Understanding California’s SB 261: Your guide to climate risk compliance 

“SB 261 marks a pivotal step in corporate transparency, requiring large businesses to openly disclose climate-related financial risks to build resilience and accountability.” 

California’s SB 261 is a significant climate risk regulation that mandates certain large companies operating in California to disclose their climate-related financial risks every two years, starting in 2026. This law aims to enhance corporate transparency and accountability regarding the financial impacts of climate change, using widely recognised frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD). 

What is SB 261? 

SB 261, known as the Climate-Related Financial Risk Act, requires organisations with annual revenues exceeding $500 million and ‘doing business’ in California, to prepare and publish detailed reports on how climate risks could affect their operations and finances. These reports must be made publicly accessible on the company’s website and follow the TCFD or similar standards (1). The law also stipulates that the California Air Resources Board (CARB) will analyse a sample of these disclosures to assess systemic risks and identify gaps across sectors (1). 

Read our article diving deep into SB 253 & 261 for more information. 

Latest updates as of October 2025 

Recent updates indicate that the implementation timeline has been postponed, with CARB delaying final regulations into 2026. The initial reporting deadline remains 1 January 2026, with the requirement to disclose risks and mitigation measures (2). Legal and regulatory challenges continue, but enforcement is expected to proceed, as the law is already in effect. CARB has also released a preliminary list of companies likely to be in scope, and those responsible for compliance are encouraged to monitor this closely (2) (3). 

How to know if you need to comply? 

To determine whether your organisation is subject to SB 261, consider questions such as: 

• Does your company operate in California? 

• Is your global annual revenue over $500 million? 

• Are you listed on CARB’s preliminary coverage list or the Secretary of State’s list? 

If your answer is yes to any of these, compliance can be required.  

For a quick assessment, check the detailed decision flow below provided by our experts, which guides organisations in understanding their specific path for SB 261 compliance. You can review this easily to avoid missing reporting obligations and facing penalties. 

Click here to see up-close & download. 

Understanding the decision tree  

A tailored decision tree helps clarify whether your company falls under SB 261, providing straightforward steps: 

• First, check if your company’s name appears on CARB’s preliminary covered entity list or the Secretary of State’s list. 

• If not, consider whether your company or its subsidiaries are headquartered or incorporated in the USA. 

• Next, assess whether your company or its holding group has a global annual turnover exceeding $500 million. 

• If all responses lead to “no,” compliance is likely not required. If any “yes” responses are given—especially regarding turnover or US incorporation—further investigation is needed, and compliance may be required. 

• Where the list is inconclusive or complex ownership structures are involved, consulting your legal or ESG team is recommended for reassurance. 

Take the next step with Nexio Projects 

Our team is equipped with climate risk experts, ready to support your organisation from compliance to purpose. From initial reporting to strategic execution, our dedicated team of experts is focused on helping you progress confidently in advancing your purpose. 

Here is how we can help with your climate risk journey: 

• Climate risk exposure mapping: Conduct high-level screening to identify assets or value chain components most exposed to physical and transition risks. 

• Climate risk assessments: Evaluate physical and transition risks using qualitative and quantitative methods, including scenario-based analysis and risk scoring. 

• Regulatory alignment: Ensure compliance with disclosure and reporting requirements under ISSB, CSRD/ESRS E1, and California SB-261, supporting clients from gap analysis to final report. 

• Climate governance & strategy integration: Embed climate risk into enterprise risk management, strategic planning, and governance frameworks. 

Watch our latest session where our experts dive into tackling climate risk & ESG disclosures around the topic.

Avoid uncertainty and potential financial penalties by taking proactive steps now. For tailored advice on SB 261 climate risk reporting, corporate climate risk compliance, and climate risk regulation in California, reach out to Nexio Projects. 

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References 

(1) California Air Resources Board (2025) Climate Related Financial Risk Disclosures: Draft Checklist. Available at: https://ww2.arb.ca.gov/sites/default/files/2025-09/Climate%20Related%20Financial%20Risk%20Report%20Checklist.pdf (Accessed: 30 October 2025). 

(2) White & Case (2025) California climate disclosure laws: CARB delays, regulations, releases scope 1 and 2. Available at: https://www.whitecase.com/insight-alert/california-climate-disclosure-laws-carb-delays-regulations-releases-scope-1-and-2 (Accessed: 30 October 2025). 

(3) Miller Nash (2025) Where CARB Stands on California’s SB 253 & SB 261. Available at: https://www.millernash.com/industry-news/where-carb-stands-on-californias-sb-253-and-sb-261 (Accessed: 30 October 2025).