California has cemented its role as a bellwether for corporate climate regulation. In 2023, the state passed two landmark laws — SB-253, focused on greenhouse gas emissions disclosure, and SB-261, focused on climate-related financial risk.
While SB-253 addresses what companies emit, SB-261 addresses a different but equally important question: how climate change could impact a company’s financial performance, operations, and long-term viability.
As of late 2025, these two laws are moving on different tracks. SB-253 is advancing through active rulemaking. SB-261, meanwhile, is subject to a court-ordered enforcement stay, with the California Air Resources Board (CARB) confirming it will not enforce the statute’s original reporting deadline while litigation is ongoing.
That distinction matters. But it does not eliminate the need to prepare.
This guide explains:
- Who is in scope for SB-261
- What the law is designed to require
- What is paused versus what is expected
- How companies can prepare now — strategically and efficiently — if enforcement is lifted
What is SB-261?
SB-261, the Climate-Related Financial Risk Act, is designed to require large companies to publicly disclose how climate change could create financial risk for their business.
Rather than focusing on emissions inventories, SB-261 centers on:
- Physical risks (e.g., extreme heat, flooding, wildfires)
- Transition risks (e.g., regulation, carbon pricing, market shifts)
- Governance and risk management practices
- Measures taken to mitigate or adapt to climate risk
The structure of SB-261 closely mirrors the Task Force on Climate-related Financial Disclosures (TCFD) framework, which has also informed ISSB standards and other global disclosure regimes.
Current status: what’s paused — and what isn’t
As of December 2025:
- SB-261 enforcement is stayed by a Ninth Circuit court order
- CARB has issued a non-enforcement advisory, confirming it will not enforce the statutory reporting deadline while litigation is pending
- A voluntary submission docket is open, allowing companies to submit climate-risk reports if they choose
- No penalties are currently being enforced under SB-261
Importantly, the law itself has not been repealed or rewritten. The pause affects timing and enforcement, not the underlying policy intent.
For companies in scope, this creates a valuable — but temporary — preparation window.
Who is in scope for SB-261?
SB-261 applies broadly. A company is generally in scope if it:
- Has more than $500 million in total annual revenues, and
- Is doing business in California
Revenue threshold
The $500 million threshold is based on global revenue, not just California sales. Compared to SB-253’s $1 billion threshold, SB-261 captures a significantly larger universe of companies — including many that may not yet have formal climate-risk reporting processes in place.
“Doing business in California”
California defines “doing business” broadly through its Franchise Tax Board. Companies may qualify if they:
- Engage in transactions for financial gain in California
- Employ staff or contractors in the state
- Own or lease property in California
- Exceed thresholds for California-based sales, payroll, or property
You do not need to be headquartered in California to fall in scope.
What SB-261 is designed to require
Once enforceable, SB-261 is intended to require companies to publish biennial climate-related financial risk reports that describe:
- Climate-related risks that could materially impact financial outcomes
- The time horizons over which those risks may emerge
- Governance and oversight of climate risk
- Risk management processes and mitigation strategies
Types of risks to disclose
Physical risks
- Acute events (wildfires, floods, storms, heat waves)
- Chronic shifts (sea-level rise, water stress, long-term temperature changes)
Transition risks
- Regulatory and policy changes
- Carbon pricing and compliance costs
- Technology shifts
- Market and reputational impacts
The goal is not to predict the future with certainty, but to demonstrate that climate risk is systematically identified, assessed, and managed.
Does SB-261 require emissions reporting?
No — not directly.
SB-261 is a financial risk disclosure law, not an emissions accounting statute. Emissions reporting obligations sit under SB-253.
That said, if a climate-risk report references:
- Greenhouse gas emissions data, or
- Voluntary mitigation measures tied to emissions
those disclosures may trigger assurance expectations for the information included.
Assurance under SB-261: what to know
Unlike SB-253, SB-261 does not mandate emissions assurance across the board.
Key points:
- Assurance is relevant only if emissions or mitigation data are included
- The statute does not explicitly mandate reasonable assurance
- Expectations may evolve as CARB issues future guidance
Many companies are nevertheless choosing to align assurance practices across SB-253, ISSB, CSRD, and other regimes to create consistency and reduce long-term risk.
Oversight and penalties (when enforceable)
When enforcement resumes, CARB is responsible for administering SB-261. The statute authorizes:
- Administrative penalties of up to $50,000 per year for non-compliance
- Publication of biennial summaries assessing reporting quality and trends
However, penalties are not currently being imposed due to the enforcement stay.
SB-261 also includes a form of safe harbor: companies that disclose climate risks under recognized frameworks (such as TCFD or ISSB) in a manner consistent with SB-261 may be deemed compliant.
Why preparation still matters during the pause
It may be tempting to delay action while enforcement is paused. But waiting carries real risk.
When enforcement resumes:
- Timelines may be compressed
- Peer disclosures will shape expectations
- Investors and lenders will already be benchmarking climate-risk maturity
Companies that prepare now benefit from:
- Lower future compliance costs
- Stronger governance and internal alignment
- Clearer insight into operational and supply-chain vulnerabilities
- Better positioning relative to global disclosure requirements
In practice, SB-261 readiness overlaps heavily with good enterprise risk management.
Practical steps to prepare for SB-261 now
Even during the enforcement pause, leading organizations are taking several concrete steps.
Confirm scope and applicability
Work with legal, finance, and tax teams to confirm whether your organization meets the revenue and California nexus thresholds.
Align with TCFD-style structure
Map existing governance, strategy, risk management, and metrics to the TCFD pillars to identify gaps.
Conduct climate scenario analysis
Evaluate physical and transition risks across multiple climate pathways to understand potential financial impacts.
Establish cross-functional governance
Climate risk touches finance, operations, supply chain, and strategy. Define clear ownership and escalation paths.
Document methodologies and assumptions
Even if assurance is not immediately required, documentation builds credibility and reduces future audit friction.
Invest in scalable technology
Manual risk assessments and spreadsheets do not scale. Centralized platforms help integrate climate risk, emissions data, and audit trails across frameworks.
How SB-261 fits into the broader disclosure landscape
SB-261 is not an outlier. It aligns closely with:
- ISSB climate standards
- CSRD risk and governance requirements
- Emerging investor expectations globally
California’s approach continues to influence how climate risk disclosure evolves in the U.S. and beyond, even amid legal uncertainty.
Turning SB-261 readiness into advantage
Approached strategically, SB-261 is more than a compliance obligation. It is a catalyst for:
- Stronger risk management
- Better capital allocation decisions
- Improved investor confidence
- Greater organizational resilience
Companies that treat climate risk as a strategic input — not a reporting afterthought — will be better positioned regardless of regulatory timing.
Is your company in scope? Pulsora can help you prepare
If your organization generates more than $500 million in annual revenues and has economic activity in California, SB-261 should be on your radar — even during the enforcement pause.
Pulsora helps enterprises:
- Map SB-261 requirements to global frameworks
- Centralize climate risk and emissions data
- Build audit-ready governance and documentation
- Stay ready as regulations evolve
With disclosure requirements expanding globally, preparation today reduces uncertainty tomorrow.
Learn how Pulsora can help you prepare for SB-261 — and whatever comes next.
