This week, the Ninth Circuit issued an opinion in Chamber of Commerce of the United States of America v. Sanchez (no. 25-5327), partially reversing the district court’s denial of a preliminary injunction against California’s two landmark climate disclosure statutes: the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). The Ninth Circuit held that SB 253 may be enforced for Scope 1 and Scope 2 greenhouse gas (GHG) reporting, but paused Scope 3 reporting on finding that the Scope 3 value-chain emissions reporting requirement is probably unconstitutional under the First Amendment. For SB 261, the Ninth Circuit decision continued its preliminary injunction on SB 261 reporting, finding that the statute also probably violates the First Amendment. The case now returns to the district court, which will first decide whether the Scope 3 requirement can be severed from the rest of SB 253.
Statutes at issue
SB 253 applies to entities doing business in California with more than $1 billion in annual revenue—an estimated 1,971 companies—and requires annual disclosure of Scope 1, 2, and 3 GHG emissions in accordance with the GHG Protocol standards, subject to third-party assurance. SB 261 applies to companies with more than $500 million in annual revenue doing business in California—approximately 2,675 companies—and requires disclosure of a biennial climate-related financial risk report, prepared under the framework developed by the Task Force for Climate-related Financial Disclosures.
Key holdings
- Scope 1 and 2 emissions reporting under SB 253 qualify as commercial speech and likely probably satisfies intermediate scrutiny. The Ninth Circuit panel majority held that Scope 1 and 2 emissions data are factual information about the reporting entity’s own operations that bear on capital transactions, such as stock and investment purchases, debt issuances, and insurance, and therefore “communicate the terms of an actual or potential commercial transaction.” The court described emissions disclosures as functioning “like product warnings in capital markets”; rejected the argument that company-level data cannot be commercial speech; and found that the standardized, factual reports compel no ideological message. The court did not decide whether a more deferential standard of review applies. It held that the requirements are likely to satisfy intermediate scrutiny because the state demonstrated substantial interests in reducing emissions and closing gaps in the emissions information available to investors, supported by studies documenting 7–8% emissions reductions under mandatory Scope 1 and 2 reporting. Notably, the court rejected the state’s “greenwashing” rationale as unsupported by the record.
- Scope 3 emissions reporting under SB 253 is noncommercial speech and likely fails strict scrutiny. Because Scope 3 emissions arise from suppliers, customers, and other third parties the company does not own or control, the court held that they are “insufficiently tethered” to the company’s own operations and capital transactions to qualify as commercial speech. Applying strict scrutiny, the Scope 3 reporting requirement was not narrowly tailored: Companies do not possess Scope 3 emissions data the way they possess Scope 1 and 2 data, company estimates based on industry averages are no more reliable than state-generated estimates, the link to investor decision-making is too attenuated, and the record did not show that mandatory Scope 3 reporting would reduce emissions.
- SB 261 compels ideological speech and likely fails strict scrutiny. The court held that SB 261 reports require companies to make “predictive and normative judgments” on a “politically fraught subject,” in effect, analyzing within a state-prescribed framework how climate change should shape the company’s future operations and economic planning. Drawing on precedent, the court classified these disclosures as noncommercial speech and found that the law was not narrowly tailored because the state could have publicized existing voluntary disclosures, provided incentives for voluntary reporting, or regulated emissions directly.
- The dissent would have enjoined both laws. Judge Bennett, concurring in part and dissenting in part, would have classified all disclosures required by SB 253 and SB 261 as compelled noncommercial speech because they inform investors about the company rather than a specific “product.” He warned that the same investor-information rationale could justify requiring disclosures about immigration status, political affiliation, and other sensitive topics.
The meaning for regulated companies
Practically, the decision keeps SB 253’s Scope 1 and 2 emissions reporting requirements in effect while pausing its Scope 3 reporting requirements and SB 261’s climate-related financial risk reporting. We recommend the following:
- Continue Scope 1 and 2 emissions reporting compliance without interruption. There is no injunction against these requirements, and 2026 reports were due on November 10, 2026. Companies should keep GHG Protocol-based inventories, data controls, and third-party assurance engagements on track and monitor the California Air Resources Board (CARB)’s current rulemaking, reporting deadlines for 2027, and fee assessments.
- Preserve, but do not abandon, Scope 3 workstreams. Scope 3 reporting, which would start in 2027 under the statute, is currently paused, but the question of whether Scope 3 requirements can be severed from those of Scope 1 and 2 has been remanded to the district court, and an ultimate decision on the merits is still to come. In addition, other regimes (EU Corporate Sustainability Reporting Directive (CSRD), international International Sustainability Standards Board (ISSB)-based rules, and customer and lender requests) may still require value-chain data. Consider pausing costly expansion of data-gathering while maintaining existing supplier data collection.
- Treat SB 261 reports as voluntary for now. Companies that have prepared climate-related financial risk reports should consider whether to publish and file the reports with CARB. Companies have assurance that climate-related financial risk reports are not compelled for 2026, but any voluntary reporting remains subject to ordinary securities and consumer-protection liability.
- Manage disclosure consistency and greenwashing risk. Because Scope 1 and 2 data will be publicly posted by CARB, ensure that figures align with US Securities and Exchange Commission (SEC) filings, sustainability reports, and marketing claims. The court’s rejection of the state’s greenwashing rationale does not shield companies from private lawsuits or regulatory claims about misleading environmental statements.
Anticipated next steps in the district court
- Severability of Scope 3. The Ninth Circuit panel remanded the case to the lower court to determine whether, in the first instance, the Scope 3 reporting provision is severable under SB 253’s severability clause (Cal. Health & Safety Code §38532(i)). The panel observed that, absent severance, the Scope 3 defect would exist in “every application” of SB 253. We expect the district court to set a briefing on severability and enter a preliminary injunction against Scope 3 and SB 261 consistent with the mandate. If Scope 3 is severed, Scope 1 and 2 reporting proceeds; if it is not, plaintiffs are likely to argue that SB 253 must be enjoined as a whole.
- Merits and remaining claims. The ruling addresses only likelihood of success at the preliminary-injunction stage. The Chamber of Commerce’s non-First Amendment claims, which were not at issue in this appeal, remain pending. The parties will litigate a full evidentiary record on the merits, where the state may attempt to shore up its evidence about Scope 3 tailoring and its greenwashing interest. Parallel to the remand, either side may seek rehearing before a larger Ninth Circuit panel (en banc), and a petition for US Supreme Court hearing of the decision (certiorari) is possible, given the Ninth Circuit dissent and the pending certiorari petition in PhRMAv. Stolfi (Docket No. 25-1018), which raises closely related questions about the scope of commercial speech.