Early SB 261 compliance trends: Practical insights from the first round of voluntary disclosures

California’s Climate-Related Financial Risk Act, SB 261, requires companies doing business in California whose annual revenues exceed $500 million to prepare and publicly disclose biennial climate-related financial risk reports on their websites. The statute requires companies to align their disclosures with the Task Force on Climate-related Financial Disclosures (TCFD) framework, or another recognized foreign or voluntary disclosure framework consistent with the TCFD, such as the International Sustainability Standards Board’s (ISSB) International Financial Reporting Standard 2 (IFRS S2).

Enforcement of SB 261 is currently paused in response to an injunction from the United States Court of Appeals for the Ninth Circuit. In the meantime, however, more than 130 companies have chosen voluntarily to publish climate-related financial risk disclosures during the interim period. These early voluntary disclosures provide a useful snapshot of how the market is interpreting SB 261 requirements in practice. This alert summarizes several trends observed from these early disclosures.

Regulatory and litigation backdrop

Implementation of SB 261 is unfolding amid a complex regulatory and litigation landscape. On November 18, 2025, the Ninth Circuit issued an order enjoining enforcement of SB 261 pending the court’s consideration of an appeal brought by business groups challenging the law’s constitutionality. The Ninth Circuit heard oral arguments on January 9, 2026 and indicated it would issue a decision in due course, though it did not provide guidance on the timing of its ruling. 

In response to the injunction, on December 1, 2025, the California Air Resources Board (CARB) issued an Enforcement Advisory announcing that it would not take enforcement action against entities that did not post or submit SB 261 reports by the original statutory reporting deadline of January 1, 2026. At the same time, CARB opened a public docket in which entities can voluntarily submit climate-related financial risk reports under SB 261. CARB announced that the docket would remain open until July 1, 2026 and that further guidance, including a revised reporting timeline, would follow upon resolution of the appeal.

Despite the injunction, on December 9, 2025, CARB released draft regulations under both SB 261 and California’s companion emissions disclosure law, SB 253, which requires companies with more than $1 billion in annual revenues to disclose their greenhouse gas (GHG) emissions. The draft regulations define “doing business in California” as actively engaging in transactions for financial gain where the entity (1) is either organized or commercially domiciled in California or (2) has California sales exceeding the lesser of $757,070 (inflation adjusted for 2025) or 25 percent of total sales. Certain entities are exempt, including nonprofits, insurance companies, government entities, and businesses whose only California activity involves wholesale electricity transactions or employee compensation.

The regulations also establish recordkeeping requirements, fee formulas, and provisions for consolidated reporting. In-scope entities must maintain records demonstrating compliance with the revenue and “doing business” thresholds for five years and provide them to CARB upon request. Although fees for SB 261 are not currently being enforced, CARB will issue annual fee determination notices for both laws by September 10 each year, calculated on a flat, per-entity basis, with payment due within 60 days. Failure to pay can result in daily violation penalties. Notably, both laws permit parent companies to file consolidated reports covering all in-scope subsidiaries, though fees are still assessed on a per-entity basis. CARB has indicated it may provide relief on a case-by-case basis for companies facing challenges meeting the initial reporting deadline, although prior guidance on relaxed enforcement of SB 253 during the program’s first year remains in effect. The regulations’ publication on December 26, 2025 triggered a 45-day public-comment period, with a public hearing held on February 26, 2026. 

During the public hearing, CARB voted unanimously to approve the initial regulations, provided that CARB further assess the appropriateness of the exemption for insurance companies under SB 253 given those companies’ extant climate-reporting obligations under rules promulgated by the California Department of Insurance. Next, CARB must submit the regulatory package to California’s Office of Administrative Law for final approval.

Who is opting for voluntary disclosure and why?

The volume of voluntary reporting during the enforcement pause indicates that many companies are prioritizing compliance readiness and consistency with existing global disclosure frameworks.

Early SB 261 disclosures reflect participation from both private and public companies across a diverse set of industries, including manufacturing, technology, healthcare, energy, transportation, finance, and consumer services. The first wave of voluntary SB 261 disclosures may also reflect an emerging view of climate-related financial risk reporting as more than a one-time exercise. Early decisions about scope, assumptions, and level of detail may set expectations that shape future reporting and stakeholder scrutiny. Disclosures that are not consistently coordinated and supported by data and documentation could create regulatory, investor, and litigation risk. 

Frameworks used for SB 261 disclosures

Early SB 261 disclosures show strong convergence around established climate disclosure frameworks. TCFD appears to be the most widely used foundation for SB 261 reporting thus far, with approximately 88 percent of companies reviewed citing it as the basis for their disclosures. This reliance on TCFD appears regardless of industry or reporting format, suggesting broad market acceptance of TCFD for climate-related financial risk disclosure under SB 261.

Around 17 percent of companies referenced ISSB’s IFRS S2 standard, typically in conjunction with TCFD-aligned reporting. Companies also cited alignment with other mandatory climate-related regulatory regimes, including 6 percent citing Corporate Sustainability Reporting Directive (CSRD)/European Sustainability Reporting Standards (ESRS), 2 percent referencing UK Companies (Climate-related Financial Disclosure) Regulations 2022, and less than 1 percent pointing to New Zealand Financial Sector (Climate-related Disclosures and Other Matters) Amendment Act 2021 regimes.

Many companies referenced multiple frameworks within a single disclosure, indicating that they are actively seeking to harmonize SB 261 compliance with existing or anticipated global reporting obligations rather than treating California-specific reporting as a standalone exercise.

With respect to reporting format, most companies prepared disclosures specifically for SB 261 compliance rather than simply referring to existing reports. Of the reports reviewed, 73.1 percent published SB 261-specific reports prepared for California compliance, while 36 companies (26.9 percent) linked their SB 261 submission to an existing TCFD report or other previously published climate disclosure. 

Climate-related risk 

Across the companies reviewed, nearly all identified at least one category of material climate-related financial risk in their SB 261-aligned disclosures. The most frequently reported risks were transition risks (87 percent), typically associated with regulatory changes, potential carbon pricing mechanisms, evolving climate policies, and shifting customer or market expectations related to decarbonization. Physical risks were also widely reported, with companies identifying acute risks (75 percent), such as extreme weather events, flooding, wildfires, and heatwaves, as well as chronic risks (76 percent), including long-term temperature increases, water stress, and sea-level rise. In addition, 67 percent of companies disclosed supply-chain disruption risks, reflecting concerns about climate-related impacts on logistics networks, raw material availability, and global value chains. Overall, these results indicate that the vast majority of early SB 261 filers identify climate change as a financially material risk affecting both their operations and broader value chains.

Climate-related metrics and targets

Disclosure practices related to climate-related metrics and targets varied significantly among early SB 261 filers. Approximately 63 percent of companies disclosed climate-related metrics and targets, often focused on GHG emissions and reduction goals or energy-related indicators. Approximately 12 percent reported that metrics and targets are currently under assessment, development, or refinement, signaling ongoing internal efforts to formalize measurement and governance processes.

Less than a quarter of initial disclosures included no climate-related metrics or targets. Overall, these results suggest that early reporters may be leveraging existing quantitative climate reporting practices, with most companies already incorporating metrics and targets into their disclosures.

GHG disclosure

SB 261 does not expressly mandate GHG emissions reporting, and CARB had indicated that it would not require it in the initial regulation, in part because of potential overlap with SB 253. The TCFD calls for such reporting, however, and GHG reporting featured prominently in early filings. Approximately 78.5 percent of companies disclosed GHG emissions information, either explicitly within their SB 261 reports or by references to separate sustainability or climate disclosures. 

The prevalence of emissions disclosure indicates that many companies view GHG data as a foundational component of climate-related financial risk analysis, even in the absence of a statutory emissions-reporting requirement under SB 261.

Climate-related opportunities

Early disclosures also demonstrate that companies are not limiting SB 261 reporting to climate-related risks alone. As mentioned above, the statute is silent on the disclosure of opportunities, but companies may have been influenced by its inclusion as an element of TCFD reporting. Approximately 92 percent of companies disclosed climate-related opportunities, which most frequently included transition-aligned products or services, operational efficiencies, resilience strategies, and long-term growth opportunities linked to climate adaptation and mitigation.

The prevalence of opportunity disclosure aligns closely with TCFD principles and reflects how some companies are approaching SB 261 as both a compliance obligation and a strategic disclosure exercise.

Climate governance 

The vast majority disclosed defined governance structures for overseeing climate-related risks in their SB 261-aligned disclosures. Overall, 94 percent of companies reported some form of board or management oversight of climate-related risks. At the board level, 91 percent of companies described oversight by the board or a board committee, most commonly through Audit Committees (43 percent), Sustainability/ESG Committees (35 percent), Corporate Governance Committees (31 percent), or Risk Committees (26 percent). At the management level, 90 percent of companies identified senior leadership oversight of climate-related risks or strategy. This frequently included ESG or sustainability steering committees (58 percent), integration of climate considerations into enterprise risk management processes (79 percent), and dedicated sustainability staff or roles (50 percent), with Chief Sustainability Officers or equivalent executives identified by approximately 24 percent of companies.

In addition, some companies established more formal governance mechanisms, including climate-specific committees or task forces (31 percent) and cross-functional climate teams (40 percent) responsible for implementing climate initiatives and coordinating reporting. Only 6 percent of companies did not describe a formal governance structure, while a limited group indicated that governance frameworks are still under development. Overall, these disclosures indicate that most early SB 261 filers have begun integrating climate-related risks into formal governance and risk management structures.

Overall observations

CARB’s continued rulemaking activity during the enforcement pause signals continued agency preparation to implement SB 261. CARB’s actions suggest an emphasis on preparation and transparency rather than strict enforcement during this interim period.

The first several months of voluntary SB 261 disclosures indicate that early compliance is taking shape as a principles-based, TCFD-driven approach that emphasizes transparency and governance while generally including elements not expressly required by statute.

The reports primarily reflect large, established enterprises with substantial global operations spanning a wide range of industries, with notable concentrations in technology, healthcare, manufacturing, and professional services. Companies that have not yet reported may look on these early disclosures as a practical benchmark for current market expectations under SB 261, particularly as regulatory clarity continues to develop.

Disclaimer

Please note that this analysis is based on climate-related financial risk reports voluntarily published and publicly available as of February 19, 2026. This analysis is provided for informational purposes only and does not constitute legal advice. For more information on California climate disclosure laws or the voluntary SB 261 reports to CARB, please contact the authors.