SB 261

SB 261, formally titled the Climate-Related Financial Risk Act, is a California statute signed by Governor Gavin Newsom on October 7, 2023, as part of a pair of climate disclosure bills alongside SB 253 (the Climate Corporate Data Accountability Act). It was authored by State Senator Henry Stern.

The law applies to U.S.-formed business entities with total annual revenues exceeding $500 million that do business in California, with the exception of certain regulated insurance companies. Covered entities must prepare a biennial climate-related financial risk report disclosing:

• Material climate-related financial risks they face, and
• Measures adopted to reduce and adapt to those risks.

The reports must be made public on the company's website and align, to the extent possible, with the framework of the Task Force on Climate-related Financial Disclosures (TCFD) or an equivalent successor framework such as the IFRS Sustainability Disclosure Standards (S2). The California Air Resources Board (CARB) is charged with implementing the statute and may levy administrative penalties of up to $50,000 per reporting year for non-filing or inadequate reports.

The first reports were originally due on January 1, 2026. SB 261 differs from SB 253 in that it focuses on risk disclosure (qualitative, TCFD-aligned narrative) rather than emissions disclosure (quantitative Scope 1, 2, and 3 inventories). Together the two laws extend mandatory climate disclosure to thousands of private and public companies operating in California, going beyond the scope of the U.S. Securities and Exchange Commission's federal climate rule.

The law has been challenged in federal court by the U.S. Chamber of Commerce and others (Chamber of Commerce v. CARB), which argue the statute compels speech in violation of the First Amendment. In 2024, AB 1305 and follow-on legislation (SB 219, signed September 2024) gave CARB additional flexibility on implementation timelines. SB 261 is widely cited as one of the most far-reaching subnational climate disclosure mandates globally.