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While the January 1, 2026, statutory deadline for reporting
under California’s Climate-Related Financial Risk Act (SB 261)
is quickly approaching, there is still time for regulated entities
to comply with the law. Although each reporting entity must prepare
a Climate Related Financial Risk Report (“Report”), the
state agency responsible for SB 261 compliance, the California Air
Resources Board (“CARB”), has indicated that the key to
initial compliance is a good faith effort to comply.

CARB “Preliminary List” of Covered/Reporting
Entities

On September 24, 2025, CARB posted a preliminary list of
companies that it believes may be subject to the requirements under
SB 261 and California’s Climate Corporate Data Accountability
Act (SB 253)1. CARB used data from the California
Secretary of State as of March 2022 to prepare this initial list,
and also explicitly stated that the list is not exhaustive.
Additionally, the list does not reflect the only statutory
exemption, which exempts insurance companies, as defined in SB
261.

Further, this list should not be considered exhaustive as the
statutory language of applicability for both SB 261 and SB 253 is
much broader than what triggers filing with the Secretary of State
for a particular legal entity. For example, the Secretary of State
data would not capture entities that trigger reporting thresholds
based on an aggregation of revenues for subsidiaries operating in
California or the revenues of a parent holding company located
outside of California, with sufficient sales/transactions via a
subsidiary in California; however, such revenues are relevant to
the scope of applicability according to the language of each
statute.

Although far from complete, the list is a helpful tool for those
listed to determine whether they are among those CARB has
identified, at least initially, as requiring compliance by January
1, 2026. CARB’s preliminary list can be found here. CARB also prepared high-level Frequently
Asked Questions (“FAQs“) and a Draft Checklist for complying with SB 261.

Background

As discussed in our article summarizing the initial adoption of
various California climate-disclosure rules, SB 261 applies to U.S.
companies with total annual revenues in excess of US$500mn doing
business in California (“Covered Entity”). Specifically,
“Covered entity” means a corporation, partnership,
limited liability company, or other business entity formed under
the laws of California, “the laws of any other state of the
United States or the District of Columbia, or under an act of the
Congress of the United States with total annual revenues in excess
of five hundred million United States dollars ($500,000,000) and
that does business in California.”2 What
constitutes “doing business in California” is not further
defined in either SB 261 or SB 253. We anticipate additional
clarity regarding this definition to be promulgated via regulation;
however, CARB has preliminarily indicated that it is considering
using the California Franchise Tax Board definition of “doing
business” which is broadly defined as “actively engaging
in any transaction for the purpose of financial or pecuniary gain
or profit” including satisfying any of the following
conditions:


Being organized or commercially domiciled in California;

Having sales of the entity in California that exceed $735,019
(2024);

Owning real property and tangible personal property of the
entity in California in that exceeds of the lesser of $73,502
(2024) or 25 percent of the entity’s real property and tangible
personal property; or

Paying employees in California by the entity an amount that
exceeds $73,502 (2024) or 25 percent of the total compensation paid
by the entity.3

Applicability shall be determined based on the business
entity’s revenue, sales, owned property and payroll for the
prior fiscal year. We note that this definition is very expansive,
and is intended to require compliance of as many entities as
possible.

Covered Entities must prepare a Climate Related Financial Risk
Report in accordance with:


The recommended framework and disclosures contained in the Final Report of Recommendations of the Task Force on
Climate-related Financial Disclosure;

The International Financial Reporting Standards Sustainability
Disclosure Standards, as issued by the International Sustainability
Standards Board (IFRS S2); or

Otherwise developed in accordance with any regulated exchange,
national government, or other governmental entity, including a law
or regulation issued by the United States government.

The Report must be posted on the company’s website and the
regulated entity must provide the link to such Report via a public
docket that will be established by the CARB in December 2025.While
CARB was expected to promulgate rules regarding which entities are
“Covered Entities” and more details on how to comply with
the reporting requirements, CARB has now indicated those rules are
not expected before December 2025. Although this presents a
compliance challenge for many entities, SB 261 does appear to
provide some leniency. Specifically, a Covered Entity shall
“provide the recommended disclosures to the best of its
ability, provide a detailed explanation for any reporting gaps, and
describe steps the covered entity will take to prepare complete
disclosures.” CARB further reinforces this sentiment in its
recent FAQs stating that disclosures made for the
upcoming January 1, 2026 deadline may be based on the “best
available information” and that data sources may have changed
throughout 2024 and 2025 if additional data collection methods have
been put in place during that time.

There is Still Time to Comply With SB 261

While the deadline is fast approaching, there is still plenty of
time for “Covered Entities” to prepare reports in
compliance with SB 261. Foley & Lardner is well positioned to
assist you with navigating the climate-related risk requirements
discussed above and preparing any required reports and disclosures.
Please reach out to any of the authors of this Alert for specific
recommendations, assistance in preparing your Report, or for
additional information about any of the issues discussed above.

Footnotes

1 Note that compliance with SB 253 is not required until
later in 2026. Per SB 253, the Climate Corporate Data
Accountability Act, reporting entities must report Scope 1 and
Scope 2 Greenhouse Gas emissions in 2026, on a date to be set by
CARB through the regulatory process, covering the prior fiscal
year. Scope 3 emissions reporting begins in 2027, covering the
prior fiscal year. However, as CARB has not officially begun the
rulemaking process, CARB issued an Enforcement Notice in December 2024 stating
that they will exercise enforcement discretion during the first
round of reporting. Additionally, CARB indicated during its August
2025 workshop that it was targeting June 2026 for the first SB 253
reporting deadline.

2 Cal. Health & Safety Code § 38533.

3 Cal. Rev. & Tax. Code §
23101(a)-(b).

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.