On November 9, 2026, the U.S. Court of Appeals for the Ninth Circuit declined to enjoin California’s Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions disclosure requirements – effectively greenlighting the requirement one day before initial reports are due. However, the court held that California’s Scope 3 emissions disclosure and climate-related financial risk reporting requirements each likely violate the First Amendment and must be preliminarily enjoined.
Covered entities must still comply with the requirement to report Scope 1 and Scope 2 GHG emissions to the California Air Resources Board (“CARB”) by the Tuesday, November 10, 2026 deadline. The Ninth Circuit directed the Central District of California to determine on remand whether the Scope 3 requirement can be severed from the rest of SB 253.
In 2023, California adopted the Climate Corporate Data Accountability Act (“SB 253”) to require covered entities with more than $1 billion in annual revenue that do business in California to disclose Scope 1 emissions (from sources they directly control), Scope 2 emissions (from their purchased energy), and Scope 3 emissions (arising indirectly from across their value chain, including from suppliers and customers). The state also adopted the Climate-Related Financial Risk Act (“SB 261”) to require entities with more than $500 million in annual revenue that do business in California to publish climate-related financial risk reports.
The California Chamber of Commerce and other business groups sued the state and CARB in U.S. District Court for the Central District of California to block enforcement of the laws, arguing their requirements violate protections against compelled speech under the United States Constitution’s First Amendment. The federal district court denied the plaintiffs’ request for preliminary injunctions blocking the laws.
In its highly anticipated decision, the Ninth Circuit affirmed the lower court’s denial of injunctive relief with respect to Scope 1 and 2 emissions reporting. The court concluded that Scope 1 and 2 reporting requirements, which compel factual disclosures concerning companies’ own operations, are likely constitutional under the First Amendment. Applying intermediate scrutiny, the court concluded that these provisions were justified by California’s interests in (1) providing investors with accurate data to mitigate information asymmetries and (2) reducing GHG emissions. (The court rejected California’s other asserted interest, finding that the record did not indicate that companies discussing climate change routinely engage in misleading speech.)
However, the Ninth Circuit reversed the lower court’s ruling with respect to SB 253’s Scope 3 requirements and SB 261’s climate-related financial risk reporting requirement, finding that the plaintiffs were likely to succeed in their challenges. The court applied the higher standard of strict scrutiny because Scope 3 emissions from third parties across a company’s value chain are “insufficiently tethered to the reporting entity’s own operations and capital transactions to qualify as commercial speech.” The court likewise concluded that strict scrutiny was required as to SB 261 because that law effectively required companies to make “predictive judgments” about climate-related financial risks and make “normative assessments about competing priorities and values.” Under strict scrutiny, the court reasoned that the Scope 3 and SB 261 requirements likely violated the First Amendment because they were not “narrowly tailored” to advance any of California’s asserted interests. The court remanded the case to the district court for further proceedings, including consideration of whether the Scope 3 reporting requirement can be severed from the remainder of SB 253.
Scope 3 reporting was scheduled to begin in 2027. The Ninth Circuit had temporarily blocked SB 261 enforcement in 2025, pending its consideration of the appeal.
Covington’s Carbon Management and Climate Mitigation practice has extensive experience and capabilities advising on climate and GHG reporting and disclosure frameworks and is ready to assist entities in navigating this complex and evolving landscape.
If you have any questions concerning the material discussed in this client alert, please contact the members of our environmental practice.
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