blog provides general information and does not constitute the rendering of legal, economic, business, or other professional services or advice. Consult with your advisors regarding the applicability of this content to your specific circumstances.
