California Senate Bill 261 (the Climate-Related Financial Risk Act; SB 261) requires certain businesses to submit biennial disclosures of climate-related financial risks, as well as the measures they have implemented to reduce such risks. U.S. organized entities “doing business in California” with “revenues” exceeding $500 million in the prior year are subject to this requirement. A similar law, California Senate Bill 253 (the Climate Corporate Data Accountability Act; SB 253), requires regulated companies to annually disclose their emissions beginning in June 2026.
The initial set of disclosures required under SB 261 are due to be posted on a regulated company’s website by Jan. 1, 2026, and submitted to the California Air Resource Board (CARB) by July 1, 2026. While SB 261 is currently being challenged in court, these deadlines have not been extended.
Reporting Requirements and Deadlines for Entities ‘Doing Business in California’ with $500 Million+ Revenue
For real estate funds incorporated outside of California that hold an ownership interest in real property in California, there is ambiguity regarding whether reporting under SB 261 is required. Under SB 261 and its regulatory definitions, any single purpose entity (SPE) owning property in California would be “doing business in California” and thus potentially subject to the biennial reporting requirements. CARB has not yet issued draft or final regulations, but it has indicated in guidance materials published on its website and in public workshops to date that entities with more than 50% ownership in downstream entities doing business in California would also be considered to be doing business in California. For real estate funds with complex organizational structures involving multiple subsidiaries, associated entities, and SPEs, the 50% ownership calculation is not straightforward, and may ultimately lead to a conclusion that reporting under SB 261 is not required depending on a given organization’s corporate structure.
CARB also has not yet formally defined how annual revenues will be calculated. It has suggested that it will borrow the gross receipts concept from California Revenue and Taxation Code (RTC) Section 25120. Under RTC § 25120, business income explicitly includes acquisition, management, and disposition of property, inclusive of revenue derived from activities outside of California. Using that definition would cast a wide net, capturing virtually all of an upstream entity’s revenue. If that concept is fully implemented, the reporting obligations would apply to upstream entities and funds owning more than 50% of any SPE owning or managing property in California. Further, the revenue test would consider all of that entity’s revenues, not just those derived in California.
Real Estate Fund Compliance: Ownership Structures and Revenue Calculations Under SB 261
On Sept. 24, 2025, CARB published its preliminary list of entities with a likely reporting obligation under SB 261 and SB 253. CARB has indicated that its preliminary list is not definitive, and that its review was limited by the fact that the California secretary of state’s data only extended until 2022. As a result, companies potentially subject to SB 261’s regulations must still comply with statutory requirements even if not listed by CARB. Notably, the list contains lending entities, but it does not appear to include many real estate investment trusts or funds. Conversely, however, an entity’s presence on CARB’s initial list is not a legally binding determination by the agency on whether that entity is subject to SB 261’s or SB 253’s requirements. On Oct. 14, 2025, CARB published a notice indicating that it will not issue its rulemaking with applicable definitions until the first quarter of 2026. However, CARB has not indicated that SB 261’s reporting deadline (Jan. 1, 2026) will be extended. Given the uncertainty surrounding applicable definitions, entities with a potential reporting obligation should make a good faith effort to determine whether reporting under SB 261 is required. For real estate funds that are not listed on CARB’s initial list and only have tangential connections to California on a fund level, the first step in the analysis may be to determine which, if any, fund-related entities owning property in California had revenues totaling more than $500M in 2024. If so, reporting under SB 261 may be required.
SB 261 Enforcement
While CARB’s enforcement strategy under SB 261 is unclear, particularly considering its incomplete data regarding companies potentially subject to SB 261 and lack of final regulations, it is possible that commercial counterparties may seek assurances regarding SB 261 compliance. For instance, lenders may require that borrowers certify SB 261 compliance before making a loan secured by real estate in California. To the extent that a particular organization makes fund-level guarantees regarding any of its transactions, it may be required to certify compliance with SB 261.
Key Takeaways
Given the lack of final SB 261 regulations and pending court challenges, its applicability remains unclear. Real estate funds with investments in California may wish to begin documenting their underlying analysis of whether they are required to report under SB 261.
We are continuing to monitor CARB’s updates on applicable definitions and associated regulations as the deadline to report approaches.