California Climate Disclosure Law Faces Legal Halt, But Another Proceeds
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California’s ambitious push for corporate climate accountability has hit a snag, as the U.S. Court of Appeals for the Ninth Circuit temporarily halted implementation of Senate Bill 261, a key component of the state’s climate agenda. The ruling, issued on Tuesday, November 18, follows a challenge from business groups arguing the law imposes undue burdens on interstate commerce.
The legal battle centers on SB 261, which mandates that companies with revenues exceeding $500 million publicly disclose climate-related financial risks and the measures they are taking to address them. The U.S. Chamber of Commerce, alongside several California-based business federations, filed an emergency application with the U.S. Supreme Court last week seeking to pause enforcement of both SB 261 and a related law, SB 253. While the Ninth Circuit initially declined to halt both laws, it did grant a temporary injunction specifically for SB 261 pending further appeal.
Despite the setback for the broader climate agenda, the court will allow enforcement of SB 253 to move forward. This law requires businesses operating in California with annual revenues exceeding $1 billion to annually report their greenhouse gas emissions, including scope 1, 2, and eventually scope 3 emissions, beginning in 2026 and 2027 respectively.
Business Groups Claim “Unconstitutional” Burden
The U.S. Chamber of Commerce has strongly criticized SB 261, labeling it “unconstitutional” in a statement released Tuesday. “We look forward to continuing our appeal and securing an injunction of both climate disclosure laws, which result in massive compliance costs for companies and their supply chains,” a spokesperson for the organization said. “One state should not have the ability to impose this kind of burden on the entire country.”
The coalition challenging the laws includes the California Chamber of Commerce, American Farm Bureau Federation, Los Angeles County Business Federation, Central Valley Business Federation, and the Western Growers Association. Their argument focuses on the potential for cascading compliance costs throughout national and international supply chains.
California Moves Forward with Rule Development
The Ninth Circuit’s decision came on the same day the California Air Resources Board (CARB), the agency responsible for enforcing the state’s climate disclosure rules, held a public workshop dedicated to developing and refining those rules. This suggests California remains committed to its climate goals despite the legal challenges.
Companies covered by SB 261 were originally slated to submit their climate risk reports by January 1, 2026. The law is a central piece of the California Climate Accountability Package, signed into law by Governor Gavin Newsom in October 2023.
Reporting Requirements and Covered Entities
SB 253 requires annual reporting of greenhouse gas emissions from companies exceeding $1 billion in revenue. These entities must disclose scope 1 and 2 emissions by June 30, 2026, and include scope 3 emissions starting in 2027. Scope 1 emissions cover direct emissions from owned or controlled sources, while scope 2 covers indirect emissions from purchased electricity, steam, heat, and cooling. Scope 3 encompasses all other indirect emissions that occur in a company’s value chain.
In September, CARB released a preliminary list of over 3,100 companies potentially subject to the new reporting requirements. However, the agency cautioned that the list may be incomplete and emphasized that all potentially affected entities are responsible for compliance, regardless of whether they were included on the initial list.
. The evolving legal landscape underscores the complex challenges of implementing ambitious climate policies and the ongoing tension between state-level initiatives and federal oversight.
