California released fresh guidance for its new 'Climate Related Financial Risk Disclosure Program' authorized by Senate Bill (SB 261)

The statute specifically targets U.S. based companies that conduct business operations within the state of California and have reported total annual revenues (not just revenue within the USA) exceeding the significant threshold of $500 million. This indicates that the companies falling under the compliance criteria of this regulation are typically large corporations. The intent behind focusing on such high-revenue companies is to ensure that those with the greatest environmental impact and resource consumption are held accountable for their business practices and are encouraged to adopt more sustainable business models.

Here is the link to the publication.

What does “doing business in California” mean under this statute?

California Air Resources Board (CARB) has proposed aligning with California Revenue & Taxation Code §23101. A company is considered to be doing business in California if it meets any of the following:

• Over $735,019 in California sales or 25% of global sales

• Over $73,502 in California property or 25% of global property

• Over $73,502 in California payroll or 25% of global payroll

• Actively engages in transactions for financial gain in the state

CARB may refine these thresholds and provide sector-specific exemptions.

CARB has stated that companies may use data from FY2023–2024 or FY2024–2025 in their initial SB 261 disclosures, depending on availability, as good faith reporting. After that, these companies will be subject to a biennial reporting requirement that commences on January 1, 2026. The reports will require detailed disclosures around governance, strategy, risk management and metrics based on climate related risks and opportunities. Companies will need to evaluate how climate change could impact their operations and financial performance, thus integrating these considerations into their overall business strategies. CARB stated that each SB 261 report should:

1. State which framework is being used (e.g., TCFD, IFRS SDS or another acceptable framework)

2. Discuss which recommendations and disclosures have been compiled and which have not, and

3. Provide a short summary of the reasons why any recommendations/disclosures have not been included, as well as a discussion of any plans for future disclosures.

But here's where it gets interesting:

⚠️As per the statute, there exists a provision that allows subsidiaries to potentially obscure their individual performance and disclosures by relying on the reports submitted by their parent companies. This means that while the parent company may provide a comprehensive overview of its operations, the nuances and specific impacts of the subsidiary’s activities may not be adequately represented. This could lead to a lack of transparency regarding the environmental and social governance practices of subsidiaries, which could undermine the overall intent of the reporting requirements.

⚠️Furthermore, it is essential to note that insurers are explicitly exempt from these reporting requirements. This exemption raises questions about the accountability of the insurance sector, which plays a crucial role in risk management and financial stability, especially in the context of climate-related risks. The absence of reporting obligations for insurers could result in a significant gap in understanding how these entities are addressing climate risks and their implications for policyholders and the broader market.

⚠️Currently, companies are not required to disclose Scope 1, 2, and 3 emissions, which represent direct and indirect greenhouse gas emissions associated with their operations and supply chains. This lack of requirement means that many companies might not fully account for their overall carbon footprint, potentially leading to an incomplete picture of their environmental impact. Additionally, the statute does not mandate that scenario analyses be quantitative since a qualitative approach is sufficient. This could allow companies to provide less rigorous assessments of their climate-related risks.

⚠️While the regulation does accept major global reporting frameworks as valid for compliance, it is important to recognize that material loopholes still remain. As a result, stakeholders, including investors and the public, may find it challenging to obtain a clear and accurate understanding of a company’s true commitment to sustainability and responsible business practices.

Pretext : In 2023, recognizing an urgent need to address the physical and transition risks associated with climate change, California passed the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). Despite potential delays, deadlines for reporting under SB 253 and SB 261 remain firm. Here’s a quick timeline of key milestones to help you track California’s climate disclosure laws:

Key reporting deadlines under SB 253 and SB 261

Important Notes:

a. For SB 253 Scope 1 and 2 reporting, June 30, 2026 is proposed as initial reporting deadline for fiscal 2025 emissions.

b) First climate related risk reports under SB 261 are required to be published by companies on their website by January 1, 2026.

c) Scope 1 and 2 data disclosures or scenario analyses (despite TCFD requiring such) are not required for initial SB 261 reports.

d)  CARB will establish a public docket for companies to post the link to their SB 261 reports.

e) Both laws have authorized CARB to charge an annual fee for the implementation and administration of the respective reporting programs. The estimated annual fee to be paid by each in-scope entity is $3,106 for SB 253 and $1,403 for SB 261.

On Sep 24th, 2025 : CARB published its "Preliminary List of Reporting/Covered Entities (the “List”)", listing those companies that it believes are subject to the requirements of SB 253 and SB 261. The List, as CARB advises, is based upon California Secretary of State data and other datasets and identifies those companies considered as “doing business” in the state and those meeting the applicable “total annual revenue” thresholds. These will be required to comply with California's new climate reporting laws, mandating disclosures on climate-related risks and opportunities, and for some companies on value chain greenhouse gas emissions as well. In total, the CARB list includes 4,160 U.S. companies, including the majority of S&P 500 constituents. Of the companies included in CARB’s new list, around 60% (2,503) are based outside of California. Most companies listed (2,596) will be required to comply with both SB 253 and SB 261, while 1,564 will be subjected only to SB 261.

CARB's list is not exhaustive, and may not include all companies covered by the new climate-related reporting laws, as it is based on data from March 2022. The List also does not reflect potential exemptions, and “may be missing companies.” For example, limited liability partnerships (“LLPs”) are not included on the List, despite many LLPs likely being subject to the California climate laws. Hence, it is a company’s responsibility to report under the regulations even if not included on the list. The list may also mention those subsidiary companies that won't be required to report based on recently released exemptions, if their parent company issues a report on their behalf.

Verdantika continues to closely monitor the development of the California climate disclosure laws. If your company is on the List, or if you believe you might be required to report even if not on the List, please reach out to us for further support.