The California Air Resources Board (CARB) has issued a new set of clarifications to support implementation of SB 261, the Climate-Related Financial Risk Act, marking a key step in the rollout of one of the United States’ most ambitious corporate climate disclosure regimes.

Signed into law by Governor Gavin Newsom in October 2024, SB 261 requires large U.S. companies doing business in California with annual revenues exceeding $500 million to disclose their exposure to climate-related risks and opportunities. 

According to CARB’s latest publication, the first mandatory reports must be filed by January 1, 2026, with subsequent reports to follow on a biennial basis. The guidance responds directly to questions raised by businesses as they prepare for compliance. 

Among the main takeaways:

• Subsidiaries covered – Subsidiary entities are not required to submit standalone reports if the parent company includes them in its own disclosures.
• Flexible frameworks – Firms may choose from a range of reporting frameworks, including the 2017 Task Force on Climate-related Financial Disclosures (TCFD) recommendations, the IFRS Foundation’s IFRS S2 climate disclosure standard, or frameworks required by regulated exchanges or national governments.
• Insurance companies exempt – CARB confirmed that insurers are not within the scope of SB 261.
• Emissions not required initially – Companies will not need to include Scope 1, 2, or 3 greenhouse gas emissions data in their first round of climate risk reports.
• Scenario analysis flexibility – Organizations may provide qualitative rather than quantitative scenario analysis when outlining their climate risk strategies.

These last two points, concerning emissions and scenario analysis, reflect CARB’s adjustments in response to industry feedback regarding the feasibility of timelines and overlap with SB 253, the Climate Corporate Data Accountability Act.

CARB has structured its clarifications as a checklist, organized around four central topics: governance, strategy, risk management, and metrics and targets, giving a clear “starting point for reporting entities”.

For the record, SB 261 and SB 253, passed in 2023 and formally enacted in 2024, faced significant pushback from business groups, including a legal challenge led by the U.S. Chamber of Commerce. However, a federal district court recently cleared the way for the implementation of one of the most ambitious sustainability reporting policies in the country.

Source:

https://www.esgtoday.com/california-releases-guidance-for-companies-preparing-first-reports-under-new-climate-risk-disclosure-law/