Climate-Related Financial Risk Act Spurs New Disclosure Duties for Companies Operating in California

August 5, 2025

Climate-Related Financial Risk Act Spurs New Disclosure Duties for Companies Operating in California
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The Climate-Related Financial Risk Act (SB 261), enacted in California in 2023 and amended by SB 219 in 2024, imposes a significant new disclosure obligation on companies with over $500 million in annual revenue that conduct business in the state. As reported by Zack Lenox, Francesca Steiner, and Amanda Urquiza of Wilson Sonsini Goodrich & Rosati, covered entities must publish their first climate-related financial risk report (Risk Report) by January 1, 2026, and update it every two years thereafter.

The California Air Resources Board (CARB), the agency tasked with implementing the law, has clarified definitions of “doing business” and “total annual revenue” based on the state’s Revenue and Taxation Code. CARB has also indicated that companies may choose a recognized disclosure framework, such as that from the Task Force on Climate-Related Financial Disclosures, provided the framework’s principles are followed.

CARB’s FAQs and public workshops have reinforced that companies must report only material climate-related financial risks and justify any data gaps. While CARB will enforce compliance, it has signaled that penalties will account for good faith efforts to meet the law’s requirements. A public docket opens on December 1, 2025, where companies must post links to their Risk Reports.

While companies prepare for SB 261, they must also monitor related emissions disclosure obligations under SB 253 and ongoing litigation that could affect both statutes. For now, legal and compliance teams should confirm coverage, select reporting frameworks, and begin preparing disclosures using available fiscal year data.

SB 261 sets a precedent in climate disclosure law, and as Lenox, Steiner, and Urquiza advise, preparation now is essential for timely and defensible compliance.

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