Ninth Circuit Upholds California's Scope 1 and 2 Climate Disclosures, Questions Scope 3 and SB 261 Constitutionality

The U.S. Court of Appeals for the Ninth Circuit issued an opinion on California's corporate climate-disclosure laws, declining to block SB 253's Scope 1 and Scope 2 disclosure requirements. However, the court concluded that SB 253's Scope 3 disclosure requirement and SB 261 in its entirety likely violate the First Amendment, remanding the severability question for Scope 3 to the District Court. Companies must still meet the November 10, 2026, deadline for Scope 1 and 2 reporting.

Context

California's SB 253 mandates companies to disclose their direct and indirect greenhouse gas emissions, categorized as Scope 1 and Scope 2. Scope 3 emissions, which include indirect emissions from the supply chain, are more complex to measure and report. SB 261 aimed to expand these requirements further but faced legal challenges regarding its constitutionality.

Why it matters

The Ninth Circuit's ruling reinforces California's efforts to enhance corporate transparency regarding greenhouse gas emissions. This decision impacts how companies disclose their environmental impact, which is crucial for investors and consumers concerned about climate change. The court's questioning of Scope 3 and SB 261 raises significant constitutional issues that could affect future climate legislation.

Implications

The ruling may lead to increased scrutiny of corporate emissions reporting practices, particularly for companies operating in California. Businesses may need to invest in better data collection and reporting systems to comply with the upheld requirements. The potential invalidation of Scope 3 disclosures could limit the accountability of companies regarding their broader environmental impact.

What to watch

Companies are required to prepare for the upcoming November 10, 2026, deadline for Scope 1 and 2 disclosures. The District Court will now consider the severability of Scope 3 requirements, which could lead to further legal developments. Stakeholders will be monitoring how this ruling influences corporate behavior and compliance strategies.