‘Ex Occidente Lex’: California’s Mandatory Climate Disclosure Bills Come into Focus as First Compliance Deadline Nears

The phrase ‘Ex Occidente Lex’, Latin for “from West comes law,” has taken on fresh meaning in the world of climate regulation, as California prepares for sweeping new disclosure mandates.

Background

The California State Legislature passed two bills in 2023 that mandated the disclosure of climate-related financial risks and emissions from companies operating within the state. In the alphabet soup of acronyms, the two bills, California Senate Bill 253 (“California Climate Corporate Data Accountability Act” or “SB 253”) and California Senate Bill 261 (“Climate-Related Financial Risk Act” or “SB 261”), went into effect in 2025, and oversight for each has been designated to the California Air Resources Board (“CARB”).

SB 253: California Climate Corporate Data Accountability Act

SB 253 aims to standardize and increase accountability in corporate greenhouse gas (“GHG”) emissions reporting by requiring large companies doing business in California to disclose Scope 1, 2 and, eventually, Scope 3 GHG emissions. Starting in 2026, in-scope companies must report direct (Scope 1) and indirect (Scope 2) emissions annually, with Scope 3 (value chain emissions) disclosures phased in by 2027. All disclosures will be subject to limited third-party assurance standards initially and reasonable assurance by 2030.

CARB is required to undertake a formal rulemaking process to enact and enforce SB 253. As a result, the first compliance date has yet to be finalized – CARB has proposed a tentative deadline of June 30, 2026.

SB 261: Climate-Related Financial Risk Act

SB 261 aims to enhance transparency by requiring large companies doing business in California to publicly report how they manage climate-related financial risks. In-scope companies must publish a publicly available report detailing the climate-related financial risks their organizations face and any measures the company has adopted to reduce and adapt to those risks. Reports may be aligned with global frameworks, such as the Task Force on Climate-related Financial Disclosures (“TCFD”) recommendations or the International Sustainability Standards Board (“ISSB”) S2 climate standard.

Initial reports are due by January 1, 2026, and will be required every two years thereafter.

What Asset Managers Need to Know

Asset managers should assess whether they—or any of their portfolio companies—are in scope for SB 253 or SB 261. Early coordination with portfolio companies to evaluate readiness and available data will be critical ahead of the first reporting deadline in 2026.

What companies are in scope? 

Although SB 253 and SB 261 became effective in 2025, there is still some ambiguity when determining whether a company is in scope of either bill.

As written, any U.S. based company “doing business in California” that meets a global annual revenue threshold of at least $1 billion is deemed to be in scope of SB 253; and any U.S. based company “doing business in California” that meets a global annual revenue threshold of at least $500 million is deemed to be in scope of SB 261.  

At the recent August 21, 2025 workshop (the “Workshop”), CARB indicated it will release a preliminary and non-exhaustive list of companies it deems in scope of SB 261, based on its initial analysis of publicly available information. However, each company remains responsible for determining its own reporting obligations regardless of inclusion on the list.

How will a company determine its annual revenue? 

CARB initially proposed defining annual revenue based on a company’s gross receipts.¹ During the Workshop, the regulator presented an alternative definition: “the total global amount of money or sales a company receives from its business activities, such as selling products or providing services.” Under both approaches, revenues are not limited to those generated in California, and CARB is still considering both definitions.

For initial reporting purposes, CARB has issued guidance that disclosures may be based on the “best available information”. For first reports, “best available information” is expected to be based on data from fiscal year or calendar year 2024.

Further, the standard of “doing business in California” remains under consultation by CARB.

What constitutes “doing business in California”?

The working definition, based on CARB’s review of public comments and its own rulemaking process, broadly aligns with the definition set forth in Section 23101 of California’s Revenue & Tax Code.

The definition includes companies that:

“Are actively engaging in any transaction for the purpose of financial or pecuniary gain or profit” AND meet either of the following requirements:

• • is organized (i.e., registered) or commercially domiciled² (i.e., has its principal place of business) in California; or
  • has sales in California that exceed $735,019 (2024; inflation-adjusted)

An Alternative Proposal

During the Workshop, CARB proposed an alternative test for “doing business in California” that would include, at a minimum, entities listed as “companies of record” with the California Secretary of State. CARB is continuing to solicit feedback, and the definition remains in flux; however, companies that meet the revenue threshold and fit one or both proposed tests should prepare to comply by January 1, 2026.

What Asset Managers Need to Know

Utilize Silver’s scoping tool to determine whether SB 261 is applicable to the manager or its investments.

How should an in-scope company prepare?

In-scope companies must disclose the climate-related financial risks the organization faces, as well as any measures the company has taken to reduce and adapt to those risks by January 1, 2026. 

Preparing for January 1, 2026

The FAQ, published by CARB on July 9, 2025, explains that, while there are a variety of ways that a company can meet its disclosure obligations, producing a report that is aligned with the TCFD’s recommendations represents a viable path to compliance.

This is a positive development and introduces significant flexibility for in-scope companies. As one example, the TCFD Framework³ allows companies to disclose when certain actions are not in place or are in the process of being developed — a feature intended to encourage adoption and support gradual progress in climate-related strategy.

What Asset Managers Need to Know

Whether an in-scope company is just starting to think about how climate change might affect its business or already has a formal, well-established climate strategy, utilizing the TCFD Framework² is a practical approach to take to satisfy the disclosure required by SB 261. Ultimately, Silver encourages in-scope companies to utilize one of the reporting frameworks indicated by CARB and expects that many reports will align with TCFD.

What if a company does not have responsive data?

As SB 261 is ultimately a disclosure requirement, the bill does not compel any in-scope companies to undertake additional practices or processes beyond producing a report. While many companies may be inclined to develop new processes related to climate risk to improve the quality of its disclosure, Silver’s position is that ahead of first compliance, companies should focus their efforts on accurately describing existing practices. This approach will serve to both minimize initial effort and cost, as well as reduce the risk of over-disclosure and greenwashing. 

SB 261 provides flexibility for companies with data and/or procedural gaps:

For many companies, fully addressing each element of the TCFD Framework² – or other frameworks suggested by CARB – may feel out of reach before the January 1, 2026 deadline. However, CARB has issued guidance that a “best efforts” approach is acceptable. Companies are permitted to disclose where gaps in data or processes exist, along with an explanation of why those gaps remain and any plans to address them over time.

Minimum Requirements

During the Workshop, CARB identified minimum reporting requirements for SB 261, a summary of which includes:

• All reports must follow one of the TCFD, IFRS, or other regulator-backed frameworks, at the discretion of the reporting entity, and must be published on the company’s public website;
• All reports must include a statement which identifies: (i) the framework used; (ii) specifies included/omitted disclosures; and (iii) explains any omissions with future plans to address these gaps;
• All reports must address four overriding principles for climate-related risk, which include: (i) Governance; (ii) Strategy; (iii) Risk Management; and (iv) Metrics and Targets; and
• Companies must post the link to the report in a public docket administered by CARB, which is currently due to open on December 1, 2025.

Notably, scenario analysis and emissions data will not be required in initial reports.

What Asset Managers Need to Know

Support in-scope companies to determine the current state of information that can be disclosed by January 1, 2026. Where gaps in data or processes exist, companies should focus on articulating how they plan to address those gaps over time and be prepared to include those plans in their initial report, rather than rush to create new processes that are not practical to undertake prior to first compliance.

Will SB 261 be overturned?

A common question throughout the rollout of SB 261 has been whether the law might be delayed, challenged or overturned due to ongoing political opposition at both the state and federal level.

Recent Challenges to SB 261 and SB 253

On August 13, 2025, SB 252 and SB 261 survived a preliminary injunction request:

• A federal judge denied a request from the U.S. Chamber of Commerce, California Chamber, and other business groups to block SB 253 and SB 261
• The court held that because the plaintiffs had not shown that the laws violate the First Amendment, they also failed to demonstrate irreparable harm
• Following the court decision, the plaintiffs are expected to submit an appeal

What Asset Managers Need to Know

While any appeal is expected to cause additional headline news, we believe the posed challenge is unlikely to succeed ahead of the initial compliance deadline. In-scope companies should not wait to determine their approach to compliance ahead of January 1, 2026.

Implementation fees for in-scope companies

CARB proposed initial fees for in-scope companies during the Workshop.  Currently, annual fees are expected to be determined by CARB’s overall program administration costs and the number of covered entities.  Preliminary estimates include $3,106 for SB 253 and $1,403 for SB 261. These fees do not include potential penalties for non-compliance, which may reach as high as $50,000.

Notably, companies that are in-scope for both SB 261 and SB 253 will be required to pay each fee separately.

What Asset Managers Need to Know

Asset managers should proactively communicate with in-scope portfolio companies regarding upcoming annual fees, which will apply separately under each law.

What are we waiting on?

While CARB continues to provide guidance for companies in scope of SB 261, there are several items under consultation. CARB has invited the public to provide feedback on its proposals for:

• Proposed definitions and tests for “revenue” and “doing business in California”
• Proposed annual fee structure
• Minimum reporting requirements

Timeline for Rulemaking:

At the workshop, CARB provided the following timeline:

• August 21 – September 11: Public comment period for feedback on the items noted above
• October 14: Notice of proposed rulemaking (including the definitions used to determine scope).
• December 11 and 12: Board consideration of proposed rulemaking (public Board Hearing)

What Asset Managers Need to Know:

For those who wish to participate in the consultation, feedback will be accepted through Thursday, September 11, 2025.

Silver continues to engage with the guidance, workshops and updates issued by CARB. We will share additional updates according to this timeline.

Climate-related disclosures are here to stay

Even if SB 261 is weakened or repealed over time, the steps taken to prepare for compliance will not be wasted. The reporting expectations under SB 261 are aligned with current and emerging global standards and growing demands from asset owners and other limited partners for greater transparency of climate-related risks. 

What Asset Managers Need to Know

Supporting in-scope companies to evaluate and disclose climate-related financial risks is a meaningful exercise that can yield long-term value. Regardless of the state of SB 261, this effort will help companies understand and address material risks over the long term.

Resources the SRS Team Frequently References

There are numerous publications related to SB 261. A few of Silver’s favorites include:

• CARB: Climate Disclosure and Reporting Programs Website
• Nasdaq SB 261 Webinar Summary
• CARB: FAQ
• CARB: May Public Workshop Slides
• CARB: August Public Workshop Slides
• CARB: Draft Guidance for SB 261 Reports

How Silver Can Help

Members of the CARB regulatory board have clarified that the first compliance deadline for SB 261 will not change, and for those companies that have not begun to prepare for reporting, the time is now.

Silver’s SRS Team is a trusted partner in developing practical, reasonable and actionable tools to help firms respond to evolving disclosure mandates and are actively supporting our clients and their investments to meet SB 261 disclosure requirements ahead of the January 1, 2026, deadline. To learn how we can assist your team, please contact us at [email protected].