Environmental, Land Use & Natural Resources Advisory | Ninth Circuit Splits California’s Climate Disclosure Regime: What Companies Should Do Now

California’s climate disclosure laws (SB 253 and SB 261) survived a First Amendment challenge only in part. In a divided November 9 decision, a Ninth Circuit panel let California keep requiring large companies to report Scope 1 and Scope 2 emissions (direct and purchased-energy) while the case proceeds. The panel found the Scope 3 (value-chain) requirement and SB 261’s climate risk disclosures likely unconstitutional.

California climate reporting is not over. Companies subject to SB 253 should continue Scope 1 and Scope 2 compliance, including the November 10, 2026 deadline. Companies investing heavily in Scope 3 or SB 261 work can reassess what is necessary and what can be deferred while the district court considers the merits.

The ruling also reaches beyond climate disclosure. The majority drew constitutional lines among disclosures about a company’s own operations, about third parties in its value chain, and about predicted future risks. Those lines could shape challenges to other corporate disclosure mandates.

The Ninth Circuit Drew a Line Through California’s Climate Disclosure Laws

Chamber of Commerce of the United States of America v. Sanchez challenges two California statutes.

SB 253, the Climate Corporate Data Accountability Act, generally applies to U.S. companies doing business in California with more than $1 billion in annual revenue. It requires reporting of:

• Scope 1 emissions: direct greenhouse gas emissions from sources a company owns or controls.
• Scope 2 emissions: indirect emissions from purchased energy.
• Scope 3 emissions: indirect value-chain emissions, including those of suppliers and customers.

SB 261, the Climate-Related Financial Risk Act, generally applies to companies doing business in California with more than $500 million in annual revenue. It requires public disclosure of climate-related financial risks and the measures adopted to address them.

Business associations challenged both statutes as unconstitutional compelled speech. In late 2025, the Central District of California denied a preliminary injunction, and plaintiffs appealed. The Ninth Circuit sorted the challenged requirements into three categories, allowing one to proceed and finding the other two likely unconstitutional:

1. Scope 1 and Scope 2 reporting under SB 253: allowed to continue.
2. SB 253’s Scope 3 reporting: likely unconstitutional.
3. SB 261’s climate risk reporting: likely unconstitutional.

Those distinctions matter for how companies allocate compliance resources.

Why Scope 1 and Scope 2 Survived

The majority treated Scope 1 and Scope 2 disclosures as commercial speech because they require factual information about emissions from a company’s own operations and bear a sufficient relationship to capital transactions. That meant intermediate scrutiny rather than the strict scrutiny applied to noncommercial compelled speech.

Applying that standard, the court concluded, for purposes of preliminary relief, that California had shown substantial interests in reducing information asymmetries for investors and reducing emissions, and that the requirements were sufficiently tailored to advance them. The majority therefore affirmed the denial of a preliminary injunction as to those requirements.

The court did not decide whether the still more deferential standard associated with Zauderer v. Office of Disciplinary Counsel also applies, leaving that important question open.

For companies, Scope 1 and Scope 2 remain live compliance obligations. The decision did not change the November 10, 2026 reporting deadline.

Why Scope 3 Was Different

Scope 3 was a fundamentally different problem for the majority because it requires a company to report emissions from its entire value chain, including those of suppliers and customers.

The court concluded that those third-party emissions were not sufficiently connected to the company’s own operations and capital transactions to make the compelled disclosure commercial speech. Strict scrutiny therefore applied, and California had not shown that mandatory Scope 3 disclosure was sufficiently tailored to its interests. The majority concluded that the challengers were likely to succeed on their First Amendment claim.

SB 261 Raised a Different Problem: Compelled Judgments About the Future

SB 261 requires companies to evaluate and disclose climate-related financial risks and their responses to those risks. The majority viewed those requirements as predictive and subjective assessments rather than disclosure of historical business facts. It therefore treated the speech as noncommercial and applied strict scrutiny. The court concluded that SB 261 did not survive strict scrutiny. California failed to consider less restrictive alternatives, the law was not sufficiently narrowly tailored, and the plaintiffs were likely to succeed on their First Amendment challenge.

The holding should not be overstated. The majority did not establish a categorical rule that any disclosure requiring judgment or forecasting is unconstitutional. Its analysis turned on the character of SB 261’s mandated disclosures and the record supporting the statute.

Three Practical Implications for Companies

1. Do not put California climate compliance on hold

The clearest mistake would be to treat the decision as invalidating California’s entire climate disclosure program. It did not. SB 253’s Scope 1 and Scope 2 requirements remain operative, and the November 10 reporting deadline remains in effect.

Companies potentially subject to SB 253 should therefore preserve their operational-emissions compliance infrastructure, including reporting boundaries, source-document retention, calculation methodologies, internal review processes, and assurance planning. That work has value whatever happens to Scope 3.

2. Reassess Scope 3 and SB 261 spending, rather than simply stopping it

The decision gives companies a reasonable basis to reconsider spending incurred solely to satisfy California’s Scope 3 and SB 261 requirements. But a wholesale stop-work order may be premature.

Scope 3 data collection often overlaps with supplier-management programs, customer requests, voluntary sustainability reporting, contractual requirements, and other reporting regimes. Internal climate risk analysis may likewise remain valuable for enterprise risk management even if California cannot presently compel its publication.

Companies should inventory outstanding projects and sort them into three categories:

• Work necessary for continuing Scope 1 and Scope 2 compliance.
• Work supporting other legal, contractual, or business requirements.
• Incremental work undertaken solely because of California’s challenged Scope 3 or SB 261 requirements.

That exercise should show where real savings are available without dismantling systems that will remain useful.

3. Treat supply-chain data as a separate business issue

The court’s conclusion that California likely cannot compel a reporting company to publish certain value-chain emissions does not mean companies will stop requesting emissions data from suppliers. One company’s Scope 1 and Scope 2 information is another company’s Scope 3 information, so customer commitments, procurement standards, voluntary disclosures, and contracts may keep driving requests for the same data even while the legal obligation to publish Scope 3 information remains contested.

Companies should review the purpose behind existing supplier questionnaires and data requests before changing them. A request created solely for California compliance raises a different question than one supporting customer contracts or broader emissions-management objectives.

The Decision May Reach Beyond Climate Disclosure

One of the opinion’s most consequential aspects may be its treatment of the boundary between commercial and noncommercial compelled speech. The majority effectively distinguished among three kinds of information:

• Factual information about the reporting company’s own operations.
• Factual information about third parties in its value chain.
• Predictive or evaluative judgments about future business risks.

Those distinctions drove different constitutional outcomes.

Implications of the Dissent

The panel was not unanimous. Judge Mark Bennett partially dissented, explaining that he would have applied strict scrutiny to both statutes and preliminarily enjoined both. He rejected the proposition that company-level emissions information becomes commercial speech merely because investors may find it useful.

The disagreement matters: it shows that the constitutional line governing compelled corporate disclosures remains contested and could draw further appellate attention. Companies should therefore be cautious about treating the decision either as a broad validation of operational disclosure mandates or as a categorical defense against supply-chain and forward-looking disclosure requirements.

What Companies Should Do Now

Companies potentially subject to SB 253 or SB 261 should consider four immediate steps:

1. Preserve Scope 1 and Scope 2 readiness. Continue operational-emissions reporting, calculation controls, and assurance preparation.
2. Identify California-only Scope 3 spending. Determine which supplier-data collection, consulting, and technology costs exist solely because of SB 253 and whether incremental work can prudently be deferred.
3. Review supplier and consultant commitments before changing course. Weigh contractual obligations, cancellation provisions, and other uses of the data before suspending requests or engagements.
4. Monitor the operative orders, not just the appellate opinion. The district court must still address Scope 3 severability, and further appellate proceedings remain possible.

What Comes Next

The litigation is not over. The Ninth Circuit remanded for the district court to decide whether SB 253’s Scope 3 provisions are severable from the rest of the statute, despite its severability provision. The case will also continue on the merits, and further appellate review remains possible.

For companies, the better response is not to rebuild their climate compliance programs around a single appellate decision, but to sort them by what remains legally required, what serves an independent business purpose, and what can reasonably be deferred.

For now, the Ninth Circuit has drawn a significant line: California may continue requiring covered companies to disclose emissions tied closely to their own operations, but its attempt to compel broader value-chain and climate-related business-judgment reporting faces substantially greater First Amendment barriers.

If you have any questions, or would like additional information, please contact one of the attorneys on our Environmental, Land Use & Natural Resources team.

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