What's Happening?
On November 9, 2026, the U.S. Court of Appeals for the Ninth Circuit issued a decision in U.S. Chamber of Commerce v. Sanchez, partially affirming and partially reversing a preliminary injunction against California’s corporate climate disclosure laws,
Senate Bill (SB) 253 and SB 261. The court allowed SB 253’s requirements for Scope 1 and Scope 2 greenhouse gas emissions disclosures to remain in effect. However, it granted a preliminary injunction against SB 253’s Scope 3 requirements and SB 261 in its entirety. This means that the California Air Resources Board (CARB)’s initial Scope 1 and 2 emissions reporting requirements are still applicable. CARB is currently engaged in a second rulemaking process to establish reporting requirements for 2027 and beyond. The court's decision differentiates between commercial speech, which receives less First Amendment protection, and noncommercial speech, subject to strict scrutiny, in its assessment of the disclosure requirements.
Why It's Important?
This ruling has significant implications for companies operating in California and sets a precedent for climate disclosure regulations nationwide. By upholding Scope 1 and Scope 2 reporting, the Ninth Circuit reinforces the state's ability to mandate disclosures related to direct greenhouse gas emissions and indirect emissions from purchased energy, which are considered commercial speech. This provides investors with crucial information and supports California's efforts to reduce emissions. Conversely, the injunction against Scope 3 reporting and SB 261 signals a judicial skepticism towards mandating disclosures that are deemed noncommercial speech, such as indirect emissions from third parties or predictive climate-related financial risks. This could limit the scope of future climate disclosure laws, potentially reducing the burden on companies to report on activities beyond their direct control but also potentially hindering comprehensive climate risk assessments for investors and the public. Companies subject to SB 253 must continue to comply with Scope 1 and Scope 2 reporting, while the future of broader climate disclosure remains uncertain.
What's Next?
Companies subject to SB 253 must continue to comply with the Scope 1 and Scope 2 emissions reporting requirements. The case regarding SB 253’s Scope 3 reporting requirements has been remanded to the district court to determine its severability from the rest of the law. If the Scope 3 provisions are found to be nonseverable, the entire statute could be deemed unconstitutional. While this remand is pending, Scope 3 reporting is not required. For SB 261, the Ninth Circuit found the statute’s disclosure regime likely unconstitutional under the First Amendment, and the preliminary injunction against it remains in effect. The California Air Resources Board (CARB) will proceed with its second rulemaking process to develop reporting requirements for 2027 and beyond, which will likely be influenced by this ruling and any subsequent legal developments.
Beyond the Headlines
The Ninth Circuit's decision highlights a critical legal and ethical debate surrounding the First Amendment and corporate climate disclosures. By distinguishing between commercial and noncommercial speech, the court has drawn a line that could influence how environmental regulations are framed and challenged in the future. The ruling suggests that mandating disclosures on direct operational impacts (Scope 1 and 2) is permissible, as it directly relates to a company's commercial activities. However, requiring disclosures on broader, indirect impacts (Scope 3) or predictive financial risks (SB 261) is viewed as compelling noncommercial speech, which faces a higher legal bar. This could lead to a fragmented approach to climate transparency, where direct emissions are regulated, but the full supply chain and future climate risks might remain less transparent due to constitutional protections. The decision also underscores the ongoing tension between state-level environmental initiatives and federal legal interpretations, potentially prompting other states to re-evaluate their climate disclosure strategies to avoid similar legal challenges.
