US Court Blocks California’s Scope 3 and Climate Risk Disclosures

A US federal appeals court has partially blocked California's landmark corporate climate disclosure laws, ruling that mandatory Scope 3 emissions reporting and climate-related financial risk disclosures likely violate the First Amendment. In a decision issued on 9 November 2026, the Ninth Circuit Court of Appeals ruled against key provisions of Senate Bill 253 (SB 253) and Senate Bill 261 (SB 261), while allowing California to continue requiring companies to report their direct greenhouse gas emissions and emissions from purchased energy. The ruling represents a significant legal setback for California's corporate climate transparency framework but does not invalidate its entire emissions reporting regime.

The decision follows a lawsuit brought by the US Chamber of Commerce and other business associations challenging the constitutionality of the two laws, enacted in 2023. SB 253 covers companies doing business in California with annual revenues exceeding $1 billion, while SB 261 applies to businesses with revenues exceeding $500 million. The appeals court reversed part of a lower court's decision denying preliminary relief and returned the case for further proceedings.

 

Scope 3 Emissions Reporting Faces Constitutional Challenge

 

Under SB 253, qualifying businesses must disclose Scope 1 emissions from directly controlled operations, Scope 2 emissions associated with purchased energy, and Scope 3 emissions across their value chains. The court distinguished between these categories, finding that Scope 1 and Scope 2 disclosures concern factual information about companies' own operations and are sufficiently connected to commercial activities to withstand constitutional scrutiny at this stage.

However, the court reached a different conclusion regarding Scope 3 reporting, which requires companies to disclose emissions associated with suppliers, customers, and other third parties. The majority opinion stated, "Scope 3 disclosures do not qualify as commercial speech, and the provision is therefore subject to strict scrutiny, which it fails." The judges concluded that California had not demonstrated that mandatory Scope 3 reporting was sufficiently tailored to achieve its stated objectives, including improving investor information and reducing emissions.

 

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Climate Financial Risk Reporting Also Blocked

 

The court also ruled against SB 261, which requires qualifying companies to publish climate-related financial risk reports every two years. The legislation covers assessments of physical and transition risks, including potential financial impacts from climate change and measures adopted to mitigate those risks. The court determined that these requirements involve predictive and subjective judgments extending beyond factual commercial disclosures.

Applying strict constitutional scrutiny, the judges found that California had not established why compulsory reporting was necessary when less restrictive alternatives could potentially address its objectives. The decision supports preliminary relief against SB 261 in its entirety. The Ninth Circuit had already suspended enforcement of that law in November 2025 while the appeal proceeded.

 

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Scope 1 and Scope 2 Reporting Requirements Remain

 

Despite the ruling, California's mandatory reporting requirements for Scope 1 and Scope 2 emissions remain unaffected by the preliminary injunction challenge. The court accepted that California has substantial interests in providing investors with emissions information and supporting greenhouse gas reductions. Companies covered by SB 253 therefore remain subject to these requirements, including the initial reporting deadline of 10 November 2026.

The litigation is not yet concluded. The appeals court sent the case back to the district court to decide whether the Scope 3 provisions can be separated from the remaining SB 253 requirements. The decision concerns preliminary injunctive relief rather than a final determination invalidating the legislation. Further judicial proceedings will determine the longer-term implications for California's corporate climate disclosure framework.

 

Source: United States Court of Appeals for the Ninth Circuit