Draft guidance
On 2 September 2025, the California Air Resources Board (“CARB”) published draft guidance on the Greenhouse Gases: Climate-Related Financial Risk law (commonly referred to as “Senate Bill 261” or “SB 261”). SB 261 (as modified by Senate Bill 219) requires U.S. public and private companies doing business in California to make biennial public disclosures regarding their climate-related financial risks and the measures adopted to reduce and adapt to those risks from 1 January 2026.
For further details on California’s incoming climate disclosure laws – the Climate Corporate Data Accountability Act (“SB 253”) and Greenhouse Gases: Climate-Related Financial Risk (“SB 261”) – please see our Quick Guide and earlier client publication.
Draft guidance to be used as a starting point
The draft guidance has been developed in response to feedback from stakeholders seeking guidance related to reporting under SB 261. Its publication comes after CARB held its second virtual public workshop on 21 August 2025 during which CARB indicated that it would provide guidance in relation to minimum requirements for compliance with SB 261.
The guidance is in the form of a checklist, which is intended to be used as a starting point for reporting entities. CARB makes clear that the guidance does not have the force of law and cannot establish new mandatory requirements beyond those already in statute. SB 261 itself provides various compliance options and CARB acknowledges that disclosures will vary depending on the company, the discretion of the preparers, and the chosen reporting framework, such that disclosures may be more detailed than the draft guidance.
CARB states that reporting entities should apply a materiality and decision-usefulness lens to disclosure by focussing on disclosing climate-related financial risks and measures adopted to reduce and adapt to those risks that (i) are material to their operations and financial outlook and (ii) meet the needs of investors and other stakeholders.
Compliance statement
CARB confirms that each report should contain a statement on:
- which reporting framework is being applied (e.g. TCFD, IFRS S2, or a report developed in accordance with any regulated exchange, national government, or other governmental entity); and
- using that reporting framework as a reference point, which recommendations and disclosures have been complied with and which have not. This should be accompanied by a short summary of the reasons why recommendations/disclosures have not been included as well as discussion of any plans for future disclosures, which is presumably a reference to the comparable language in SB 261. CARB also refers to additional guidance on formulating compliance statements set out in the TCFD-aligned disclosure for the UK public sector: Application Guidance.
Minimum CARB requirements for disclosure
The guidance is intended for general use and to be a baseline for the information to be disclosed by reporting entities. CARB notes that its recommendations are largely based on the Task Force on Climate-related Financial Recommendations (“TCFD”) – which is the reporting framework expressly referenced in SB 261. It also notes that the guidance should be read in addition to the recommendations and reporting guidance relevant to the reporting framework chosen by the reporting entity, e.g. TCFD or IFRS S2.
CARB sets out minimum requirements for disclosure under each of the four core pillars of TCFD: Governance, Strategy, Risk Management, and Metrics and Targets. The minimum requirements align with the TCFD recommendations with two points of note in relation to resilience assessment and the use of scenario analysis and disclosing GHG emissions.
Strategy: Resilience assessment and the use of scenario analysis
CARB has confirmed that reporting entities are expected to discuss the resilience of their strategy in the context of future climate change. This discussion may be qualitative in nature. In relation to scenario analysis, CARB points to difficulties in conducting scenario analysis as a detailed quantitative exercise may be duplicative with SB 253 or unduly burdensome for some entities and therefore, that where a “qualitative scenario-based assessment” is feasible and relevant for a particular company, CARB encourages its inclusion.
Metrics & targets: Scope 1, 2 and 3 emissions
CARB confirms that due to challenges in collecting data to meet the deadline of 1 Jan 2026 and/or duplication with SB 253, Scope 1, 2, and 3 emissions reporting is not currently included as a minimum CARB requirement for the initial reporting period.
For further details, see CARB’s Climate Related Financial Risk Disclosures: Draft Checklist.
Preliminary list of reporting/covered entities
On 24 September 2025, CARB published a preliminary list of reporting/covered entities, which it considers may be subject to the SB 253 and/or SB 261. Its publication also comes after CARB’s August public workshop during which CARB indicated that it would provide a list of entities that may be in scope of the climate disclosure laws, without alleviating any regulatory burden on entities to assess application of the laws to their own operations. The list includes more than 4,000 entities and is based upon the California Secretary of State data as a master-list of entities doing business in California. However, it is important to note that the California Secretary of State Business Entity database used by CARB does not include limited liability partnerships (e.g. law firms, architecture firms, engineering firms, public accountancy firms, and land survey firms), general partnerships, associations, and other entity types. It is noted that although the dataset is public, CARB’s analysis only included active filings through March 2022 and may therefore be incomplete. It also does not reflect potential exemptions.
Alongside the preliminary list, CARB has also opened a voluntary stakeholder survey to help further establish whether entities are potentially subject to the climate laws and to help improve CARB’s data accuracy. CARB encourages entities that believe they may be subject to the laws to complete the survey.
For further details, see CARB’s Preliminary List of Reporting/Covered Entities and CARB: SB 253/261 Stakeholder Survey.