California issues guidance for climate risk reports

The California Air Resources Board (CARB) has announced the release of a new publication providing guidance for companies preparing to comply with a new regulation mandating disclosures of climate-related risks and opportunities. This regulation, detailed in the Climate Related Financial Risk Disclosures: Draft Checklist, pertains to SB 261, known as the “Climate-Related Financial Risk Act.” It applies to U.S. companies operating in California with revenues exceeding $500 million, requiring them to produce a report on their climate-related financial risks and strategies for mitigation and adaptation.

Companies subject to this regulation are expected to publish their first climate-related risk reports by January 1, 2026, with biennial reporting thereafter. The new publication addresses queries received by CARB, clarifying that subsidiary companies are not required to provide separate information if their parent company issues a report on their behalf. The document also states that the disclosure requirements can be fulfilled using various reporting frameworks, including the 2017 recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) and the IFRS Foundation’s IFRS S2 climate reporting standard. However, insurance companies are exempt from this regulation.

Additionally, the publication specifies that Scope 1, 2, and 3 emissions reporting will not be required for initial reports due to feasibility concerns and potential overlap with another regulation, SB 253, which will commence later in 2026. Furthermore, scenario analysis can be qualitative, addressing concerns about the complexity of quantitative analysis potentially duplicating efforts under SB 253.

The checklist aims to provide a starting point for reporting entities, detailing minimum disclosure requirements across key areas:

– **Governance**: Companies must describe their governance structure for identifying, assessing, and managing climate-related financial risks, including management and board oversight.
– **Strategy**: Organisations are required to outline identified climate-related risks and opportunities over various time horizons, their impact on operations, strategy, and financial planning, and the resilience of their strategy under future climate scenarios.
– **Risk Management**: A description of the processes for identifying, managing, and assessing climate-related risks, and their integration into overall risk management, is required.
– **Metrics and Targets**: Disclosure of metrics and targets for assessing and managing climate-related risks and opportunities, where material, is necessary.

For more details, access the [CARB checklist](https://ww2.arb.ca.gov/sites/default/files/2025-09/Climate%20Related%20Financial%20Risk%20Report%20Checklist.pdf).