Ninth Circuit Strikes Down Part of California Climate Disclosure Laws

A split Ninth Circuit panel ruled Monday that two California laws requiring large corporations to disclose greenhouse gas emissions and report climate-related financial risk are either partly or wholly unconstitutional, delivering a split verdict that leaves the core of the state's emissions regime intact while halting its most contested provisions.

In Chamber of Commerce v. California, the three-judge panel affirmed in part and reversed in part a trial judge's 2025 decision rejecting the U.S. Chamber of Commerce's bid to halt enforcement of the two statutes pending a final merits ruling. The practical result: California may compel companies to report emissions from their own operations and purchased energy, but it may not force them to publish climate risk assessments or police their supply chains' carbon footprint.

What did the court decide about SB 261?

The Climate-Related Financial Risk Act, SB 261, fails under the First Amendment's compelled-speech protections, the majority held, because its required disclosures amount to "subjective ideological assessments" rather than commercial speech such as warning labels, which do not trigger strict scrutiny.

"SB 261 requires companies to opine on whether climate change poses financial risks to their operations and business model, thereby making predictive judgments about uncertain future conditions," U.S. Circuit Judge Jacqueline Nguyen, an Obama appointee, wrote.

"The compelled disclosures require companies to go beyond providing economic information tethered to any commercial transaction," Nguyen added. "Instead, companies must share value-laden judgments on a politically fraught subject, and thus the disclosures fall outside the commercial speech doctrine."

Because SB 261 does not regulate commercial speech, the panel applied strict scrutiny and found the law insufficiently narrowly tailored to serve California's stated interests in "mitigating information asymmetries for investors, reducing emissions and correcting misleading speech." The law does not survive that test. In plain words: the state cannot make companies editorialize about climate risk.

How much of SB 253 survived?

The Climate Corporate Data Accountability Act, SB 253, applies to corporations with over $1 billion in annual revenue operating in California and requires reporting of three categories of emissions: those from sources a company directly owns or controls (Scope 1), emissions from purchased energy (Scope 2), and indirect emissions across the value chain, including suppliers and customers (Scope 3).

The majority upheld two of the three requirements. The first two, it held, compel disclosure of factual information on emissions generated through the reporting entities' own operations and bear on capital transactions, qualifying as commercial speech. California demonstrated substantial interests in mitigating investor information asymmetries and reducing emissions, the panel found, and showed a likelihood that the two requirements directly advance those interests without being more extensive than necessary. The appellate court affirmed the trial judge's denial of a preliminary injunction for those provisions.

The third requirement fared differently. Value-chain emissions, insofar as they concern diffuse third-party conduct, are insufficiently linked to a company's own operations and capital transactions to qualify as commercial speech, the panel held, and it reversed the lower court's denial of an injunction for that portion.

Notably, the panel had already stayed enforcement of SB 261 in November pending appeal, while declining to do so for SB 253, part of which took effect last month. In plain words: Scope 1 and Scope 2 reporting proceeds; Scope 3 and climate risk narratives do not.

Who dissented, and on what ground?

U.S. Circuit Judge Mark Bennett, a Trump appointee, dissented. He argued the majority conflated investors' interest in companies with consumers' interest in products by holding that the two upheld requirements of SB 253 pass intermediate scrutiny by addressing investor information asymmetries. That reasoning, Bennett warned, could let states compel disclosure of a host of otherwise unavailable information, such as the number of undocumented immigrant workers at a company. Senior U.S. District Judge Kiyo Matsumoto, a Bush appointee from the Eastern District of New York sitting by designation, completed the panel.

Daryl Joseffer, president of the U.S. Chamber Litigation Center, called the ruling "an important victory for businesses and the protection of their First Amendment rights," saying 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."

The California Attorney General's Office countered in a statement that it is "pleased that reporting under SB 253 will move forward, providing valuable Scope 1 and Scope 2 information to California stakeholders," adding: "We are evaluating next steps and remain committed to protecting Californians' access to critical climate data in a changing world."

For practitioners, the decision leaves multistate companies with two binding obligations on emissions from operations and purchased energy, and a reprieve — pending further review — on value-chain reporting and climate risk disclosure. Whether the state appeals, or seeks en banc review, remains unsaid.