The Ninth Circuit Court of Appeals issued a split decision on California’s climate disclosure laws, Senate Bill 253 and Senate Bill 261, on Monday, allowing some emissions reporting requirements to proceed, while blocking others on the basis of them being considered in part or completely unconstitutional under the First Amendment.
In the decision, the federal appellate panel partially upheld and partially overturned a district court's decision from August 2025, which declined to enjoin the laws. The U.S. Chamber of Commerce and other business associations filed the lawsuit, requesting to temporarily block implementation of both climate laws while their constitutionality was under review.
Implementation of SB 261 was already temporarily halted pending review by the Ninth Circuit last November.
SB 253, or the Climate Corporate Data Accountability Act, requires companies with more than $1 billion in revenue to report scope 1 and scope 2 emissions, with eventual scope 3 disclosures. SB 261, or the Climate-Related Financial Risk Act, requires companies with more than $500 million in revenue to publicly disclose their climate-related financial risks and countermeasures. Both climate disclosure regulations were signed into law in October 2023 by California Gov. Gavin Newsom and have since faced a spate of legal challenges.
The ruling came a day before the inaugural emissions disclosure deadline for SB 253.
Breaking down the split decision
The Nov. 9 decision allowed for the reporting of a company’s direct emissions to proceed under SB 253’s scope 1 and scope 2 disclosure requirements, affirming the lower court’s decision. The court ruled such disclosures “regulate commercial speech,” which the appellate panel defined as factual and objective information on a company’s own operations.
However, the appeals court reversed the lower court’s ruling when it came to SB 253’s scope 3 disclosure requirements, which ask companies to report the indirect emissions generated from their supply chain. The appellate panel said scope 3 reporting requirements outlined under the bill were considered “likely unconstitutional” as they demanded supply chain data that was “insufficiently tethered” to a company’s own operations and, hence, failed to qualify as commercial speech.
The majority of the appellate panel also concluded that SB 261 “compels noncommercial speech” by requiring covered companies to disclose their financial exposure to climate change risks in biennial reports based on the Task Force on Climate-related Financial Disclosures framework.
U.S. Circuit Judge Jacqueline Nguyen wrote in the Nov. 9 opinion that this requirement asks companies to publish “value-laden judgments on a politically fraught subject” that “go beyond providing economic information tethered to any commercial transaction.”
Nguyen said disclosures demanded under SB 261 ran afoul of First Amendment protections and were likely unconstitutional, ruling the law cannot be enforced. The federal judge added that the state of California could have relied on less restrictive measures to achieve its goals, such as asking for voluntary climate-related financial risk disclosures.
What’s next for compliance?
The court’s decision came a day before companies subject to SB 253 were required to submit their first annual scope 1 and scope 2 emissions for the most recent fiscal year to the California Air Resources Board, the agency tasked with enforcing the state’s climate risk disclosure rules
CARB’s website still states Nov. 10 to be the reporting deadline for covered companies and, since the Ninth Circuit did not pause enforcement of scope 1 and scope 2 reporting, the deadline remained legally active. The agency has yet to release an official summary tallying submission counts from this week.
“The principal question facing companies will be whether and when to devote resources to SB 253 scope 1 and 2 compliance,” Ropes & Gray attorneys Michael Littenberg, Marc Rotter and Peter Witschi wrote in a Tuesday post. “CARB’s various reporting accommodations for this year effectively turned fiscal 2025 compliance into a practice run. Based on CARB’s pre-rulemaking proposals, SB 253 scope 1 and 2 compliance will ratchet up next year, with more prescriptive disclosure requirements and limited assurance kicking in.”
However, the attorneys noted that the prediction is based on the assumption that scope 1 and 2 reporting survives going forward and there are “no other intervening developments that delay or modify that portion of SB 253 for next year.”
The Ropes & Gray attorneys said pausing compliance work on indirect emissions, or scope 3 reporting, seems to be a “low-risk proposition,” given the Ninth Circuit’s decision. The law firm also noted that given CARB’s reporting requirements under SB 253 for 2027 onwards are still in the early drafting stages, companies still lack guidance on what they would need to do to comply in the future.
At this time, the fate of SB 261 seems most uncertain. The Ninth Circuit of Appeals temporarily paused enforcement of the law last November after the Chamber of Commerce and other business groups filed an emergency application with the U.S. Supreme Court to block both climate laws pending the outcome of their appeal filed in the appellate court. Though the group requested that the implementation of both climate disclosure laws be halted, the Ninth Circuit only granted the motion for injunction pending appeal to the enforcement of SB 261.
Given the status of the law, experts from law firm Morrison & Foerster said it is “unlikely that companies will have to comply with SB 261’s reporting requirements in the near future.” However, the firm noted that companies should continue to monitor the trial court proceedings.
Law firm Crowell & Moring echoed this guidance in a Monday post analyzing the Ninth Circuit’s split decision.
“The decision supports preliminary relief for SB 261 and scope 3 but should not be described as permanently striking down those requirements,” the firm wrote. “Companies should monitor the mandate, district court proceedings and implementing injunction orders, CARB’s response, and any requests for rehearing or further review to evaluate future compliance activities.”
