California SB 261: Requirements, Deadline, and Enforcement Status

California SB 261, the Climate-Related Financial Risk Act, requires businesses with more than $500 million in annual revenue that do business in California to publish a report explaining how climate change affects their financial outlook. The first report is due January 1, 2026, and a new one is due every two years after that. One thing to know before you plan around the deadline: a court order currently prevents the California Air Resources Board from enforcing SB 261, so reporting is voluntary while the litigation is pending.¹

Which Companies Are Covered

SB 261 applies to any corporation, partnership, LLC, or other business entity formed under the laws of a U.S. state, the District of Columbia, or an act of Congress that has total annual revenues over $500 million and does business in California. The revenue test looks at global revenue for the prior fiscal year, not just what the company earns in the state.²

Public and private companies are treated the same. Insurers are carved out: the law does not apply to entities regulated by the California Department of Insurance or to any company in the insurance business in another state, even if they clear the revenue threshold.²

Whether you are “doing business in California” is a separate question governed by California Revenue and Taxation Code Section 23101. A company qualifies if its California sales, property, or payroll exceed statutory dollar thresholds, which the Franchise Tax Board adjusts each year for inflation. The base figures in the statute are $500,000 for in-state sales and $50,000 for in-state property or compensation.³

Corporate families get some relief. A parent company can file a single consolidated report covering its subsidiaries, and a subsidiary covered by that parent report does not have to file separately.²

What the Report Must Contain

The report has to follow the framework in the June 2017 Final Report of Recommendations by the Task Force on Climate-related Financial Disclosures (TCFD), any successor to that framework, or an equivalent standard. CARB’s draft guidance identifies the International Sustainability Standards Board’s IFRS S2 as an acceptable alternative.²

Two things must be covered: the company’s climate-related financial risks, and the measures it has adopted to reduce and adapt to those risks. The TCFD framework organizes disclosures around four areas:

Governance: how the board oversees climate-related risks and what management does to assess and respond to them.
Strategy: how climate risks and opportunities affect the business model, long-range planning, and financial position.
Risk management: the processes used to identify, evaluate, and manage climate-related risks, and how those tie into enterprise risk management.
Metrics and targets: the measurements and goals used to track climate-related risks and opportunities over time.

Physical Risks and Transition Risks

The disclosure has to address both physical and transition risks that are material to the company. Physical risks are the financial consequences of climate-driven events and changes. Acute physical risks include wildfire damage or severe flooding. Chronic physical risks involve slower shifts like rising sea levels or sustained temperature increases that erode asset values or push up operating costs.

Transition risks are the financial effects of the shift toward a lower-carbon economy. Those include regulatory changes such as carbon pricing, technology shifts that could strand assets, changing consumer preferences, and reputational exposure tied to climate performance. For companies in energy-intensive sectors, transition risk tends to be the harder and more revealing part of the analysis.

If You Can’t Fully Complete the Disclosures

SB 219, which amended SB 261 in 2024, added a provision for companies that cannot meet every recommended disclosure. A covered entity whose report falls short must still provide the recommended disclosures to the best of its ability, give a detailed explanation for any gaps, and describe the steps it plans to take to prepare complete disclosures in the future.⁴ The report also has to state which framework was used and identify which recommendations were addressed and which were not.

Deadline and How to File

The first report is due January 1, 2026, with a new report due every two years after that. Each report covers the entity’s climate-related financial risks for the preceding fiscal year, and it must be posted publicly on the entity’s own website by the deadline.²

CARB also maintains a public docket where covered entities submit a link to their published report.⁵

Enforcement Is Currently on Hold

As of early 2026, a court order prevents CARB from enforcing SB 261, and CARB has stated that reporting is voluntary during the pause.¹ Business groups have challenged both SB 261 and SB 253 on constitutional grounds, arguing that the laws violate the Supremacy Clause and amount to extraterritorial regulation of greenhouse gas emissions. California’s position is that the laws require disclosure only, not emissions reductions, and therefore fall within the state’s authority. The litigation is unresolved, and many large companies are preparing reports anyway, both to stay ahead of eventual enforcement and because investors increasingly expect this kind of disclosure.

Penalties Once Enforcement Resumes

When enforcement resumes, CARB can impose administrative penalties on any entity that fails to publish its report or publishes one that is inadequate or insufficient. The maximum penalty is $50,000 per reporting year.²

Penalties are handled through administrative hearings rather than court proceedings. In setting the amount, CARB has to consider the entity’s past and present compliance history and whether it made a documented good-faith effort to comply. That good-faith factor, combined with the incomplete-disclosure provision in SB 219, gives real protection to a company that files a partial report with a clear explanation of its gaps. Ignoring the requirement entirely is a very different position.

Fees and the CARB Rulemaking

Covered entities have to pay an annual fee to CARB to fund the program. The 2024 amendments under SB 219 removed the original requirement that the fee be paid at the time of filing; the fee obligation still exists, but it is no longer tied to the filing deadline.⁴

CARB’s regulatory program is still being built out. In late 2025, CARB approved an initial regulation setting how fees will be assessed, defining key applicability terms, and establishing first-year reporting logistics.¹ SB 219 also changed CARB’s authority to contract with a climate reporting organization from a mandate to an option.⁴

SB 261 Is Not SB 253

SB 261 and SB 253, the Climate Corporate Data Accountability Act, were signed together and form California’s two-part climate disclosure package, but they answer different questions. SB 261 asks how climate change threatens a company’s finances. SB 253 asks how much greenhouse gas the company emits.

Revenue threshold: SB 261 covers entities with more than $500 million in annual revenue. SB 253 sets a higher bar at $1 billion, so a company earning $700 million is subject to SB 261 but not SB 253.⁶
Frequency: SB 261 requires reports every two years. SB 253 requires annual emissions disclosures.⁷
Content: SB 261 reports are forward-looking and mostly qualitative, analyzing risks and strategies under the TCFD framework. SB 253 reports are backward-looking and quantitative, requiring disclosure of Scope 1, Scope 2, and Scope 3 emissions for the prior fiscal year.

Companies with more than $1 billion in California-connected revenue will need to comply with both laws at once. The frameworks, timelines, and content requirements differ enough that most compliance teams treat them as separate workstreams, even where the underlying data collection overlaps.

1
California Air Resources Board. CARB Approves Climate Transparency Regulation for Entities Doing Business in California
2
California Legislative Information. California Health and Safety Code SB 261 – Climate-Related Financial Risk Act
3
California Legislative Information. California Revenue and Taxation Code 23101
4
California Legislative Information. California Code SB 219 – Budget Act Amendments
5
California Air Resources Board. Climate-Related Financial Risk Reports (SB 261) Docket
6
California Air Resources Board. California Corporate Greenhouse Gas Reporting and Climate Related Financial Risk Disclosure Programs
7
California Legislative Information. California Code SB 253 – Climate Corporate Data Accountability Act