Overview of SB-261
Introduced: January 2023
Effective from: October 7, 2023
Last modified: June 2024
Region(s): California, United States
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About SB-261
Senate Bill 261 (SB-261) is part of the California Climate Accountability Package, alongside SB 253 (Climate Corporate Data Accountability Act). SB-261 requires large companies doing business in California to publicly disclose climate-related financial risks and the strategies they’re using to mitigate them.
These disclosures are intended to improve transparency and investor confidence as California pushes toward a net-zero economy. SB-261 is modeled on the Task Force on Climate-related Financial Disclosures (TCFD) and aligns with international best practices in financial climate risk reporting.
Criteria for compliance
SB-261 applies to:
- U.S.-based partnerships, corporations, LLCs, and other entities
- Total annual revenues > $500 million
- That do business in California
It excludes insurance companies (which are governed separately under SB-261 section 4).
Entities must comply regardless of headquarters location, as long as they meet the revenue threshold and have operations, sales, or employees in California.
Financial risk reporting
Companies must compile and publicly disclose a climate-related financial risk report detailing the financial risks posed by climate change and the measures taken to address them by January 1, 2026, and biennially thereafter.
Reports must be accessible on the company’s website and submitted to the California Air Resources Board (CARB).
Compliance timelines
- October 7, 2023: Law enacted
- January 1, 2026: First required financial risk report due
- Biennial reporting: Required every two years thereafter
Reports must be publicly available on the company’s website and submitted to the CARB.
Disclosure requirements
Companies must prepare and publish a Climate-Related Financial Risk Report that includes:
- Physical risks: e.g., wildfires, droughts, flooding, supply chain disruptions
- Transition risks: e.g., regulatory changes, market shifts, litigation risks
- Mitigation strategies: how the company is assessing and managing climate-related risks
Reports must align with the four core pillars of the TCFD framework.
Third-party assurance
SB-261 does not mandate third-party assurance, but companies are expected to implement internal controls and governance structures similar to financial disclosures to ensure the accuracy of the published reports.
Future guidance from CARB may introduce minimum verification or audit standards.
Penalties for non-compliance
Failure to comply with SB-261 may result in administrative penalties of up to $50,000 per reporting year, enforced by CARB. This includes:
- Failure to publish the required report
- Submission of an incomplete or materially deficient report
- Failure to submit to CARB
