California Climate Disclosure Laws: Draft Guidance on SB 261 and What It Means for Companies

California has positioned itself at the forefront of climate-related financial regulation. With the passage of Senate Bill 261 (SB 261) and Senate Bill 253 (SB 253) in 2023, the state introduced some of the most ambitious corporate climate disclosure requirements in the United States.

On August 2025, the California Air Resources Board (CARB) released draft guidance for SB 261, offering first insights into how companies will need to assess and disclose their climate-related financial risks. This marks a major milestone in the implementation of California’s climate disclosure framework, which is expected to influence not only US businesses but also international companies with significant operations in California.

Overview of SB 261

SB 261 requires large companies doing business in California to:

• Prepare biennial reports describing their climate-related financial risks, in line with frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD).
• Disclose strategies to mitigate or adapt to those risks.
• Make these reports publicly available, ensuring accountability and transparency.

The law applies broadly, covering companies with annual revenues over USD 500 million, regardless of whether they are headquartered in California or abroad.

Key Points from the Draft Guidance

The CARB draft guidance clarifies several important aspects:

• Scope of risks: Companies must address both physical risks (e.g., extreme weather, flooding, wildfires) and transition risks (e.g., regulatory changes, carbon pricing, market shifts).
• Assessment methodologies: Firms are encouraged to conduct scenario analysis, drawing on climate models and financial stress-testing approaches.
• Governance and accountability: Clear board-level oversight and integration of climate risk into enterprise risk management are expected.
• Consistency with global frameworks: CARB signals alignment with TCFD and ISSB/IFRS S2, reducing the risk of conflicting disclosure requirements.

Implications for Companies

The new rules significantly raise the bar for corporate climate transparency in the United States.

• Broad application: Even companies headquartered outside the US must comply if they generate sufficient revenue in California.
• Complex data requirements: Robust climate risk assessment demands reliable emissions data, scenario analysis, and integration into financial planning.
• Investor expectations: With public disclosure mandatory, climate risk management will become an even more visible criterion for investors, lenders, and business partners.

For many companies, this will mean setting up entirely new systems to identify, measure, and report climate-related risks in a way that is auditable and aligned with global standards.

How EQS Can Support

The EQS Sustainability Cockpit offers a comprehensive toolkit to help companies prepare for SB 261 and similar regulations worldwide:

• CO₂ Module: Enables companies to measure, manage, and reduce their greenhouse gas emissions (Scopes 1–3). This forms the quantitative foundation needed for credible risk disclosures.
• Climate Risk Offering: Supports firms in conducting scenario analysis, assessing both physical and transition risks, and integrating results into risk management and strategy.
• Report creation according to TCFD: Companies can connect emissions data and risk analyses directly with ESG reporting functionalities according to accepted methodologies.

With these solutions, companies can move beyond compliance and use climate risk analysis as a strategic tool to strengthen resilience, investor confidence, and long-term value creation.

Conclusion

California’s SB 261 marks a turning point for corporate climate disclosure in the US, expanding the global trend toward more stringent transparency requirements. The draft guidance from CARB clarifies expectations and shows alignment with international frameworks, easing global comparability.

For companies, the challenge will be to build robust data systems and risk assessment processes quickly. With the CO₂ module and the Climate Risk Offering in the EQS Sustainability Cockpit, businesses have the tools to meet these requirements efficiently – and to transform climate risk management from a compliance exercise into a strategic advantage.

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