California's climate disclosure landscape just got a significant update. The California Air Resources Board (CARB) recently released comprehensive FAQs addressing both SB 253 (greenhouse gas reporting) and SB 261 (climate-related financial risk disclosure), providing additional clarity that organizations have been desperately seeking as compliance deadlines approach.
SB 261: The clock is ticking, but the path forward is clearer
For companies grappling with SB 261's climate-related financial risk disclosure requirements, CARB's latest guidance offers both relief and actionable direction. The January 1, 2026 deadline remains firm, but the additional proposed context supports a roadmap for compliance that acknowledges the practical challenges organizations face.
The most significant development is CARB's introduction of a public docket system beginning December 1, 2025. Companies will be able to log the location of their climate risk disclosures in this centralized repository, creating a single point of transparency for stakeholders while streamlining the reporting process. This docket will remain open until July 1, 2026, giving organizations a six-month window to register their disclosures.
Carb reinforces comprehensive risk assessment requirements
Among the key takeaways from the announcement was CARB reiterating the legislation’s climate-related financial risk definition. The agency’s explicit reminder that risks include “material risk of harm to immediate and long-term financial outcomes due to physical and transition risks” — spanning corporate operations, supply chains, employee health and safety, capital investments, shareholder value, consumer demand, and broader financial markets — reinforces what TCFD already required.
This reminder serves as a crucial wake-up call for organizations that may have been planning narrow, operations-focused assessments. The holistic approach to climate risk assessment isn’t new — it's been embedded in leading frameworks like TCFD for years. CARB’s emphasis ensures that companies understand the full scope of what compliance actually demands.
"Doing business in California" gets practical definition
One of the most persistent questions we’ve encountered from clients relates to the “doing business in California” threshold. CARB has proposed adopting the California Franchise Tax Board’s existing definition, which provides concrete criteria including sales thresholds ($735,019 for 2024), property values, and payroll considerations.
This approach offers predictability and aligns with existing tax compliance frameworks that many organizations already navigate. However, CARB is still seeking stakeholder input on this definition, suggesting that refinements may be forthcoming based on public feedback.
Good faith compliance and enforcement discretion
Perhaps most importantly for organizations racing against the clock, CARB has emphasized its commitment to “good faith” compliance considerations. The agency recognizes that initial climate-related financial risk reports may be based on the best available information from fiscal years 2023/2024 or 2024/2025, acknowledging the time required to develop robust climate data collection and analysis capabilities.
This enforcement discretion doesn’t lower the bar for compliance — it simply acknowledges the reality that building comprehensive climate risk assessment capabilities takes time and resources. Organizations demonstrating genuine effort to comply will receive consideration in any enforcement actions.
Strategic implications for your organization
These clarifications create several strategic opportunities:
Leverage existing frameworks: CARB’s flexible approach to reporting frameworks means organizations can build upon existing TCFD implementations or other established climate disclosure practices, reducing duplicative efforts.
Focus on materiality: The emphasis on material risks allows organizations to prioritize their assessment efforts on the most significant climate-related financial impacts, rather than attempting to address every conceivable risk scenario.
Plan for iterative improvement: The recognition that data quality and collection methods may evolve over time suggests that initial reports can serve as baselines for continuous improvement rather than perfect final products.
What's next?
CARB has committed to finalizing regulations by year-end, with additional public engagement opportunities planned throughout the summer. Organizations should actively participate in this process, as stakeholder input will directly influence the final regulatory framework.
The key takeaway is clear: while California’s climate disclosure requirements represent a significant compliance challenge, CARB’s latest guidance demonstrates a pragmatic approach that balances regulatory ambition with implementation reality. Organizations that begin their preparation now — focusing on materiality, leveraging existing frameworks, and building cross-functional climate risk assessment capabilities — will be well-positioned for successful compliance.
The climate disclosure era is here, and California is leading the charge. The question isn't whether your organization will need to comply, but how effectively you’ll navigate these new requirements to turn compliance into competitive advantage.
