In a significant ruling for corporate climate reporting, the U.S. Court of Appeals for the Ninth Circuit has issued a split decision on California's landmark climate disclosure laws, Senate Bill (SB) 253 and SB 261.

The November 9 decision, issued just one day before California's first mandatory greenhouse gas emissions reporting deadline, allows key portions of SB 253 to proceed while creating major legal obstacles for Scope 3 emissions reporting and SB 261's climate-related financial risk disclosures.

For companies navigating environmental, social, and governance (ESG) obligations, the ruling provides immediate clarity on certain requirements while introducing new uncertainty around others.

California's Immediate Emissions Reporting Deadline Remains Intact

The court upheld the lower court's decision not to issue a preliminary injunction against SB 253's Scope 1 and Scope 2 greenhouse gas emissions disclosure requirements.

These requirements cover:

• Scope 1: Direct greenhouse gas emissions from sources owned or controlled by a company.

• Scope 2: Indirect emissions associated with purchased electricity, steam, heating, and cooling.

The court determined that these disclosures constitute commercial speech because they provide factual information about a company's operations that is relevant to investors and financial markets.

Under the court's analysis, California demonstrated sufficient governmental interests in improving investor transparency and reducing emissions to justify these reporting obligations at this preliminary stage.

What this means for companies: The November 10, 2026 reporting deadline remains in effect. U.S.-formed businesses with more than $1 billion in annual revenue that do business in California should continue meeting their applicable SB 253 reporting obligations, subject to relevant exemptions and CARB's first-year reporting guidance.

Scope 3 Reporting Faces Significant Constitutional Challenges

The court reached a different conclusion regarding SB 253's Scope 3 disclosure requirements. Scope 3 emissions encompass indirect emissions throughout a company's value chain, including activities involving suppliers, customers, transportation, and the use of sold products.

Unlike Scope 1 and Scope 2 emissions, the court determined that Scope 3 disclosures are insufficiently connected to a reporting company's own operations and commercial transactions to qualify as commercial speech.

As a result, these requirements face a more demanding constitutional standard, known as strict scrutiny, which the court concluded they were unlikely to satisfy.

The Ninth Circuit reversed the lower court's denial of preliminary relief and directed it to determine whether the Scope 3 provisions can be separated from the remainder of SB 253.

What this means for companies: California's Scope 3 reporting requirement, originally scheduled to begin in 2027, now faces substantial legal uncertainty. However, the ruling does not permanently eliminate the requirement, and companies should continue monitoring the litigation and any subsequent regulatory guidance.

SB 261 Climate Risk Disclosures Remain on Hold

The ruling also represents a significant setback for California's Climate-Related Financial Risk Act, SB 261. The legislation requires covered businesses with more than $500 million in annual revenue that do business in California to publish biennial reports addressing climate-related financial risks and measures adopted to mitigate or adapt to those risks.

These disclosures are based on the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). The Ninth Circuit concluded that SB 261 goes beyond requiring factual operational information by compelling companies to make predictive and subjective assessments about climate change and its potential financial consequences.

The court determined that these disclosures constitute noncommercial speech and that California had not demonstrated that the requirements were sufficiently narrowly tailored to satisfy strict scrutiny.

What this means for companies: SB 261 enforcement remains paused, and the ruling creates additional uncertainty about the legislation's future. Importantly, the court has not issued a final judgment permanently striking down the law.

What Corporate Sustainability Teams Should Do Next

The decision creates three distinct regulatory considerations for companies operating in California. First, businesses subject to SB 253 should continue complying with the November 10, 2026 Scope 1 and Scope 2 reporting deadline. CARB's existing first-year guidance and submission procedures remain particularly important.

Second, companies preparing for future Scope 3 reporting should monitor the district court's next steps and any further appeals. The ruling affects California's requirements but does not automatically change Scope 3 obligations under other applicable reporting frameworks.

Finally, companies preparing SB 261 climate risk reports should recognize that enforcement remains suspended while legal proceedings continue. Existing climate risk management and voluntary disclosure initiatives may nevertheless remain valuable for meeting investor expectations and other regulatory obligations.

Looking Ahead: A More Complex Climate Disclosure Landscape

The Ninth Circuit's decision highlights an important distinction emerging in U.S. climate disclosure regulation: courts may treat standardized operational emissions data differently from forward-looking climate risk assessments and value-chain emissions disclosures.

For corporate sustainability leaders, this reinforces the importance of distinguishing between active reporting obligations, requirements subject to litigation, and voluntary disclosure practices.

Although California's broader climate disclosure framework faces an uncertain future, its immediate Scope 1 and Scope 2 reporting requirements remain in place.

LoneReport will continue monitoring the litigation, regulatory implementation, and implications for companies subject to California's climate disclosure laws.