Tox of the Town
Split Decision: Ninth Circuit Lets SB 253 Scope 1 and 2 Reporting Proceed, but Finds Scope 3 and SB 261 Likely Unconstitutional
by Anne Martorano Shultz and Sedina L. Banks
On November 9, 2026, a divided three-judge panel of the Ninth Circuit issued its decision in Chamber of Commerce v. Sanchez, a First Amendment challenge to California’s climate disclosure laws, SB 253 (the Climate Corporate Data Accountability Act, which CARB implements as the Corporate Greenhouse Gas Reporting Program) and SB 261 (climate-related financial risk reports). The panel affirmed in part and reversed in part the district court’s denial of a preliminary injunction.
SB 253 applies to companies doing business in California with annual revenues over $1 billion and requires annual reporting of greenhouse gas emissions. Scope 1 covers direct emissions from sources a company owns or controls, Scope 2 covers emissions from purchased energy, and Scope 3 covers indirect upstream and downstream emissions from sources the company does not own or control (such as suppliers and customers). SB 261 applies to companies doing business in California with annual revenues over $500 million and requires them to publish biennial reports on their climate-related financial risks.
The court held that SB 253’s Scope 1 and Scope 2 emissions reporting regulates commercial speech because it compels factual information about a company’s own operations that bears on capital transactions. Applying intermediate scrutiny, the panel found the State likely to prevail, based on its substantial interests in providing investors with reliable emissions information and in reducing emissions. As a result, the Scope 1 and Scope 2 reporting requirement remains in force, including the November 10, 2026, first-year deadline.
The panel reached the opposite conclusion on two other requirements. It held that SB 253’s Scope 3 requirement is too loosely tied to the reporting company’s own operations to qualify as commercial speech, and that it likely fails strict scrutiny. It also held that SB 261 compels noncommercial speech because it requires subjective, forward-looking judgments on “a politically fraught subject.” Applying strict scrutiny, the panel concluded that, even assuming the State’s interests are compelling, SB 261 is not narrowly tailored because the State could have used less restrictive means, such as publicizing existing voluntary disclosures or incentivizing voluntary reporting.
The case was remanded for the district court to decide whether Scope 3 is severable from the rest of SB 253.
Companies subject to SB 253 should continue preparing to meet the Scope 1 and Scope 2 deadline. Because this is a preliminary injunction ruling, the Scope 3 severability question remains for the district court, the precise scope of any injunction remains to be determined, and further review by the full Ninth Circuit (en banc) or the Supreme Court is possible. Companies should continue to monitor CARB for guidance and consider how this decision affects their Scope 3 and climate-risk reporting plans.
