Ninth Circuit Partially Blocks California Climate Disclosure Laws, Allows Scope 1 and Scope 2 Reporting to Proceed

The decision arrives one day before CARB’s November 10, 2026, deadline for first-year Scope 1 and Scope 2 reports. Because the Ninth Circuit affirmed the denial of a preliminary injunction as to those disclosures, that deadline remains in place. The court reversed the denial of preliminary injunction as to Scope 3 and SB 261 and remanded for the district court to determine whether SB 253’s Scope 3 provisions can be severed from the remainder of the statute.

Background
As we have covered previously, California enacted SB 253 and SB 261 in 2023. SB 253 applies to business entities doing business in California with more than $1 billion in annual revenue and requires annual reporting of Scope 1, Scope 2 and Scope 3 greenhouse gas emissions. SB 261 applies to business entities doing business in California with more than $500 million in annual revenue and requires biennial public reports addressing climate-related financial risks and measures adopted to reduce and adapt to those risks.

CARB’s initial implementing regulation took effect on October 12, 2026, and establishes November 10, 2026, as the first-year deadline for Scope 1 and Scope 2 reports. Scope 3 reporting is scheduled to begin in 2027 at a date to be set under a later CARB rulemaking. SB 261’s first statutory reporting deadline was January 1, 2026, but the Ninth Circuit temporarily enjoined enforcement on November 18, 2025, pending this appeal. CARB has since accepted SB 261 reports on a voluntary basis only.

The district court denied the Chamber’s motion for a preliminary injunction in August 2025. It treated both laws as regulating commercial speech, although it reviewed SB 253 under the deferential standard applicable to factual and uncontroversial commercial disclosures and SB 261 under intermediate scrutiny.

Scope 1 and Scope 2 Reporting May Proceed
The Ninth Circuit’s analysis distinguished the statutes according to the nature of information that each provision compels. The panel’s majority concluded that SB 253’s Scope 1 and Scope 2 requirements regulate commercial speech because they require disclosure of standardized, factual emissions information generated through a reporting entity’s own operations. The court found that those emissions bear on capital transactions because investors, insurers and other market participants may use the information to evaluate a company’s operational risk, regulatory exposure, profitability and ability to raise capital.

The court declined to decide whether the more deferential Zauderer standard applies, concluding instead that the Scope 1 and Scope 2 requirements likely survive the more stringent intermediate scrutiny standard in any event. It concluded that California demonstrated a substantial interest in reducing information asymmetries for investors and reducing greenhouse gas emissions. It also found adequate support in the preliminary record that mandatory Scope 1 and Scope 2 reporting would directly advance those interests and was not more extensive than necessary. The court concluded that the record did not support California’s separate asserted interest in preventing misleading environmental claims, but found that the other two interests were sufficient to uphold the denial of preliminary relief.

As such, the Ninth Circuit affirmed the district court’s denial of a preliminary injunction against Scope 1 and Scope 2 reporting. CARB’s November 10 reporting deadline remains in effect for those emissions.

Scope 3 Reporting Likely Violates the First Amendment
The majority of the panel reached a different conclusion as to Scope 3. Unlike Scope 1 and Scope 2 emissions, Scope 3 emissions arise from sources a reporting entity does not own or directly control, such as suppliers, customers, distributors and other participants in the value chain. The court concluded that disclosures concerning this third-party conduct are too remote from the reporting entity’s own operations and capital transactions to qualify as commercial speech.

Applying strict scrutiny, the court held that the Scope 3 requirement is likely unconstitutional. The court emphasized that reporting entities may not possess the underlying third-party information and may instead need to rely on industry averages, proxy data or other estimates. The record did not show that company-generated estimates would be materially more accurate than estimates that the State or public could produce, that Scope 3 information was sufficiently connected to investor decision-making, or that mandatory Scope 3 reporting would reduce emissions.

Accordingly, the panel reversed the district court’s denial of the preliminary injunction for Scope 3. Since SB 253 contains an express severability clause, the court remanded for the district court to determine whether the Scope 3 provisions can be severed from the remainder of SB 253.

SB 261 Likely Violates the First Amendment
The panel also held that SB 261 compels noncommercial speech. The court reasoned that climate-related financial risk reports require companies to make predictive and normative judgments about uncertain future conditions, evaluate competing business priorities and explain how climate change should affect their operations and strategy. The majority of the panel found these requirements to compel companies to provide subjective assessments on a politically contested subject rather than simply disclosing factual information tied to commercial transactions.

Thus, the panel found that SB 261 was subject to strict scrutiny, and that the law likely will fail under this standard. The court found the statute was not narrowly tailored. The majority identified less restrictive alternatives, such as disseminating existing voluntary disclosures, encouraging voluntary reporting, directly regulating emissions or incentivizing emissions reductions. Accordingly, the Ninth Circuit reversed the denial of a preliminary injunction against SB 261 in its entirety.

Implications
The immediate compliance consequence of the Ninth Circuit’s decision is that SB 253 Scope 1 and Scope 2 reporting remains in effect, and the due date of November 10, 2026, remains in place. The Ninth Circuit did not extend that deadline or excuse reporting.

The future of Scope 3 reporting and SB 261 is less certain. On remand, the district court must determine whether Scope 3 can be severed from the remainder of SB 253 and enter preliminary relief. SB 261 reporting remains enjoined, although CARB continues to accept voluntary submissions.

In the meantime, companies submitting Scope 1 and Scope 2 reports should note that the court emphasized that reporting entities remain free to contextualize their disclosures, dispute their significance, provide explanatory commentary or publicize offsetting emissions calculations. The court also rejected the argument that SB 253 must be limited to public companies, so privately held companies meeting the revenue threshold remain subject to Scope 1 and Scope 2 reporting.

Potentially covered companies should continue monitoring the district court proceedings, any rehearing or future appellate activity and CARB’s response to the decision. Pillsbury will continue to monitor developments in the litigation and CARB’s related rulemaking and is available to advise clients on any questions that may arise.