A U.S. appeals court ruled on Tuesday to pause key parts of new California laws that would require thousands of large U.S. companies to report on greenhouse gas (GHG) emissions and on climate-related financial risks to their businesses on free speech grounds, placing the laws in legal jeopardy just one day prior to the deadline for the first GHG reports.
In its decision, the Ninth Circuit appeals court ruled that the regulation’s Scope 3 value chain emissions reporting and climate risk disclosure requirements were unconstitutional on first amendment grounds, reversing a prior court’s denial of a preliminary injunction against the reporting requirements, but keeping in place a requirement for businesses to report on their Scope 1 and 2 GHG emissions. The case will now be sent back to the district court.
California’s new climate reporting regulations, SB 253 and SB 261, were signed into law in October 2024. SB 253 requires companies with revenues greater than $1 billion that do business in California to report annually on their direct and purchased energy-based Scope 1 and 2 emissions in the first year of disclosure, and adding Scope 3 value chain emissions disclosure in subsequent years. SB 261 requires U.S. companies that do business in California and with revenues greater than $500 million to prepare a report disclosing their climate-related financial risk, as well as measures to reduce and adapt to that risk.
The new laws apply to many large companies in the U.S., with the California Air Resources Board (CARB) issuing a preliminary list last year of more than 4,000 U.S. companies likely to be required to comply with the new climate reporting requirements. SB 253’s initial Scope 1 and 2 disclosures are due on November 10, 2026.
In early 2025, a group of business associations led by the U.S. Chamber of Commerce launched a suit against California, attempting to have the courts strike down the laws on constitutional grounds, arguing that the new rules would violate the first amendment by compelling businesses to engage in subjective and non-commercial speech.
The district court denied a motion for a preliminary injunction, holding that the regulations regulate commercial speech, but in late 2025 the Ninth Circuit appeals court subsequently granted an injunction pending appeal of SB 261, which had been scheduled to have reporting begin in early 2026, but denied a request to halt SB 253.
In the new decision, however, the appeals court ruled that while “SB 253’s Scope 1 and Scope 2 disclosures regulate commercial speech,” and affirmed the district courts denial against an injunction for these aspects of the law, it reversed the denial of a preliminary injunction of SB 253’s Scope 3 reporting requirements and of all of SB 261. The decision said that due to the Scope 3 requirements’ focus on 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.” For SB 261, the court ruled that the law “compels noncommercial speech by requiring covered entities to disclose, among other information, subjective ideological assessments.”
Additionally, while denying the injunction against the Scope 1 and 2 reporting requirements, the appeals directed the district court to determine if SB 253’s Scope 3 disclosures are “severable,” indicating that SB 253 could potentially be blocked if the Scope 3 provisions cannot be struck down independently.
In a statement following the ruling, Daryl Joseffer, President of the U.S. Chamber Litigation Center called the court’s decision “an important victory for businesses,” adding:
“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.”
