A federal appeals court has temporarily halted the rollout of one of California’s landmark climate disclosure laws, pausing implementation only weeks before companies were due to publish their first climate risk reports. The decision creates a split outcome for the state’s climate reporting regime. While the court agreed to suspend the law governing climate-related financial risk disclosures, it declined to block California’s separate greenhouse gas emissions reporting requirement. The ruling deepens the national debate over whether states can impose expansive environmental reporting obligations on thousands of U.S. companies while federal climate rules remain stalled. It also raises a critical question. How much authority should individual states have in shaping climate transparency standards that reach far beyond their borders.

A Partial Injunction That Reshapes California’s Climate Disclosure Timeline

The Ninth Circuit Court of Appeals issued an injunction pausing SB 261, a law requiring large companies doing business in California to report on climate-related financial risks and detail their plans to manage those risks. SB 261 was scheduled to produce its first round of disclosures at the start of 2026. The court, however, rejected a request to halt SB 253, the law that mandates annual greenhouse gas reporting for companies with at least one billion dollars in revenue. Together, the two laws would require most large U.S. companies operating in California to measure and disclose a wide range of climate-related information, from direct emissions to supply chain impacts and long term financial risks. The California Air Resources Board recently estimated that more than four thousand firms are likely to fall under the reporting regime. The injunction sets up a new timeline in which SB 261 is paused until the appeals court holds a hearing in January 2026, while SB 253 remains on course for implementation beginning in 2026 and 2027.

Businesses Challenge the Laws on Constitutional Grounds

The injunction follows a legal challenge led by the U.S. Chamber of Commerce, which argued that California’s reporting laws compel companies to make subjective statements about climate risk, violating First Amendment protections. Business groups contend that climate risk disclosures require interpretation, judgement and forward-looking narratives that go beyond factual statements, making them a form of compelled speech. In filings, the Chamber argued that California’s rules place massive compliance burdens on companies and impose obligations with nationwide implications, given the size and influence of California’s economy. The appeals court’s decision to pause SB 261 suggests that judges believe the Chamber raised sufficiently serious constitutional questions to justify delaying implementation until the case is reviewed in full.

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Understanding What Each Law Requires

SB 261 applies to companies with more than five hundred million dollars in annual revenue that conduct business in California. It requires them to prepare climate-related financial risk reports aligned with emerging global standards. These reports must describe physical and transition risks, outline mitigation measures and demonstrate how climate considerations are incorporated into governance and strategy. SB 253 applies to companies with more than one billion dollars in revenue. It requires annual reporting of Scope 1 and Scope 2 emissions starting in August 2026, covering the previous fiscal year, and Scope 3 emissions beginning in 2027. Scope 3 includes emissions from suppliers, logistics, business travel, procurement, commuting, waste and water use, making it the most complex category for businesses to quantify. If implemented fully, the laws would require detailed climate reporting across a large share of U.S. corporations, even as federal rules, such as the SEC’s proposed climate disclosure regulation, face ongoing delays and political uncertainty.

A Policy Environment Marked by Fragmentation and Legal Uncertainty

The court’s decision deepens the divide between state-level climate disclosure initiatives and uncertain federal oversight. California positioned itself as a national leader when it passed SB 261 and SB 253 in 2024, framing the laws as essential tools to improve transparency and prepare markets for escalating climate risks. Supporters argue that mandatory disclosure speeds corporate adaptation and provides investors with crucial information about exposure to physical hazards and transition trends. Opponents counter that patchwork state laws create compliance confusion, raise costs for multi-state businesses and force companies to navigate differing standards. The partial injunction highlights the tension between states seeking to lead on climate regulation and businesses seeking national consistency.

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Reaction From the U.S. Chamber of Commerce and Business Groups

Following the ruling, the U.S. Chamber celebrated the court’s decision to block SB 261. Daryl Joseffer, executive vice president and chief counsel of the Chamber’s Litigation Center, called the decision essential for protecting companies from what he described as unconstitutional reporting requirements and excessive compliance burdens. He reiterated the Chamber’s view that California should not be allowed to impose climate reporting obligations that affect companies nationwide. At the same time, the Chamber made clear that it intends to continue pushing for SB 253 to be paused as well. The emissions disclosure rule, which remains intact for now, requires far more extensive measurement and reporting infrastructure, particularly for Scope 3 emissions, and is likely to face continued legal pressure as its deadlines approach.

What Comes Next as California’s Climate Disclosure Landscape Evolves?

The appeals court will hear arguments in early 2026 and could ultimately uphold, modify or strike down SB 261. Meanwhile, SB 253 is expected to move forward, meaning companies must begin preparing emissions inventories and establishing systems capable of tracking supply chain emissions with increasing precision. The uncertainty comes at a pivotal moment for climate transparency in the United States. With federal climate disclosure rules stalled and voluntary reporting standards still fragmented, California’s laws have been viewed as a potential template for national climate accountability. The outcome of the appeals process will influence not only California businesses but also corporate climate reporting practices across the country.

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