Ninth Circuit Blocks Scope 3 and Climate Risk Rules in California Disclosure Laws

A U.S. appeals court paused the Scope 3 value chain emissions and climate risk disclosure requirements of California's corporate climate reporting laws on free speech grounds, ruling one day before the first reports were due under the statutes.

The Ninth Circuit Court of Appeals ruled Tuesday that SB 253's Scope 3 reporting mandate and all of SB 261 compel noncommercial speech in violation of the First Amendment. The court reversed a lower court's denial of a preliminary injunction against those requirements. It kept in place the requirement for companies to report Scope 1 and Scope 2 emissions. The case now returns to the district court.

What do the laws require?

SB 253 and SB 261 were signed into law in October 2024. SB 253 requires companies with revenues above $1 billion doing business in California to report annually on direct and purchased-energy emissions — Scope 1 and Scope 2 — in the first year of disclosure. Scope 3 value chain emissions reporting would follow in subsequent years.

SB 261 covers U.S. companies doing business in California with revenues above $500 million. It requires a report disclosing climate-related financial risk and measures to reduce and adapt to that risk.

The California Air Resources Board (CARB) issued a preliminary list last year of more than 4,000 U.S. companies likely to fall under the requirements. SB 253's initial Scope 1 and 2 disclosures are due November 10, 2026.

How did the litigation reach this point?

In early 2025, business associations led by the U.S. Chamber of Commerce sued California, arguing the rules compel subjective and non-commercial speech in violation of the First Amendment.

The district court denied a preliminary injunction, holding that the regulations govern commercial speech. In late 2025, the Ninth Circuit granted an injunction pending appeal against SB 261, whose reporting had been scheduled to begin in early 2026, but declined to halt SB 253.

The new decision splits the laws along the commercial speech line. The court found that "SB 253's Scope 1 and Scope 2 disclosures regulate commercial speech" and affirmed the district court's denial of an injunction for those provisions.

Scope 3 fared differently. Because the requirement targets third-party conduct in the value chain, the disclosures "are insufficiently tethered to the reporting entity's own operations and capital transactions to qualify as commercial speech," the court held.

For SB 261, the court ruled the law "compels noncommercial speech by requiring covered entities to disclose, among other information, subjective ideological assessments."

Could the whole statute fall?

The appeals court directed the district court to determine whether SB 253's Scope 3 provisions are "severable" from the rest of the statute. If the Scope 3 requirements cannot be struck down independently, SB 253 as a whole could be blocked.

That question now sits with the lower court and decides whether any of the emissions reporting regime survives.

What did the parties say?

Daryl Joseffer, president of the U.S. Chamber Litigation Center, called the decision "an important victory for businesses."

"The injunction prevents the state from imposing massive compliance costs on companies, especially small businesses, and confirms that states cannot unilaterally impose sweeping, extraterritorial mandates," Joseffer said.

What happens next?

Two proceedings now determine the outcome. The district court must take up severability and the underlying merits of the First Amendment claims. Scope 1 and 2 reporting remains on track for the November 10, 2026 deadline while the litigation proceeds.

For the more than 4,000 companies on CARB's preliminary list, the ruling narrows near-term obligations to direct and purchased-energy emissions. Scope 3 reporting and climate risk disclosure remain enjoined until the courts rule otherwise.