Ninth Circuit trims California corporate climate disclosure rules

By Rebecca Stone

On November 9, the US Court of Appeals for the Ninth Circuit held that California’s Scope 3 emissions-reporting requirements under SB 253 are likely unconstitutional under the First Amendment. The panel also reversed the lower court’s denial of preliminary injunctive relief against SB 261, leaving Scope 1 and Scope 2 reporting intact.

The ruling is a significant setback for mandatory corporate climate transparency, but it does not void California’s entire disclosure framework. It comes at the preliminary-relief stage, and the district court still must decide whether the Scope 3 provisions can be separated from the rest of SB 253. Further proceedings are expected.

What did the Ninth Circuit decide?

The appeal, United States Chamber of Commerce v. Sanchez, challenges two laws that Governor Gavin Newsom signed in 2023. SB 253 requires large companies operating in California to disclose greenhouse gas emissions. SB 261 establishes reporting obligations covering climate-related financial risks.

The appeals court drew a line between emissions generated directly by businesses and emissions occurring throughout their supply chains. Scope 3 reaches third-party emissions generated by suppliers and customers, unlike the company-specific emissions covered by Scope 1 and Scope 2. The court said Scope 3 disclosures fail the strict constitutional scrutiny applied to noncommercial speech.

That reasoning did not extend to every part of California’s program. California can continue requiring Scope 1 and Scope 2 disclosures, which the panel left in place. For companies preparing corporate emissions data, the practical divide is now clear: company-specific reports survive at this stage, while value-chain reporting faces a constitutional challenge.

Why did the court separate the disclosure scopes?

The judges treated Scope 3 differently because it requires information about emissions generated outside a company’s direct operations. Suppliers and customers produce the emissions assigned to Scope 3, rather than the reporting company’s own facilities or operations. The panel found insufficient constitutional grounds for compelling those disclosures under the First Amendment.

The distinction narrows the immediate effect of the ruling. Large companies operating in California still face Scope 1 and Scope 2 requirements. Their Scope 3 reporting duties, however, now depend on the district court’s severability decision and further judicial review of the constitutional issue.

What does the SB 261 ruling change?

The court also reversed the lower court’s position on SB 261. Mandatory climate-risk assessments require companies to communicate subjective judgments about future economic conditions and politically contested issues, the panel found. The reversal gives business groups preliminary injunctive relief against the law rather than ending the dispute over its reporting obligations.

An earlier Ninth Circuit intervention concerning SB 261 had already created uncertainty for businesses preparing climate-risk reports. The November decision advances that process but leaves the law’s final status for later judicial proceedings. The appellate ruling also does not eliminate California’s wider disclosure regime.

What remains in force?

Scope 1 and Scope 2 obligations remain the firmest part of the state framework after the ruling. Scope 3 is less secure: the district court must determine whether those provisions can be severed from the remainder of SB 253. That severability decision will determine how much of the emissions law can continue while the constitutional case proceeds.

SB 261 presents a separate front. The preliminary injunction affects a law built around climate-related financial risk, not the company-specific emissions categories upheld for now. Because the decision addresses preliminary protection rather than a final judgment on every element of the statutes, litigation over both laws will continue.

How does this affect wider climate reporting?

The decision lands amid growing resistance to mandatory climate disclosure across the United States. The earlier Ninth Circuit action on SB 261 had already unsettled companies preparing climate-risk reports, while the SEC’s retreat from federal climate disclosure requirements shows how fragmented the US regulatory environment has become.

For companies operating internationally, California’s setback does not supply a substitute for other value-chain reporting duties. European reporting frameworks continue to demand extensive information on emissions across companies’ value chains. The contrast leaves multinational businesses with inconsistent US state and European requirements as California’s litigation proceeds.

For covered businesses, the decisive next milestone is judicial: the district court’s severability ruling on Scope 3, followed by further proceedings on SB 261 and the constitutional limits of corporate climate reporting. Until then, Scope 1 and Scope 2 remain in force, while Scope 3 and mandatory climate-risk disclosure stay legally unsettled.