California Climate Disclosure: Ninth Circuit Decision on SB 253 and SB 261

The Ninth Circuit allowed California’s Scope 1 and 2 reporting requirements to proceed but found mandatory Scope 3 disclosures and climate-related financial risk reporting under SB 261 likely unconstitutional.

On 9 November 2026, the US Court of Appeals for the Ninth Circuit issued a decision allowing California’s mandatory Scope 1 and Scope 2 greenhouse gas reporting requirements to proceed, while finding that compulsory Scope 3 disclosures and climate-related financial risk reporting under SB 261 are likely unconstitutional.

Issued one day before the first Scope 1 and Scope 2 reporting deadline under SB 253 on 10 November 2026, the decision left those obligations in place for covered companies while raising substantial questions about the future of California’s broader climate disclosure framework.

The Ninth Circuit’s Decision

The Court considered a constitutional challenge to two California laws: SB 253, the Climate Corporate Data Accountability Act, which requires greenhouse gas emissions reporting, and SB 261, the Climate-Related Financial Risk Act, which requires disclosure of climate-related financial risks and measures adopted to address them.

The Court reached three conclusions:

• Scope 1 and Scope 2 under SB 253: The Court affirmed the district court’s denial of a preliminary injunction, allowing these reporting requirements to proceed.
• Scope 3 under SB 253: The Court reversed the district court’s denial of a preliminary injunction, finding that the challengers were likely to succeed in their constitutional challenge to the mandatory disclosure of Scope 3 emissions.
• SB 261: The Court also reversed the denial of a preliminary injunction against the law’s climate-related financial risk disclosure requirements in their entirety.

The decision concerns preliminary injunctive relief and does not constitute a final determination of the constitutionality of either law.

Why the Court Treated the Disclosures Differently

The Court’s analysis centred on whether the compelled disclosures constituted commercial or noncommercial speech under the First Amendment, a distinction that determined the level of constitutional scrutiny applied to each requirement.

For Scope 1 and Scope 2, the majority considered the required emissions information sufficiently connected to a company’s own operations and capital transactions to qualify as commercial speech. Applying intermediate scrutiny, it accepted California’s interests in reducing information asymmetries for investors and encouraging emissions reductions, finding sufficient evidence at this preliminary stage that mandatory reporting could advance those objectives without imposing disclosure requirements more extensive than necessary.

Scope 3 was assessed differently because value-chain emissions arise partly from activities undertaken by independent suppliers, customers and other third parties. The majority considered these disclosures insufficiently connected to the reporting company’s own operations and capital transactions to qualify as commercial speech and consequently applied strict scrutiny, a more demanding constitutional standard.

The accuracy and reliability of Scope 3 data also informed the majority’s analysis, as companies frequently rely on information from independent third parties or estimates based on industry averages and proxy data. However, the Court’s reasoning extended beyond measurement uncertainty to the justification for making such disclosure compulsory.

The majority found that California had not sufficiently justified mandatory Scope 3 reporting over less restrictive alternatives, including voluntary reporting and state-generated emissions estimates. It also considered the connection between value-chain emissions and the reporting company’s specific risk exposure or profitability too remote to make the information sufficiently pertinent to actual or potential investors.

SB 261 was assessed separately because its climate-related financial risk disclosures involve judgments about future climate conditions, potential financial consequences and management responses rather than the reporting of historical emissions information. The majority classified these requirements as compelled noncommercial speech involving predictive and normative assessments and, applying strict scrutiny, concluded that California had not demonstrated that mandatory disclosure was sufficiently narrowly tailored to achieve the State’s objectives.

These findings concern the constitutional justification for compulsory disclosure under California law. They do not establish that Scope 3 emissions or climate-related financial risks are inherently unreliable or irrelevant to investors.

What Happened to the 10 November Reporting Deadline?

The Ninth Circuit’s decision did not suspend the first Scope 1 and Scope 2 reporting deadline under SB 253, which fell on 10 November 2026.

The California Air Resources Board (CARB), the state agency responsible for implementing California’s corporate climate disclosure laws, had already issued guidance on 1 September 2026 explaining how it would exercise enforcement discretion during the initial reporting cycle.

Under that guidance, companies may submit Scope 1 and Scope 2 emissions data using information they already possessed or were collecting when CARB issued its December 2024 enforcement notice. Existing annual reports containing emissions information and data previously reported under other reporting programmes are acceptable, while CARB’s draft reporting template remains optional for 2026.

First-year emissions data may also be submitted whether or not they have received limited assurance. Entities that were neither collecting nor planning to collect relevant emissions information when the December 2024 notice was issued are not expected to submit emissions figures for the 2026 reporting cycle, although CARB recommends providing a statement explaining these circumstances.

These provisions reflect CARB’s enforcement discretion during the initial reporting cycle rather than amendments to the underlying statutory requirements. Their application is specific to 2026 and should not be assumed to extend to subsequent reporting periods.

What Happens Next?

The case returns to the district court, which must determine whether the Scope 3 provisions can be separated from the remainder of SB 253. No date has yet been confirmed for the next hearing.

Meanwhile, CARB plans to hold another public workshop on reporting requirements for 2027 and subsequent years before publishing its proposed regulations for a 45-day public comment period. The regulator has also indicated that it aims to make the results of the 2026 reporting submissions public within approximately 90 days of the 10 November deadline.