The Ninth Circuit Court of Appeals recently issued a significant ruling regarding California's climate disclosure laws, impacting various business sectors. The court's decision affects how companies report greenhouse gas emissions and climate-related risks, highlighting the ongoing tension between environmental accountability and First Amendment rights.
The case, United States of America Chamber of Commerce v. Sanchez (No. 25-5327), involves several chambers of commerce and business associations challenging two California laws: the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). These laws require companies to disclose their greenhouse gas emissions and assess climate-related financial risks to provide transparency to investors and the public.
The plaintiffs, including the U.S. Chamber of Commerce and the California Chamber of Commerce, argue that these laws are unconstitutional under the First Amendment because they compel companies to disclose information that could be considered noncommercial speech. They sought a preliminary injunction to prevent the laws from taking effect, claiming that they would impose significant burdens on businesses.
The district court initially denied the request for a preliminary injunction, asserting that the laws regulate commercial speech and are therefore not subject to strict scrutiny. This decision led the plaintiffs to appeal to the Ninth Circuit, where the case was heard on January 9, 2026.
The Ruling
The Ninth Circuit panel, which included Judges Jacqueline H. Nguyen, Mark J. Bennett, and Kiyo A. Matsumoto, affirmed in part and reversed in part the district court's ruling. The court upheld the denial of the preliminary injunction concerning SB 253’s Scope 1 and Scope 2 disclosure requirements, which mandate companies to report emissions from their own operations and purchased energy. The court ruled, "The State demonstrated substantial interests in mitigating information asymmetries for investors and reducing emissions, as well as a likelihood that the Scope 1 and 2 disclosure requirements directly advance those interests and are no more extensive than necessary."
However, the court reversed the district court's decision regarding SB 253’s Scope 3 disclosure requirements and SB 261 in its entirety. The panel determined that the Scope 3 disclosures, which require reporting on indirect emissions from a company's value chain, do not qualify as commercial speech. The court stated that these disclosures are subject to strict scrutiny, which they likely fail. As a result, the court remanded the case back to the district court to decide whether the Scope 3 provisions are severable.
Regarding SB 261, which requires companies to disclose climate-related financial risks, the court held that the law compels noncommercial speech. It emphasized that the statute requires companies to make subjective assessments about future risks, which do not fall under the realm of commercial speech. The court concluded that SB 261 fails to meet the strict scrutiny standard, stating, "even assuming overcoming information asymmetries and reducing emissions are compelling state interests, SB 261 fails on tailoring grounds because the State could have employed less restrictive means to accomplish its goals."
Impact
This ruling has significant implications for businesses operating in California and beyond. By affirming the requirements for Scope 1 and Scope 2 disclosures, the court reinforces the state's efforts to hold companies accountable for their direct emissions. This could lead to increased transparency in corporate environmental practices and potentially influence investor decisions based on a company's emissions profile.
On the other hand, the court's decision to reverse the injunction on Scope 3 disclosures and SB 261 raises questions about the future of climate-related regulations. If these provisions are ultimately found unconstitutional, it could limit the state's ability to enforce comprehensive climate accountability measures. The ruling also sets a precedent for how courts interpret the intersection of environmental regulations and First Amendment rights, particularly concerning compelled disclosures that may not directly relate to a company's own operations.
What's Next
The case is now remanded to the district court to determine the severability of the Scope 3 disclosures from the rest of SB 253. Additionally, the plaintiffs may consider further appeals regarding the ruling on SB 261. The outcome of this case could influence similar legislative efforts in other states as they seek to balance environmental accountability with constitutional rights.
