Ninth Circuit Blocks California's Climate-Risk Disclosure Law

A federal appeals court on Monday blocked California from enforcing its climate-related financial risk disclosure law and the most expansive piece of its emissions reporting statute, ruling that both likely violate the First Amendment. The Ninth Circuit's three-judge panel preliminarily enjoined SB 261, the Climate-Related Financial Risk Act, in full, along with the Scope 3 emissions requirement in SB 253, the Climate Corporate Data Accountability Act.

The ruling leaves a significant portion of the state's climate reporting regime standing. California can still require companies with more than $1 billion in revenue to report their Scope 1 and Scope 2 emissions — the emissions a company produces directly and those from the energy it buys.

What did the court actually decide?

The panel reversed U.S. District Judge Otis Wright's denial of a preliminary injunction as to SB 261 and the Scope 3 mandate, while upholding his refusal to block the Scope 1 and 2 disclosure requirements. The U.S. Chamber of Commerce, the American Farm Bureau Federation and several California business groups brought the suit against officials of the California Air Resources Board and Attorney General Rob Bonta, case No. 25-5327.

"The First Amendment, however, limits the government's ability to compel speech," Circuit Judge Jacqueline Nguyen wrote for the panel.

The court drew a sharp doctrinal line between the two tiers of emissions reporting. Scope 1 and 2 disclosures compel factual information about a company's own operations, the panel found, making them commercial speech that likely survives intermediate scrutiny. Scope 3 emissions — those from suppliers, customers and other parts of the value chain — are "insufficiently tethered" to the reporting company's own operations. That requirement triggers strict scrutiny, and the court concluded it likely fails.

The panel sent the case back to the district court to decide whether the Scope 3 provisions can be severed from the rest of SB 253.

SB 261 fared worse. The law would require companies to publish climate-related financial risk reports every two years, and the court held it compels noncommercial speech including "subjective ideological assessments." It also found the law is not narrowly tailored, because California could instead publicize existing voluntary disclosures, offer incentives, or regulate emissions directly.

Who is covered by the two laws?

According to the opinion, the statutes reach a substantial slice of corporate America doing business in California:

• SB 253 applies to entities with more than $1 billion in annual revenue — an estimated 1,971 companies.
• SB 261 applies to about 2,675 companies, a lower revenue threshold the opinion did not disturb in its coverage count.

The Ninth Circuit had already paused SB 261 pending appeal in November 2025, while letting SB 253 take effect in the interim.

Was there a dissent?

Judge Mark Bennett parted ways with his colleagues. He argued partly in dissent that both laws compel noncommercial speech, and he would have ordered the district court to block both statutes entirely.

The business plaintiffs claimed victory. Daryl Joseffer of the U.S. Chamber Litigation Center called the ruling an "important victory" and said the Chamber will seek permanent injunctions. CARB and Bonta's office did not immediately respond to requests for comment, Reuters reported.

With the case now returning to the district court on severability — and permanent injunctions still on the plaintiffs' agenda — the scope of California's climate disclosure regime will hinge on whether Scope 3 reporting can be cleanly cut from SB 253 or whether the ruling narrows the law's reach further.