California SB 261: Requirements, 2026 Deadline, and Penalties

California SB 261, the Climate-Related Financial Risk Act, requires any business with more than $500 million in annual revenue that operates in California to publish a public report explaining how climate change affects its finances and what the company is doing about it. The first report is due January 1, 2026, with new reports every two years after that. One wrinkle matters immediately: a court order currently prevents the California Air Resources Board from enforcing the law, and CARB has said reporting is voluntary while the litigation continues.¹

Which Companies Are Covered

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

Public and private companies are treated the same. A parent company may file one consolidated report covering its subsidiaries, and any subsidiary that would otherwise qualify on its own does not need a separate report.²

Insurers are carved out. The statute excludes entities regulated by the California Department of Insurance and any company in the insurance business in another state, even if the revenue threshold is met.²

What “Doing Business in California” Means

Revenue size is only half the test. Under California Revenue and Taxation Code Section 23101, a company does business in California if its in-state sales, property, or payroll exceeds annually adjusted dollar thresholds. The base statutory figures are $500,000 for in-state sales and $50,000 for in-state property or compensation, but the Franchise Tax Board adjusts them for inflation each year. For 2025, the thresholds were roughly $757,000 in sales and $75,700 in property or compensation.³

What the Report Must Contain

Covered companies must prepare their report following the framework in the June 2017 Final Report of Recommendations by the Task Force on Climate-related Financial Disclosures, known as TCFD, or any successor framework. An equivalent standard also works, and CARB’s draft guidance names the International Sustainability Standards Board’s IFRS S2 as an acceptable alternative.²

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

Governance: how the board oversees climate-related risks and what role management plays.
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 they connect to broader enterprise risk management.
Metrics and targets: the measurements and goals used to track climate-related risks and opportunities over time.

Physical and Transition Risks

Disclosure must cover both physical risks 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 things like wildfire damage or severe flooding. Chronic physical risks involve longer-term shifts such as rising sea levels or sustained temperature increases that gradually erode asset values or raise operating costs.

Transition risks are the financial effects of the economy’s shift toward lower carbon emissions. These include regulatory changes like carbon pricing, technology shifts that could strand existing assets, changing consumer preferences, and reputational exposure tied to climate performance. For companies in energy-intensive sectors, the transition analysis tends to be the more complex part of the report.

If You Can’t Fully Comply

SB 219, which amended SB 261 in 2024, added a provision for companies that cannot complete every recommended disclosure. A covered entity falling short of the full framework 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 must state which framework was used and discuss which specific recommendations were addressed and which were not.

The January 1, 2026 Deadline

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

Beyond the website posting, CARB maintains a public docket where companies submit a link to their published report.⁵

Current Enforcement Status

As of early 2026, a court order prevents CARB from enforcing SB 261, and CARB has stated that reporting is currently voluntary.¹ Business groups have challenged both SB 261 and SB 253 on constitutional grounds. California’s position is that the laws require disclosure only, not emissions reductions, and therefore fall within state authority. The litigation is unresolved.

Covered companies face a judgment call: file voluntarily now to show good faith, or wait for the enforcement picture to clarify. Many large companies are preparing reports regardless, both to stay ahead of eventual enforcement and because investors increasingly expect this type of disclosure.

Penalties Once Enforcement Resumes

When enforcement resumes, CARB can impose administrative penalties on companies that fail to publish a report or publish one that is inadequate or insufficient. The maximum penalty is $50,000 per reporting year.²

Penalties are resolved through administrative hearings rather than court proceedings. In setting the amount, CARB must weigh the company’s past and present compliance history and whether it made a documented good-faith effort to comply. That good-faith factor offers real protection to companies that attempted to file but came up short on certain disclosures, especially combined with the incomplete-disclosure provision above. A company that files a partial report with a clear explanation of its gaps is in a very different position from one that ignores the requirement entirely.

How SB 261 Differs From SB 253

SB 261 is often confused with Senate Bill 253, the Climate Corporate Data Accountability Act, which was signed into law alongside it. They answer different questions. SB 261 asks how climate change threatens a company’s finances. SB 253 asks how much greenhouse gas a company emits.

Revenue threshold: SB 261 covers companies with more than $500 million in annual revenue. SB 253 sets a higher bar at $1 billion. 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 largely qualitative, built around the TCFD framework. SB 253 reports are backward-looking and quantitative, requiring disclosure of Scope 1, Scope 2, and Scope 3 greenhouse gas emissions from the prior fiscal year.
SB 253 timeline: Scope 1 and Scope 2 reporting begins in 2026, and Scope 3 begins in 2027.¹

Companies with more than $1 billion in revenue that do business in California will have to comply with both laws. The frameworks, timelines, and content differ enough that most compliance teams treat them as separate workstreams, even though 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