Ninth Circuit Upholds California’s Scope 1 and Scope 2 Emissions Reporting Requirements, Blocks Scope 3 and Climate-Risk Disclosures

On Nov. 9, 2026, the U.S. Court of Appeals for the Ninth Circuit issued its decision in U.S. Chamber of Commerce v. Sanchez, affirming in part and reversing in part the district court’s denial of a preliminary injunction against California’s landmark corporate climate disclosure laws, Senate Bill (SB) 253 and SB 261.

The court allowed SB 253’s Scope 1 and Scope 2 greenhouse gas emissions disclosure requirements to remain in effect but granted the preliminary injunction with regard to SB 253’s Scope 3 requirements and SB 261 in its entirety. Consequently, the California Air Resources Board (CARB’s)’s initial Scope 1 and 2 emissions reporting remains. CARB is currently undertaking a second rulemaking process to develop reporting requirements for 2027 and beyond.

The decision means that covered companies remain subject to SB 253’s currently applicable Scope 1 and Scope 2 reporting requirements. At the same time, the decision changes the outlook for California’s broader climate disclosure regime by permitting preliminary relief against SB 261 and Scope 3 reporting under SB 253.

Ninth Circuit’s Key Conclusions at the Preliminary-Injunction Stage

• SB 253 Scope 1 and Scope 2 reporting remains in effect. The Ninth Circuit affirmed the denial of a preliminary injunction, concluding that these required disclosures constitute commercial speech and are likely to survive First Amendment scrutiny.
• SB 253 Scope 3 reporting is likely unconstitutional. The court concluded that Scope 3 reporting compels noncommercial speech subject to strict scrutiny and that California had not shown the requirements were narrowly tailored. The court therefore granted the preliminary injunction against them.
• SB 261 is likely unconstitutional and remains enjoined. The court held that SB 261 compels companies to make noncommercial speech subject to strict scrutiny.
• SB 253 is remanded for a severability determination. The Ninth Circuit did not invalidate SB 253 as a whole; it remanded for the district court to determine whether the Scope 3 requirements can be severed from the remainder of the law.

The Ninth Circuit Draws a Line Between Scope 1 and 2 Emissions and Scope 3 Emissions

The court’s decision turns largely on whether California’s required disclosures constitute “commercial speech,” which generally receives less First Amendment protection, or noncommercial speech subject to strict scrutiny.

The court concluded that SB 253 Scope 1 and Scope 2 reporting, covering direct greenhouse gas emissions and indirect emissions from purchased energy, regulates commercial speech subject to intermediate scrutiny. The court determined that these disclosures are sufficiently connected to companies’ commercial operations and capital transactions to qualify as commercial speech.

Applying intermediate scrutiny, the court found that California had demonstrated substantial interests in reducing information asymmetries for investors, reducing greenhouse gas emissions, and preventing misleading speech. It further concluded that requiring Scope 1 and Scope 2 disclosures at this stage directly advances those interests and is no more extensive than necessary.

The court reached a different conclusion for Scope 3 emissions, which encompass indirect upstream and downstream emissions from sources that a company does not own or directly control. Because those disclosures concern the conduct of independent third parties, the court concluded that they are not sufficiently connected to a reporting company’s own operations or capital transactions to constitute commercial speech and are subject to strict scrutiny.

Applying strict scrutiny, the court held that California had not shown that mandatory Scope 3 reporting is narrowly tailored and found the record insufficient to establish that mandatory Scope 3 reporting is necessary to reduce emissions. The court emphasized that companies may lack direct access to Scope 3 information and may need to rely on third-party estimates, which weakened the state’s argument that Scope 3 emissions reporting is necessary to reduce information asymmetries. The court granted a preliminary injunction with respect to SB 253’s Scope 3 reporting requirements.

SB 261 Also Fails Strict Scrutiny

The Ninth Circuit separately held that SB 261’s climate-related financial risk disclosure requirements compel noncommercial speech and applied strict scrutiny.

Unlike SB 253’s Scope 1 and Scope 2 provisions, SB 261 requires covered companies to assess their climate-related financial risks and operations and to identify measures adopted to address those risks. The court characterized these disclosures as requiring predictive and normative judgments about climate change and future business conditions rather than simply reporting historical facts.

Even if reducing information asymmetries and greenhouse gas emissions were compelling state interests, the court found that SB 261 was not narrowly tailored. The court identified less restrictive alternatives, including dissemination or encouragement of voluntary climate-risk disclosures, and found insufficient evidence that mandatory climate-risk reporting would reduce emissions.

The court therefore reversed the district court’s denial of the preliminary injunction to SB 261.

What the Decision Means for Companies

The most immediate takeaway is that the Ninth Circuit did not halt SB 253’s Scope 1 and Scope 2 emission reporting requirements. Companies subject to SB 253 should therefore continue complying with the applicable reporting requirements.

For SB 253’s Scope 3 reporting requirements the Ninth Circuit remanded the case to the district court on the question of severability in the first instance. Should the Scope 3 provisions prove nonseverable, the entire statute may be found unconstitutional. Scope 3 reporting is not required while the remand is pending.

For SB 261, the Ninth Circuit found the statute’s disclosure regime likely unconstitutional under the First Amendment and held that the preliminary-injunction factors favor relief against the law in its entirety.

Looking Ahead

• The litigation now returns to the district court for a decision on whether the Scope 3 requirements are severable from SB 253. Since this case concerned a preliminary injunction, the litigation may also continue beyond the remand proceedings with respect to the Scope 1 and 2 elements of SB 253 and SB 261.
• The decision nevertheless provides greater clarity for companies navigating California’s climate disclosure regime. For the time being, Scope 1 and Scope 2 reporting under SB 253 remains operative. CARB is currently undertaking a second rulemaking process in which it is developing the reporting requirements for 2027 and subsequent years, including GHG accounting methodologies, deadlines, assurance requirements, and reporting formats.
• Scope 3 emissions reporting and SB 261 climate risk reporting are stayed in their entirety.