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CLIMATE-R ELATED FINANCIAL RISK ACT: SB 261 ABOUT THIS LEGISLATION SB 261 requires certain companies to prepare and submit climate-related financial risk reports that describe (1) their climate-related financial risks in line with the Task Force on Climate-Related Financial Disclosure (TCFD) framework and (2) measures they have adopted to mitigate and adapt to that risk. PROCEDURES: These reports must be submitted to the California State Air Resources Board and published on the company website. Covered entities must make their biennial reports publicly available on their websites. The bill also requires the California Air Resources Board (CARB) to contract with a non-profit climate reporting organization to prepare a biennial public report on the climate-related financial risk disclosures made during that period and identify any inadequate or insufficient reports. COVERED ENTITIES: Under bill 261, any company making at least $500 million a year and doing business in the state is obligated to comply and prepare biennial reports. TIMELINE FOR COMPLIANCE: Subject companies must file every 2 years, with the first report being due in January 2026. PENALTIES: Subject companies that fail to report may face administrative penalties of up to $50,000 per year. Factors impacting the ultimate penalty include whether the company undertook good faith measures to comply, and the company's past and present compliance. PURPOSE AND CONTEXT: The law states that the impacts of climate change, such as wildfires, sea level rise, extreme weather events, and extreme droughts, are affecting California's communities and economy, and that the "failure of economic actors to adequately plan for and adapt to climate-related risks to their businesses and the economy will result in significant harm" to the state, particularly to financially vulnerable residents and communities. These public reporting requirements are designed to ensure accountability and standardize data availability or climate risk information that has historically been incomplete or misleading. SUMMARY OF KEY PROVISIONS Public and private companies are covered: Like SB 253, SB 261 applies to corporations, partnerships, and limited liability companies. Insurance companies are exempt from the law. It will impact thousands of companies: The Assembly and Senate Floor Analyses estimate that more than 10,000 companies exceed this threshold. The definition of climate-related financial risk: The bill defines climate-related financial risk to mean "material risk of harm to immediate and long-term financial outcomes due to physical and transition risks…" The bill provides that such risks include, but are not limited to, "risks to corporate operations, provision of goods and services, supply chains, employee health and safety, capital and financial investments, institutional investments, the financial standing of loan recipients and borrowers, shareholder value, consumer demand, and financial markets and economic health." This definition is similar to the SEC definition of risk. Anticipation of future regulatory action: Covered entities are deemed to satisfy the bill's disclosure requirements if they prepare a report that includes risk disclosure information in compliance with "a law, regulation, or listing requirement issued by a regulated exchange, national government, or other governmental entity" whose disclosure requirements are consistent with those in SB 261, including IFRS Sustainability Disclosure Standards issued by the ISSB. Sustainability & Energy Management Simplified

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