What Is a Climate-Related Financial Risk Report, and Why Does It Matter?
Under California’s SB 261, companies with over $500 million in annual revenue that do business in the state must publish a “climate-related financial risk report” annually starting January 1, 2026.
Graphic credit: TCFD
A climate-related financial risk report outlines how climate change could impact a company’s financial health; covering risks like extreme weather, regulatory shifts, supply chain disruptions, and market volatility. These reports help stakeholders understand how exposed a business is to climate-related threats and what it’s doing to manage them.
The law aims to increase transparency and accountability around how a company manages its climate risk, aligning with broader efforts to protect California’s economy and environment. While specific penalties for non-compliance have been estimated at $50k annually, failure to report could also result in enforcement actions from the California Air Resources Board (CARB), reputational damage, and increased scrutiny from investors and regulators.
Why Procrastination Backfires
Executives know how the calendar works against major initiatives:
- Q4 is full: Year-end close, audits, strategic planning, and board meetings compete for attention. Adding a new regulatory deliverable in November or December isn’t realistic.
- End-of-year timing decreases bandwidth: Teams are distracted, leadership availability is limited, and deadlines slip.
- Last-minute work risks weak disclosure: Rushed reporting undercuts credibility with regulators, investors, and customers.
- Advisors won’t be immediately available: Consultants, auditors, and legal experts will be fully booked if everyone waits.
Why Acting Now Pays Off
Beginning now positions your organization to:
- Control the narrative: Frame climate risk as part of your strategy, not an emergent compliance scramble.
- Establish credibility: Thoughtful, cross-functional reporting demonstrates governance strength.
- Secure the right support: Lock in external advisors before the market bottleneck.
- Reduce stress on your teams: Spread the work — beginning now — instead of forcing a year-end sprint.
Questions for You and Your Leadership Team
- Do we know which parts of our business are most exposed to climate-related risks?
- Who owns SB 261 compliance internally and in areas such as finance, risk, sustainability?
- Is scenario planning underway? And do we have the right data to support it?
- Do we have an engaged senior team and board? And are they ready to sign off on governance requirements?
- If we had to publish tomorrow, how confident would we be in the quality of our report?
The Bottom Line
The deadline is fixed for January 1, 2026. The only question is whether your company will treat SB 261 as a last-minute compliance task—or as an opportunity to demonstrate foresight and resilience.
The time is now to get ahead.
If you need help figuring out what is ahead for your organization, please reach out to Kevin Zweier at [email protected] or Pat Carroll at [email protected]
Guest author: Patrick Carroll, The CF Team, [email protected]
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