Senate Bill (SB) 261, authorizes the Climate Related Financial Risk Disclosure Program. It applies to U.S. companies that do business in California. It is not only about compliance. It is about future-proofing your business in a world where climate risk and ESG performance are strategic imperatives.
SB 261, officially known as the Climate-Related Financial Risk Act, mandates that companies with annual revenues over $500 million and doing business in California publish a climate-related financial risk report every two years. The first report is due January 1, 2026.
Starting December 1, 2025, the California Air Resources Board(CARB) will launch a public docket where companies must post the link to their report. This means your disclosures will be visible to investors, customers, and the public.
The law is modeled on the Task Force on Climate-Related Financial Disclosures (TCFD) framework, requiring businesses to identify, assess, and disclose the financial risks and opportunities posed by climate change. This includes both physical risks (e.g., extreme weather events) and transition risks (e.g., regulatory changes, market shifts).
The message is clear: the clock is ticking. Early preparation is not about avoiding penalties; it is about protecting your reputation and future-proofing your business in a market where transparency will drive investment decisions.
· Revenue Threshold: Companies with $500 million+ in annual revenue based on the previous fiscal year
· Geographic Scope: Any U.S. company “doing business” in California, regardless of the location of the headquarters
· Industry: Applies broadly across sectors, excluding insurance companies
If your organization falls under these criteria, compliance is not optional, it is the law.
Failure to comply with SB 261 can result in administrative penalties of up to $50,000 per year. Beyond financial penalties, non-compliance can lead to reputational damage, loss of investor confidence, and increased scrutiny from stakeholders.
All companies that qualify need to:
· Choose a recognized reporting framework listed by the CARB which are TCFD, IFRS S2, or an equivalent standard approved by aregulated exchange or government authority to develop your Climate-Related Risks and Opportunities report.
· Build a Cross-Functional Team. Involve your sustainability, finance, legal, and risk management teams early.
· Disclose their identified climate-related financial risks and opportunities, including the measures they have adopted to reduce and adapt to those risks in a publicly accessible report. Disclosures should focus on material risks and mitigation strategies that could impact your operations and financial outlook, using a lens of decision-usefulness for investors and stakeholders.
Create a report that needs to be posted on the company’s website. This report must satisfy all disclosure requirements or explain omissions and plans to address them.
The TCFD framework laid the groundwork for climate risk reporting with flexible, principles-based guidance. IFRS S2, introduced by the International Sustainability Standards Board (ISSB) in 2024, takes this further by setting a global standard with mandatory, detailed requirements.
While TCFD focuses on four pillars: Governance, Strategy, Risk Management, and Metrics & Targets, IFRS S2 adds rigor through scenario analysis, cross-industry metrics, and quantitative fiscal impact disclosures.
In short:
· TCFD = Principles-based guidance (flexible, voluntary in many regions)
· IFRS S2 = Prescriptive global standard(mandatory where adopted, more granular and investor-focused)
To comply with SB 261, your report must address the following core elements:
1) Governance
Describe your organization’s governance structure for identifying, assessing, and managing climate-related financial risks. Include:
- Management oversight of climate-related risks and opportunities
- Board oversight and responsibilities (if applicable)
2) Strategy
Explain the actual and potential impacts of climate-related risks and opportunities on your operations, strategy, and financial planning. Include:
- Identified risks and opportunities over the short, medium, and long term
- How these factors influence your business model and financial outlook
- The resilience of your strategy under future climate scenarios (qualitative discussion encouraged)
3) Risk Management
Outline how your organization identifies, assesses, and manages climate-relatedrisks, including:
- Processes for integrating these considerations into overall risk management
4) Metrics & Targets
Disclose the metrics and targets used to assess and manage climate-related risks and opportunities, and measures adopted to reduce and adapt to thoserisks.
Complying with SB 261 can feel overwhelming, especially if your company has not yet implemented a TCFD or an IFRS S2-aligned process. While CARB makes every effort to keep reporting entities informed, it cannot guarantee accuracy. It is the reporting entity's responsibility to understand the laws to ensure compliance with reporting requirements.
At CEMAsys, we guide you through every step of the journey:
1. Identify Risks and Opportunities
We start by mapping your value chain to understand where your key operations are located. From there, we work with your team to identify the most significant climate-related risks and opportunities at each site.
2. Turn Insights into Actionable Data
Since most companies do not have existing TCFD or IFRS S2 data, we help youbuild it from the ground up. This includes structured workshops and assessments to capture the information needed for compliance.
3. Quantify Financial Impact
Our experts collaborate with your finance team to evaluate the potential financial implications if identified risks materialize, turning qualitative risks into measurable business impacts. It is imperative for companies to be accurate since these risk reports will be accessible to stakeholders.
4. Conduct a Scenario Analysis
A scenario analysis not required by SB 261 but is recommended and CEMAsys can perform a scenario analysis so your company can better understand how these risks and opportunities might develop under different climatic scenarios.
5. Deliver SB 261-Aligned Reporting
We create a final climate risk and opportunities report that meets SB 261requirements, clearly stating the chosen framework, included disclosures, and explaining any omissions with plans for future alignment.
Contact us today to learn how CEMAsys can help your organization comply with SB 261 and turn climate risk into a strategic advantage.
Pratik Hariharan is an Outbound Marketing Specialist at CEMAsys, driving growth in North America through strategic outreach and compelling content. With a master’s in Business and Management from the University of Waikato, he blends creativity, analytical thinking, and cross-cultural insight to craft clear, engaging narratives around sustainability. Pratik’s diverse background spans communications, advocacy for DEI, and technical marketing across industries including biotech and energy. At CEMAsys, he’s passionate about making climate data meaningful—helping businesses turn insights into action.
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