A Late-Breaking Court Decision on SB 253 and SB 261 – What Now for Compliance?

Yesterday, the Ninth Circuit issued its decision on the appeal of the Central District of California’s prior denial of a request for a preliminary injunction of SB 253 and SB 261, California’s climate disclosure mandates. The decision came one day before this year’s SB 253 reports are due. This post discusses the decision and what it means for compliance, both this year and next.

Recalling How We Got Here

In connection with their challenge of SB 253 and SB 261 brought in early 2024, the U.S. Chamber of Commerce, the California Chamber of Commerce and other parties sought to enjoin both statutes on First Amendment grounds, arguing that they compel noncommercial speech and fail the “strict scrutiny” standard of review (this is one of the standards of review a court can apply in this context, strict scrutiny being the most demanding).

Last August, the District Court denied the plaintiffs’ request for a preliminary injunction, concluding that SB 253 and SB 261 regulate commercial speech and are therefore not subject to strict scrutiny review. The District Court instead applied “intermediate scrutiny” to SB 261, reasoning that its disclosures require companies to assess “the effect of current and future events on a company” and therefore involve subjective and predictive judgments. It applied more deferential Zauderer review to SB 253 because the statute requires disclosure of “purely factual and uncontroversial information.” Based on the standards of review applied, the District Court concluded that neither statute violates the First Amendment and that the plaintiffs therefore had not shown a likelihood of success on the merits of their First Amendment claims. 

The plaintiffs appealed the District Court decision. In November 2025, the Ninth Circuit enjoined the enforcement of SB 261 pending appeal, but it denied the requested injunction of SB 253 (see this Ropes & Gray post). The Court held oral argument on January 9, ten months to the day before issuing its decision.

Yesterday’s Decision

In a partially split decision, the Ninth Circuit panel affirmed in part and reversed in part the District Court’s decision. Yesterday’s decision is further discussed in this post we published shortly after the decision was released. The full opinion also is included with that post.

Scope 1 and 2 disclosures: The panel AFFIRMED the District Court’s denial of a preliminary injunction as to SB 253’s Scope 1 and 2 disclosure requirements.

The panel held that SB 253’s Scope 1 and 2 disclosures regulate commercial speech because they compel disclosure of factual information on emissions generated through the reporting entities’ own operations and bear on capital transactions. Applying intermediate scrutiny, the panel concluded that, for purposes of preliminary injunctive relief, the State of California 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.

Scope 3 disclosures: The panel REVERSED the District Court’s denial of a preliminary injunction as to SB 253’s Scope 3 disclosure requirement in its entirety.

The panel held that, because SB 253’s Scope 3 disclosures concern diffuse third-party conduct in the value chain, they are insufficiently tethered to the reporting entity’s own operations and capital transactions to qualify as commercial speech. As such, this provision is subject to strict scrutiny, which it fails. Because SB 253’s Scope 3 disclosure provisions are likely unconstitutional, the panel remanded to the District Court to determine, in the first instance, whether those provisions are severable.

SB 261: The panel REVERSED the District Court’s denial of a preliminary injunction as to SB 261 in its entirety.

The panel held that SB 261 compels noncommercial speech by requiring covered entities to disclose, among other information, subjective ideological assessments. Applying strict scrutiny, the panel held that, 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.

A partial difference in opinion: Concurring in the judgment in part and dissenting in part, Judge Bennett wrote that, because the majority opinion can be read as equating investors’ interest in companies with consumers’ interest in products, and, further, may open the door to compelled disclosures targeting individuals, the majority strays too far from the usual definition of commercial speech as speech that does no more than propose a commercial transaction. He believes both SB 253 and SB 261 compel noncommercial speech and would apply strict scrutiny to both laws. He would reverse and remand with instructions to preliminarily enjoin both SB 253 and SB 261 because at this preliminary juncture it appears likely that both laws’ unconstitutional applications substantially outweigh the constitutional ones, a loss of First Amendment freedoms constitutes an irreparable injury and the balance of equities and public interest favor the plaintiffs.

Six Compliance Takeaways

• Absent some last-day reprieve, SB 253 reports are still due today. As of this morning, the California Air Resources Board’s website indicates “the November 10, 2026 reporting deadline remains in effect.”

• Going pencils down on SB 253 Scope 3 work appears to be a low-risk proposition based on the Ninth Circuit decision. In any event, it is not yet clear what companies will need to do to comply, since CARB’s subsequent regulation for SB 253 reporting in 2027 and beyond is still at the pre-proposal stage. To the extent CARB continues to devote resources to its Scope 3 rulemaking, companies and trade associations will need to consider how much time and energy to devote to that process.  

• Similarly, it does not seem like a good use of time to plan to devote resources to SB 261 compliance in 2027. As a reminder, SB 261 has been enjoined since last November (see our post here).

• The principal question facing companies will be whether and when to devote resources to SB 253 Scope 1 and 2 compliance. CARB’s various reporting accommodations for this year effectively turned fiscal 2025 compliance into a practice run. Based on CARB’s pre-rulemaking proposals, SB 253 Scope 1 and 2 compliance will ratchet up next year, with more prescriptive disclosure requirements and limited assurance kicking in. This of course assumes that Scope 1 and 2 reporting survive and there are no other intervening developments that delay or modify that portion of SB 253 for next year. 

• The uncertainty will continue. It is premature to speculate on when there will be final resolution of the court case and the paths the case may take to get there, but a quick end is unlikely.  

• For the largest US-based multinationals, the fate of SB 253 and SB 261 is unlikely to make much of a difference. Most of these companies already do much of the same work in connection with their voluntary sustainability reporting. They also will ultimately have substantially overlapping reporting requirements under the EU’s Corporate Sustainability Reporting Directive.

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