What is SB 261?

Climate-Related Financial Risk Act

California has passed two new laws requiring businesses to disclose their carbon emissions and climate-related financial risks. The Climate-Related Financial Risk Act (Senate Bill 261) mandates that companies disclose the threats they face as a result of climate change. A similar bill, the Climate Corporate Data Accountability Act (Senate Bill 253) requires large businesses operating in California to publicly report their greenhouse gas emissions, and is discussed in more detail here. 

SB 261 Scope

SB 261 requires large US businesses with annual revenues over $500M USD operating in California to bi-annually disclose climate-related financial risks and their mitigation strategies to the public.

An organization is in scope for SB 261 if it meets all of the following criteria:

1. Does business in California

   • This includes any company with operations, sales, or other commercial activities in the state.

2. Has total annual revenues exceeding $500 million (USD)

   • Revenue is measured globally, not just within California or the U.S.

   • Applies to both public and private companies.

3. Is not already regulated by the California Department of Insurance

   • Insurers are exempt from SB 261 because they are subject to separate climate-related disclosure rules in California.

SB 261 Requirements

Under SB-261, companies meeting the revenue threshold must disclose climate-related financial risks by identifying, measuring, and reporting both direct and indirect risks. The law mandates comprehensive disclosures covering a broad spectrum of vulnerabilities. Companies must analyze potential physical risks and transitional risks from regulatory changes, technological advancements, and shifting consumer expectations.

Disclosures should detail the nature of these risks and quantify their financial implications. This requires robust methodologies to assess the financial impact, necessitating investments in data collection and analysis. These disclosures must be accessible to stakeholders, promoting transparency and enabling informed decisions regarding a company’s sustainability and risk management.

SB 261 Reporting

SB 261 requires companies to prepare a climate-related financial risk report starting January 1, 2026 then again every two years, ensuring that businesses identify and disclose how climate risks could impact their operations, assets, and supply chains. The report must adhere to specific standards to maintain consistency and transparency:

1. Alignment with TCFD framework: Companies must follow the framework outlined in the Task Force on Climate-related Financial Disclosures (TCFD) Final Report (June 2017) or an equivalent standard, such as the International Sustainability Standards Board (ISSB) Standards. This alignment ensures that the disclosures cover key elements such as governance, strategy, risk management, and metrics related to climate-related financial risks.

2. Disclosure of climate risk mitigation efforts: Entities must include detailed descriptions of the measures they are taking—or plan to take—to address and adapt to the climate-related risks identified in the report. This includes both mitigation and adaptation strategies to reduce exposure to these risks.

3. Explanation of missing data: If there are gaps in the report, companies are required to provide a detailed explanation of the missing data. This explanation should also outline the steps the company is taking to address these gaps in future disclosures.

4. Public accessibility: To ensure transparency, companies must publish their climate-related financial risk reports on their own websites, making them accessible to investors, stakeholders, and the public.

5. Parent company consolidation: Subsidiaries are not required to file separate reports if their parent company fulfils the reporting obligations. Climate risk reports can be consolidated at the parent company level, simplifying compliance for corporate groups.

6. Penalties for insufficient reporting: A contracted climate reporting organization will review submitted reports to identify any inadequacies or insufficient disclosures. If deficiencies are found, companies may face administrative penalties of up to $50,000, emphasizing the need for thorough and accurate reporting.

SB 261 Assistance

Danesmead Advisory has extensive experience support clients with TCFD reporting (the framework that SB 261 is based on). We can do this on a fully outsourced basis, or on a review basis. We provide tooling to streamline data gathering and reporting, can provide examples of our work on request.

If you’d like to know more about SB 261, whether your organisation is in scope, or would like to understand whether Danesmead Advisory can help, just get in touch.