A federal appeals court has placed a temporary block on one of California’s flagship climate disclosure laws, pausing a requirement that thousands of companies report their climate-related financial risks. The ruling arrives only weeks before many firms were due to begin preparations for the 2026 reporting cycle. Yet the court allowed California’s separate greenhouse gas reporting mandate, SB 253, to move ahead on schedule. This split decision intensifies national debate about how far states can extend climate governance in the absence of clear federal rules, raising a pressing question. Will corporate climate transparency in the United States be shaped by a patchwork of regional mandates rather than a unified national framework.

A Narrow but Significant Pause for SB 261

The Ninth Circuit’s injunction stops California from enforcing SB 261, the climate-risk disclosure law, until the judges hear full arguments early next year. SB 261 would have required companies with more than five hundred million dollars in annual revenue to publicly describe how physical climate impacts and transition risks could influence their business strategies. These disclosures were scheduled to begin in January 2026. By contrast, the court declined to halt SB 253, which mandates comprehensive greenhouse gas reporting for companies with annual revenues exceeding one billion dollars. Under that law, Scope 1 and 2 emissions reporting will begin in 2026, with Scope 3 reporting scheduled for 2027. The decision means that while firms may pause work on climate-risk narrative assessments, they must continue preparing their emissions accounting and verification processes.

A High-Profile Legal Challenge Testing the Limits of State Authority

The injunction stems from a legal challenge filed by the U.S. Chamber of Commerce and several business associations, which argue that California’s requirements violate the First Amendment by forcing companies to make interpretive statements about climate risk. According to the petitioners, disclosing how climate change could affect operations or strategy is inherently subjective and cannot be mandated by a state government. The Chamber has framed the dispute as a constitutional battle with national implications. Since many companies that operate in California are headquartered elsewhere, the Chamber argues that the state’s rules effectively impose nationwide obligations on firms that have no political influence over Sacramento’s legislative decisions. The Ninth Circuit’s temporary pause suggests the judges see enough merit in the Chamber’s arguments to warrant a thorough review.

Read more: U.S. Appeals Court Blocks California’s Climate Risk Reporting Law, Allowing Emissions Disclosure Rule to Proceed

Understanding the Differences Between SB 261 and SB 253

Although often discussed as a pair, the two laws impose distinct obligations. SB 261 focuses on assessing and reporting financial risks linked to climate change. This includes disclosures on extreme weather exposure, regulatory changes, supply chain disruptions and organisational plans for adaptation. SB 253 is an emissions-centric law. It requires companies to calculate and report their direct operational emissions, purchased energy emissions and eventually their entire value chain emissions. Because Scope 3 emissions cover everything from supplier activity to waste, commuting and procurement, the law is poised to reshape internal data collection practices for thousands of companies. Combined, the two policies would create the most expansive climate reporting system in the United States. For now, only half remains active.

California Regulators Continue Building the Emissions Reporting Infrastructure

The ruling coincided with a public workshop held by the California Air Resources Board, the agency responsible for enforcement. CARB is continuing with the development of methodologies, verification rules and compliance schedules for SB 253 despite the pause on SB 261. CARB has already published a preliminary list of more than three thousand companies that may fall under the emissions-reporting mandate. The agency noted that this list is incomplete and that companies must evaluate their own eligibility even if they do not appear on the registry. The continued progression of SB 253 means that companies need to maintain their implementation plans, from identifying emissions hotspots to selecting third-party assurance providers.

Corporate Leaders Navigate a Fragmented Regulatory Landscape

The injunction lands at a moment when federal climate rules are uncertain. The SEC’s climate-risk rule, once expected to set nationwide reporting requirements, has stalled under political and legal pressure. As a result, California had become the most influential driver of U.S. climate disclosure norms.

The partial halt complicates planning for corporate compliance teams. Some firms had already integrated climate-risk assessment work into their ESG reporting calendars. Others were preparing to build new governance systems aligned with global frameworks such as TCFD. With SB 261 paused, companies must now balance incomplete regulatory clarity with the likelihood that climate-risk reporting could still return in 2026 depending on the outcome of the appeal.

Stakeholder Reactions Highlight the Broader Implications

Following the decision, the U.S. Chamber renewed its argument that California lacks the authority to impose costly reporting obligations on companies nationwide. Business groups view the emissions-reporting rule as equally problematic and intend to continue pushing for a full suspension of both laws. Regulators and climate policy advocates, however, argue that delaying climate-risk disclosures undermines investor readiness and exposes the economy to unmanaged climate shocks. They contend that consistent transparency is necessary for pricing long-term physical and transition risks in capital markets. The Ninth Circuit’s ruling reflects these competing national narratives: one group sees climate disclosure as essential to economic stability, while another views broad reporting mandates as overreach.

What the Appeals Process Means for U.S. Climate Accountability?

The court has scheduled arguments for January 2026, placing the future of SB 261 in the hands of a judicial process that will likely extend into the election year. Depending on the ruling, the law could be reinstated before the first wave of reports is due or sent back to the legislature for revision. Meanwhile, SB 253 continues to shape climate governance across America. Because many multinational companies do business in California, the emissions-reporting law may influence corporate practices beyond the state. The requirements could effectively create a national baseline for emissions accountability even without federal intervention.

Explore OneStop ESG Marketplace: Regulation and Compliance

A Regional Ruling With National Reach

California designed its climate disclosure package to serve as a model for U.S. climate governance. The Ninth Circuit’s partial injunction does not diminish the significance of the effort, but it does introduce a period of uncertainty. For global investors, the ruling underscores that mandatory climate reporting is advancing in different forms across jurisdictions. For U.S. companies, it signals a future where climate accountability may evolve through a combination of court decisions, state legislation and market pressure rather than a single federal rule.

Explore ESG Solutions on our marketplace - OneStop ESG Marketplace.

Keep abreast of the top ESG Events on OneStop ESG Events.

OneStop ESG Educate: Your go-to source for top ESG courses and training programs tailored to your needs.

Stay informed with the latest insights on OneStop ESG News.

Discover meaningful career opportunities on OneStop ESG Jobs.