The California Climate-Related Financial Risk Act1 (also known as SB 261) is a first-of-its-kind U.S. law requiring broad climate risk disclosure from both public and private, for-profit and nonprofit companies—including those headquartered outside of California with operations in state. In doing so, it raises the bar considerably on climate transparency, pushing companies to treat climate risk like any other material business risk.
Scope of SB 261 and What’s at Stake
SB 261 requires companies with at least $500M in annual revenue doing business in CA to publicly disclose their climate-related financial risks. An estimated 10,000 U.S. companies are expected to be impacted by this law, with the first reporting deadline set for January 1st, 2026.
Companies subject to SB 261 may satisfy disclosure requirements by preparing a biennial report detailing climate-related risks and mitigation strategies, and publishing the report on their company website. Non-compliance can result in financial penalties, as well as legal exposure, heightened regulatory scrutiny, and reputational damage. Conversely, companies that proactively manage climate-related risks may benefit from greater operational resilience, fewer supply chain disruptions, and potentially lower insurance costs.
To assist clients navigating SB 261 for the first time—from initial discovery to final publication, we’ve developed a practical guide with strategic alignment and attorney–client privilege in mind.
SB 261’s Reporting Requirements
SB 261 requires companies to prepare their climate-related financial risk disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) framework2 (see SB 261 Section 38533(b)(1)(A)(i)).
Four key pillars comprise the TCFD framework:
- Governance: How the organization oversees climate-related risks and opportunities, including the board’s role and how management addresses these issues.
- Strategy: The actual and potential impacts of climate-related risks and opportunities on the business, strategy, and financial planning, over the short-, medium-, and long-term, including material financial impacts and scenario analysis.
- Risk Management: How the company identifies, assesses, and manages climate-related risks, both as standalone processes and as part of broader enterprise risk management practices.
- Metrics and Targets: Quantitative tools used internally and regularly to assess and manage climate-related risks and opportunities, such as GHG emissions, assets exposed to climate risk, revenue at risk from transition risks, energy use and efficiency, and water use, among others.
The objective of SB 261’s reporting requirements is to help companies identify, assess and address climate-related risks that may materially impact their bottom line. These risks are broad and intensifying as regulators, investors, and customers demand greater transparency; and much like the evolution of data protection and cybersecurity practices, companies must move toward integrating climate risk management into strategic decision-making, financial planning, and enterprise risk frameworks.
How to Prepare for SB 261—and What Your Business Gains in Return
Preparing disclosures in compliance with SB 261 will require cross-functional collaboration across your finance, sustainability, accounting, real estate, procurement, marketing, and legal departments, among others. We estimate the process will take approximately 3 to 6 months, depending upon company size and scope and include four core steps:
- Internal climate risk assessment
- Scenario analysis
- Metric development
- Disclosure preparation and Board review
Again, the SB 261 reporting process is intended to help companies evaluate how climate change could materially affect their business—both in terms of risk and opportunity, such as:
- Physical risks – extreme weather events (such as flooding and wildfire), rising temperatures and sea levels
- Transition risks – stranded assets, new regulations, changing consumer preferences
- Opportunities – energy cost savings, resilience measures, innovation
Integrating climate risk assessment into strategic and financial planning can unlock significant long-term value. Organizations are better positioned to uncover strategic gaps, identify vulnerabilities, and strengthen resilience, and by bolstering corporate governance and risk management practices, they can expect greater internal alignment and preparedness across functions. Companies that proactively approach compliance under SB 261 also may be more likely to unlock competitive advantage and drive long-term business value.
The Role of Legal and Sustainability Advisors
Legal and sustainability teams bring complementary strengths to climate risk strategy and preparedness. Aligning early with these advisors can help to ensure compliance, and also may support risk and opportunity planning and foster efficient, clearly defined workflows.
If you are subject to SB 261, consider engaging your in-house or outside counsel early to help build a compliance strategy—especially decisions around reporting at the parent or affiliate level. Early legal involvement can also help preserve attorney-client privilege, influencing how the project is structured and managed. In many cases, the most effective approach pairs legal counsel with sustainability consultants to deliver a streamlined, end-to-end solution.
OGC partners with sustainability experts like Sama Sustainability to offer clients an integrated compliance pathway. Our legal team advises on applicability, disclosure obligations, and materiality standards, while Sama Sustainability can be retained either to perform at the direction of counsel or lead the project execution—from data collection and stakeholder engagement to materiality analysis, reporting, and investor-ready communications.
OGC and Sama Sustainability both provide strategic guidance aimed at helping companies mitigate risk and prepare their responses to SB 261’s climate disclosure requirements.
This article is the first of a two-part series. In the next article, we cover critical steps to set your compliance project up for success. These steps, tailored to both in-house counsel and sustainability teams, include designating legal leadership and project oversight, engaging key stakeholders, communicating with leadership and the Board, assessing materiality, and managing the related implications for public filings and insurance coverage.
For more information, please contact Kate Cronin at kcronin@outsidegc.com, Susan Doherty at susan@samasustainability.com or and Renée Soulliard at renee@samasustainability.com.
Authors
Kate Cronin, Partner at Outside GC, has been practicing law for over 30 years, including tenures with a Washington D.C. law firm, Citigroup and AT&T before joining Outside GC. She brings significant experience in corporate governance, internal corporate investigations, corporate supplier responsibility, corporate compliance and policy development, and environmental law, in addition to a regular commercial agreement transactional practice including data privacy and information security.
Susan Doherty and Renée Soulliard co-founded Sama Sustainability to help companies navigate the complexities of today’s sustainability landscape. Susan is a sustainability and communications strategist with over 20 years of experience aligning ESG, social impact, and brand strategy with business goals. Renée brings more than two decades of global business experience helping companies identify and address both risks and opportunities on their sustainability journey.
1 The Climate-Related Financial Risk Act was signed into law on October 7, 2023 as part of California’s Climate Accountability Package.
2 The Task Force on Climate-related Financial Disclosures (TCFD) was established in December 2015 by the Group of 20 (G20) and the Financial Stability Board. As of 2024, the IFRS Foundation now monitors the progress of corporate climate-related disclosures.