Ninth Circuit Rules on Challenge to California’s Climate Disclosure Laws 

Key Points

• On November 9, 2026, in the litigation challenging California’s climate disclosure laws, the Ninth Circuit in Chamber of Commerce v. Sanchez reversed the district court’s denial of a preliminary injunction as to Senate Bill (SB) 253’s Scope 3 emissions reporting requirement and SB 261 in its entirety. 
• The decision did not affect Scope 1 and 2 reporting or the November 10, 2026, deadline for submitting greenhouse gas emissions reports. 
• The scope of the injunctive relief that will be granted by the district court in response to the ruling remains to be seen. The California Air Resources Board (CARB) has not said whether it will continue to suspend the SB 261 climate-related financial risk disclosure deadline or whether it will voluntarily suspend its current greenhouse gas reporting rulemaking efforts for the Scope 3 reporting that is statutorily required in 2027.

On November 9, 2026, the U.S. Court of Appeals for the Ninth Circuit issued an opinion in U.S. Chamber of Commerce v. Sanchez, the constitutional challenge to California’s landmark climate disclosure laws, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261), which require private and public companies whose revenues exceed certain thresholds and that “do business in California” to report greenhouse gas (GHG) emissions and disclose climate-related financial risks, respectively.

The court affirmed the district court’s denial of a preliminary injunction as to SB 253’s Scope 1 and Scope 2 GHG emissions reporting requirements, but reversed the denial for SB 253’s Scope 3 reporting requirement and for SB 261, remanding to the district court to decide whether Scope 3 reporting is severable from the rest of SB 253. The decision was issued one day before the November 10, 2026, deadline for initial Scope 1 and 2 reports under SB 253.

The Court’s Reasoning

Writing for the majority, Judge Jacqueline H. Nguyen concluded that the Scope 1 and 2 requirements in SB 253 regulate commercial speech because they compel factual disclosures about emissions from companies’ own operations that bear on capital transactions, such as investment, lending, and insurance decisions. Applying intermediate scrutiny, the court held that the Scope 1 and 2 reporting requirements are likely to survive because they advance California’s substantial interests in reducing both investor information asymmetries and GHG emissions, although it rejected the state’s asserted interest in preventing greenwashing as unsupported by the record.

By contrast, the court held that Scope 3 emissions, which arise from independent third parties across a company’s value chain, are too remote from the company’s own operations to qualify as commercial speech. Applying strict scrutiny, the court concluded that the Scope 3 requirement likely fails because it is not narrowly tailored to the state’s interests, noting that no record evidence links mandatory Scope 3 reporting to emissions reductions.

The court likewise held that SB 261 does not regulate commercial speech because its Task Force on Climate-Related Financial Disclosures (TCFD)-based reports require inherently subjective judgments about the significance of climate change and require “companies [to] share value-laden judgments on a politically fraught subject.” Applying strict scrutiny, the court concluded that SB 261 likely fails to pass constitutional muster because California could have used less restrictive means, such as publicizing existing voluntary disclosures or encouraging voluntary disclosure.

Judge Mark J. Bennett, concurring in part and dissenting in part, would have treated both statutes as compelled noncommercial speech subject to strict scrutiny and remanded with instructions to preliminarily enjoin both statutes in full.

Notably, the opinion did not itself enjoin SB 253’s Scope 3 reporting requirement or SB 261. Rather, it reversed the denial of a preliminary injunction after finding that each preliminary injunction factor favored the plaintiffs, leaving it to the district court to enter preliminary injunctions consistent with the opinion and, as to Scope 3, to first decide severability. A preliminary injunction would bar enforcement only while the litigation proceeds; any permanent injunction would await a final judgment on the merits. SB 261 remains subject, for now, to the court’s November 2025 injunction pending appeal. Any new injunctive relief will also likely extend only to the plaintiff associations and their members, rather than to all companies subject to the laws. Following the November 2025 injunction, however, CARB issued an enforcement advisory stating that it would not enforce SB 261 against any covered entity while the appeal was pending. It remains to be seen how CARB will respond to this latest ruling or to an eventual preliminary injunction issued by the district court.

What This Means for Covered Companies

The opinion did not disturb the requirement for companies with more than $1 billion in revenue “doing business in California” to either report Scope 1 and 2 emissions to CARB or file a statement with CARB explaining that they lacked data to report. Nor did the opinion disturb the limited assurance requirement that CARB expects to apply to Scope 1 and 2 emissions disclosures beginning with 2027 reports. Companies that would have been required to report under SB 253, but that qualified for reporting relief for the 2026 reporting year (for example, those meeting the reporting criteria but not collecting GHG emissions data as of December 2024), should continue preparing to report Scope 1 and 2 emissions in 2027. Companies may be able to ease their Scope 3 preparations for 2027, but the scope of any district court injunction remains unclear.

Companies may continue to delay posting SB 261 climate-related financial risk disclosures in light of CARB’s enforcement advisory, but should continue to monitor the ongoing litigation and CARB’s response to it.

What to Watch

The opinion is the latest development in the tortuous implementation of SB 253 and SB 261, which has been marked by legal challenges, missed rulemaking deadlines, and ongoing uncertainty for covered companies. Key items companies should monitor include (1) whether California seeks rehearing en banc or U.S. Supreme Court review; (2) the scope of the district court’s preliminary injunctions on Scope 3 and SB 261 and its ultimate ruling on the merits of both laws; (3) any new CARB enforcement advisories or revised rulemaking or reporting timelines; and (4) whether CARB proceeds with a proposed 2027 regulation addressing Scope 3 reporting, expected later this year.

For questions about SB 253, SB 261, or how this decision affects your reporting obligations, contact Shawn J. Zovod, Melissa Horne, Jason L. Langford, or the Environmental + Natural Resources Practice Group at Troutman Pepper Locke.