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 third-party assurance standards 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, but is expected in 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 initial reports detailing the climate-related financial risks their organizations face and any measures the company has adopted to reduce and adapt to those risk. 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.  

How will a company determine its annual revenue? 

Annual revenue will be determined based on a company’s gross receipts¹ and is not limited to revenue generated in California. 

For initial reporting purposes, CARB has issued guidance that disclosures may be based on the “best available information”, which can include data from fiscal year 2024 or 2025. Accordingly, in-scope companies will be able to use gross receipts¹ from either time period (specifically the period that provides the “best available information”) when determining whether it has met or exceeded a revenue threshold.

Further, the standard of “doing business in California” remains undefined 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 and 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 at least one of the following requirements:

• • is organized or domiciled in California
  • has sales in California that exceed the lesser of $735,019 (inflation-adjusted, will increase YoY) or 25% of total sales
  • has real property in California that exceeds the lesser of $73,502 (inflation-adjusted, will increase YoY) or 25% of total real property
  • amount paid in payroll tax and compensation in California exceeds the lesser of $73,502 (inflation-adjusted, will increase YoY) or 25% of total compensation paid by the company

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 Framework² 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.

For example: an in-scope company may be unable to substantiate the process it undertakes to complete a climate scenario analysis, a disclosure expected under TCFD’s strategy pillar. Here, a company can disclose: (i) that scenario analysis has not yet occurred; and (ii) the company’s approach to developing scenario analysis capabilities in the future. 

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.

If SB 261 is overturned, is all this effort wasted?

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. While such an action is possible, we believe it would be unlikely to succeed ahead of the initial compliance deadline.

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: Public Workshop Slides

How Silver can help

Silver’s SRS team continues to monitor for additional clarity from CARB. 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].