- Posted onNovember 3, 2025
- By Jessica I. Marschall, CPA, ISA AM President & CEO The Green Mission Inc, GM-ESG Solutions
As regulators increasingly require businesses to disclose climate-related financial risks, companies must adopt expansive, defensible ESG reporting practices. At GM-ESG, we specialize in guiding organizations through this evolving landscape, turning complex regulatory requirements into actionable reporting, disclosure, and value-creation opportunities.
On September 2, 2025, the California Air Resources Board (CARB) issued draft guidance, referred to as a “Draft Checklist”, under its Climate-Related Financial Risk Disclosure Program (codified under Senate Bill 261 or SB 261). This checklist represents a significant milestone in California’s efforts to mandate comprehensive climate-related financial disclosures.
Key Elements of SB 261
Covered entities are defined as U.S. public and private companies with annual revenues exceeding $500 million that do business in California, and must prepare and publicly disclose a climate-related financial risk report by January 1, 2026. These reports are required biennially thereafter.
Reports may be prepared in accordance with recognized frameworks such as the Task Force on Climate-related Financial Disclosures (TCFD) or the IFRS S2 standard. The guidance emphasizes four core disclosure areas aligned with TCFD: Governance, Strategy, Risk Management, and Metrics & Targets.
CARB has stated that the checklist “is intended to be used as a starting point for reporting entities” and it adds to issues discussed in CARB’s FAQs and discussions from past workshops. Although the checklist does not have the force of law and cannot establish new mandatory requirements beyond those already in statute, it signals regulators’ expectations and sets the pace for broader adoption.
CARB will establish a public docket for companies to post the link to their SB 261 reports. The docket will go online on December 1, 2025, and remain active until July 1, 2026. CARB has indicated that the window for posting to the docket does not alter the SB 261 requirement that companies publish their SB 261 report on their website by January 1, 2026.
For the first round of reporting due January 1, 2026, CARB has stated that it will accept “good faith efforts”, meaning reports that companies prepared to the best of their knowledge and from the use of the best available data.
Fee Structure and Administrative Costs
CARB proposed a flat annual fee structure of $1,403 for SB 261, with covered entities over $1 billion in revenue also required to pay fees for SB 253 compliance. Even if parent-level consolidated reports are filed, subsidiaries are still required to pay separate entity fees.
Scope and Coverage
On September 24, 2025, CARB published a preliminary list of reporting/covered entities, which considers more than 4,000 entities that may be subject to SB 253 and/or SB 261. The list is based upon California Secretary of State data as a master-list of entities doing business in California. However, the California Secretary of State Business Entity database used by CARB does not include limited liability partnerships (such as law firms, architecture firms, engineering firms, public accountancy firms, and land survey firms), general partnerships, associations, and other entity types.
Disclosure of Scope 1, 2, and 3 emissions is not required in the first reporting year but will become relevant for future reporting cycles. The first climate risk report may cover either fiscal year 2024 or fiscal year 2025 depending on what is reasonable for the organization.
The insurance industry is excluded from SB 261, focusing the program on intended sectors. Subsidiaries don’t need to issue separate reports if the parent’s consolidated report covers them.
California’s climate disclosure requirements extend beyond SB 261. In October 2023, California Governor Gavin Newsom signed both SB 253 (the Climate Corporate Data Accountability Act) and SB 261 into law.
SB 253 applies to companies with annual revenue over $1 billion and requires annual reporting of Scope 1 and 2 greenhouse gas emissions starting in 2026, with Scope 3 disclosures phased in starting 2027. CARB is proposing that SB 253 reporting entities will be required to report certain 2025 emissions data on June 30, 2026.
Despite discussion of potential delays by Governor Newsom, deadlines for reporting under SB 253 and SB 261 remain firm. CARB has clarified that no penalties will be imposed in 2026 for SB 253 as long as companies demonstrate a “good faith effort” in preparing their disclosures.
In August 2025, a federal judge in California refused to halt the implementation of California’s climate disclosure laws, despite ongoing legal challenges from several major trade groups and business organizations. The plaintiffs contend that SB 253 and SB 261 violate the First Amendment by compelling speech, are preempted by federal law including the Clean Air Act, and violate the Constitution’s limitations on extraterritorial regulation.
Despite these legal challenges, regulated companies must continue to prepare for the quickly approaching first reporting deadlines.
The Task Force on Climate-related Financial Disclosures (TCFD) was established in 2017 by the Financial Stability Board and has been a trailblazer in raising the practice and quality of climate-related disclosures. The requirements in IFRS S2 are consistent with the four core recommendations and eleven recommended disclosures published by the TCFD.
On January 1, 2024, the Task Force on Climate-related Financial Disclosure officially disbanded, and the IFRS Foundation, which oversees the ISSB, formally assumed its responsibilities. Having fulfilled its remit, TCFD disbanded in October 2023, with the Financial Stability Board announcing that the ISSB Standards mark the ‘culmination of the work of the TCFD’.
IFRS S2 Climate-related Disclosures was released by the International Sustainability Standards Board (ISSB) in mid-2023 and came into effect for annual reporting periods starting on or after January 1, 2024. The transition from the TCFD to the IFRS S2 reporting standard represents a significant milestone in the evolution of global climate change and wider sustainability reporting frameworks.
Thirty-six jurisdictions have adopted or otherwise used the IFRS Sustainability Disclosure Standards (ISSB Standards) or are in the process of finalizing steps towards introducing them into their regulatory frameworks. The UK, Canada, Brazil, Nigeria, Singapore, California, Australia, and others have announced alignment or consultations.
Companies applying IFRS S2 will provide all of the information covered by the TCFD recommendations, plus additional requirements. These include requirements for companies to disclose industry-based metrics, to disclose information about their planned use of carbon credits to achieve their net emissions targets, and to disclose additional information about their financed emissions.
More than 50% of the roughly 100 IFRS S2 cross-industry disclosure requirements are additional to TCFD, and another 26% are substantial advancements to the TCFD recommendations. Most of the new requirements are linked to information about Strategy and granular disclosure of climate Metrics & Targets.
IFRS S2 is fully aligned with the disclosure requirements of California’s SB 261, making it a particularly relevant choice for companies subject to California’s regulations.
The Global Reporting Initiative (GRI) is an independent not-for-profit organization that leads a global multi-stakeholder process to develop and refine rigorous yet practical sustainability reporting. GRI’s consistent, comparable and globally-applicable standards have become the world’s most widely-used sustainability reporting standards.
The 2025 GRI Standards framework is organized into three interconnected parts: Universal Standards (which apply to all organizations and include GRI 1: Foundation, GRI 2: General Disclosures, and GRI 3: Material Topics), Sector Standards (designed specifically for industries with significant sustainability impacts), and Topic Standards (allowing reporting on pertinent ESG themes).
On June 26, 2025, the Global Reporting Initiative announced the release of its new finalized Climate Change and Energy Standards (GRI 102 and GRI 103), aimed at enabling companies to disclose on climate-related and energy management issues and impacts. These new standards are effective for reports or other materials published on or after January 1, 2027.
A key evolution in 2025 reporting is the drive toward interoperability between frameworks. The GRI collaborated with EFRAG to achieve a high degree of interoperability with the European Sustainability Reporting Standards (ESRS) underlying the EU’s CSRD regulation. Sue Lloyd, Vice Chair of the ISSB, stated that “the GRI have granted equivalence to IFRS S2 Climate-related Disclosures for disclosures of GHG emissions under GRI 102. This will enable companies to prepare just one set of GHG emissions disclosures in accordance with IFRS S2, to meet the requirements in both standards”.
The new Universal Standards, GRI 1, 2 and 3, officially replaced the previous standards starting January 1, 2023. In place of the previous “core” and “comprehensive” reporting options, the new GRI now allows companies to report either “in accordance with” or “with reference to” the standards.
How GM-ESG Helps You Respond — End-to-End ESG Reporting and Compliance
At GM-ESG, we deliver a comprehensive suite of services designed to align your ESG reporting with regulatory expectations and strategic business goals. Our key offerings include:
We map your organization’s exposures and revenue thresholds to determine whether you fall within disclosure regimes (such as SB 261). Given the complexity of the “doing business in California” definition and the breadth of entities potentially covered, we help you assess your obligations accurately. We also determine whether parent-company reporting or subsidiary reporting is required, helping you navigate consolidated reporting options that can reduce administrative burden.
Whether you choose TCFD, IFRS S2, GRI, or other frameworks, we guide you through selection, gap analysis, and harmonization of ESG metrics and narrative disclosures. We recognize that California’s regulations accept multiple frameworks, and we help you select the approach that best aligns with your existing reporting infrastructure, stakeholder expectations, and strategic objectives.
Given the evolution from TCFD to IFRS S2 and the growing interoperability between GRI and other frameworks, we ensure your chosen approach positions you for both current compliance and future regulatory developments. For companies already reporting under TCFD, we facilitate smooth transitions to IFRS S2, leveraging existing disclosures while addressing the additional requirements.
We identify climate-related financial risks (and opportunities) that are material to your business model, evaluate scenario resilience, and structure disclosures that meet the decision-usefulness standard regulators emphasize. Our approach aligns with both the financial materiality focus of IFRS S2 and the double materiality approach increasingly expected by global stakeholders.
We conduct rigorous scenario analyses that examine physical risks (such as extreme weather events, sea-level rise, and temperature changes) and transition risks (including policy changes, technology shifts, market dynamics, and reputational considerations). These analyses inform strategic planning and provide the foundation for credible, forward-looking disclosures.
Data Collection and Verification
- Scope 1 and 2 Emissions: Direct emissions from owned or controlled sources and indirect emissions from purchased energy
- Scope 3 Emissions: Indirect emissions in the value chain, both upstream and downstream
- Energy Consumption and Generation: Tracking renewable energy adoption and energy intensity metrics
- Climate-related Financial Data: Connecting physical and transition risks to financial outcomes
We prepare or review your climate-related financial risk reports, ensuring alignment with the core disclosure areas (Governance, Strategy, Risk Management, Metrics & Targets) and compliance with regulatory checklists. Our disclosure preparation services include:
- Governance Disclosures: Board oversight, management’s role, and integration of climate considerations into governance structures
- Strategy Disclosures: Climate-related risks and opportunities, business model resilience, strategic responses, and financial impacts
- Risk Management Disclosures: Processes for identifying, assessing, prioritizing, and monitoring climate-related risks
- Metrics and Targets Disclosures: Performance metrics, progress tracking, and target-setting aligned with recognized standards
We help craft messaging and disclosures that satisfy investor, creditor, insurer, regulator, and NGO stakeholders; building credibility and reducing reputational risk. Our stakeholder engagement services recognize that climate disclosure serves multiple audiences with varying information needs:
- Investors and Financial Institutions: Seeking decision-useful information about financial risks and opportunities
- Regulators: Expecting compliance with specific disclosure requirements and demonstration of good faith efforts
- Customers and Supply Chain Partners: Increasingly requesting climate-related information as part of procurement and partnership decisions
- Employees and Communities: Interested in how the organization is addressing climate impacts and contributing to sustainability goals
Regulatory Acuity and Forward-Looking Guidance
With SB 261 and analogous frameworks developing rapidly, our team stays current with emerging guidance and helps clients anticipate future disclosure demands. We monitor:
- CARB’s ongoing rulemaking process and stakeholder workshops
- Legal challenges and their potential impacts on implementation timelines
- Parallel developments in other jurisdictions that may influence California’s approach
- Evolution of international standards (ISSB, GRI, ESRS) that inform best practices
Tailored for Operational Risk
- Identify climate-related risks embedded in specific facilities, operations, and geographies
- Quantify potential financial impacts from physical risks (such as flooding, wildfires, extreme heat)
- Assess transition risks related to carbon pricing, technology investments, and shifting market demand
- Develop adaptation and mitigation strategies that are operationally feasible and financially justified
Beyond compliance, we help clients integrate ESG initiatives into governance, strategy, and operations, turning disclosure obligations into strategic advantage. We recognize that the best climate disclosures emerge from organizations that have genuinely integrated climate considerations into decision-making, not those that treat disclosure as a standalone exercise.
Our approach helps organizations:
- Identify opportunities for operational efficiencies and cost savings through energy management and emissions reduction
- Enhance resilience by proactively addressing climate risks in strategic planning and capital allocation
- Strengthen stakeholder relationships by demonstrating transparency and accountability
- Position themselves competitively as climate-related regulations expand and stakeholder expectations intensify
If your annual revenues exceed $500 million and you do business in California (or are similarly regulated), you should expect to issue an initial climate-related financial risk report by January 1, 2026. This deadline is rapidly approaching, and companies should begin preparation immediately if they have not already done so.
Key preparation activities include:
- Assessing whether your organization meets the coverage criteria
- Selecting an appropriate reporting framework (TCFD, IFRS S2, or other recognized standards)
- Conducting or updating materiality assessments to identify relevant climate-related risks
- Establishing data collection processes for climate and energy metrics
- Engaging relevant internal stakeholders (board, management, operations, finance, legal)
- Preparing draft disclosures for review and refinement
Even if you fall below thresholds currently, regulators are likely to broaden scope and increase granularity over the next 2–3 years. Early preparation builds institutional confidence and audit readiness. Organizations should monitor:
- Potential threshold reductions that would bring smaller companies into scope
- Expansion of disclosure requirements to include more detailed Scope 3 reporting
- Increased verification and assurance requirements
- Development of sector-specific guidance and metrics
- Alignment with federal climate disclosure requirements (if implemented)
- Investor demands for ESG data and climate risk assessment
- Lender requirements for climate risk disclosure in credit assessments
- Insurance underwriting processes that consider climate resilience
- Customer and supply chain partner expectations for climate transparency
- Competitive dynamics as peer companies enhance their climate disclosure
Organizations should invest in:
- Robust data management systems capable of tracking climate-related metrics consistently
- Internal controls and verification processes to ensure data accuracy
- Cross-functional teams with expertise in climate science, financial analysis, and operations
- Technology solutions that facilitate data collection, analysis, and reporting
- Training programs to build internal capacity for climate-related disclosure
ESG reporting should not be a standalone exercise. Integrating governance, strategy, operations, and risk management creates disclosures that are credible, defensible, and forward-looking.
Organizations that treat climate disclosure as merely a compliance obligation often produce superficial reports that fail to satisfy stakeholders or provide decision-useful information. In contrast, organizations that embed climate considerations throughout their operations develop disclosures that:
- Reflect genuine board oversight and management accountability
- Demonstrate clear linkages between climate risks and strategic planning
- Include specific, measurable targets with transparent progress tracking
- Acknowledge uncertainties and limitations while providing best-available information
- Evolve over time as understanding deepens and data availability improves
As regulatory expectations evolve, ESG reporting is no longer simply a corporate responsibility exercise—it is a financial-risk and governance imperative. California’s climate disclosure laws represent a watershed moment in mandatory climate-related reporting, and their influence extends far beyond the state’s borders.
The implementation of SB 261 and SB 253 signals a broader shift toward mandatory climate disclosure that is likely to accelerate in coming years. Organizations subject to these requirements face substantial compliance obligations, but they also have an opportunity to transform how they understand, manage, and communicate climate-related risks and opportunities.
By partnering with GM-ESG, organizations can be confident that their disclosures meet current and emerging regulatory thresholds, provide decision-useful transparency to stakeholders, and support the transition from compliance to competitive strategy.
For organizations seeking an ESG reporting partner that combines regulatory insight, operational expertise, and disclosure rigor, GM-ESG provides the trusted pathway. Our comprehensive services—spanning regulatory readiness, framework alignment, materiality assessment, data management, disclosure preparation, and stakeholder engagement—enable clients to navigate California’s climate disclosure regime with confidence.
As the deadline approaches for first-year SB 261 reporting, now is the time to ensure your organization has the systems, processes, and expertise necessary to meet regulatory expectations while positioning climate-related disclosure as a strategic asset rather than merely a compliance burden.
GM-ESG specializes in ESG reporting solutions, valuation services, and sustainability strategy development. With expertise in waste-to-value, secondary-economy, and asset-recovery solutions, we help organizations turn complex regulatory requirements into actionable strategies that create value for stakeholders while advancing sustainability objectives.
For more information about our services and how we can support your climate disclosure obligations, please visit www.GM-ESG.com or contact our team of experts.
This article is current as of November 2025 and reflects the regulatory landscape as of that date. Climate disclosure requirements continue to evolve, and organizations should consult with qualified advisors to ensure ongoing compliance with applicable regulations.
