SB 253/SB 261 Update: Ninth Circuit Lets Scope 1 and Scope 2 Disclosures Proceed, Finds Scope 3 and SB 261 Likely Unconstitutional

On November 9, 2026, the U.S. Court of Appeals for the Ninth Circuit issued a published opinion in United States of America Chamber of Commerce v. Sanchez, No. 25-5327 (9th Cir. Nov. 9, 2026), resolving an appeal from the denial of a preliminary injunction against California’s corporate climate-disclosure laws, the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261). The Court declined to block SB 253’s Scope 1 and Scope 2 disclosure requirements, but concluded that SB 253’s Scope 3 disclosure requirement and SB 261 in its entirety likely violate the First Amendment. For companies preparing initial SB 253 reports, the ruling does not alter the November 10, 2026 deadline for Scope 1 and Scope 2 reporting.

The most consequential open question now sits with the U.S. District Court for the Central District of California (the trial court), which must decide on remand whether the Scope 3 disclosure requirement can be severed from the rest of SB 253.

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Companies Covered by SB 253 and SB 261

According to the Court, SB 253 applies to any entity doing business in California with more than US$1 billion in annual revenue, a group that a recent report cited by the Court estimated at approximately 1,971 companies. SB 261 applies to companies doing business in California with more than US$500 million in annual revenue, which the Court said covers approximately 2,675 companies. As we reported on August 4, 2026, when the California Air Resources Board (CARB) released its 15-day modifications, coverage turns on entity-level revenue and “doing business in California” tests.

In a facial challenge, several chambers of commerce and business associations (the Chambers) argued that both laws are unconstitutional as written, rather than only as applied to a particular company. That framing raised the Chambers’ burden: the Court explained that a facial challenge succeeds only if a law’s unconstitutional applications substantially outweigh its constitutional ones.

The Ninth Circuit’s Decision

At issue on appeal was the trial court’s refusal to issue a preliminary injunction, an early court order that blocks a law while the lawsuit proceeds. To obtain one, a party must show that it is likely to succeed on the merits, that it is likely to suffer irreparable harm, that the balance of equities tips in its favor, and that an injunction is in the public interest. The trial court had treated both laws as regulating commercial speech, applying the deferential standard of Zauderer v. Off. of Disciplinary Couns., 471 U.S. 626 (1985), to SB 253 and intermediate scrutiny to SB 261. In an opinion by Judge Jacqueline H. Nguyen, the Ninth Circuit affirmed that decision in part and reversed it in part.

Scope 1 and Scope 2 Disclosure Requirements Not Blocked: Scope 1 covers emissions from sources a company owns or directly controls, and Scope 2 covers emissions from purchased electricity, steam, heating, or cooling. Drawing on its recent decision in Pharm. Rsch. & Mfrs. of Am. v. Stolfi, 153 F.4th 795 (9th Cir. 2025), which treated an Oregon drug-pricing reporting law as a regulation of commercial speech, the Court held that these disclosures regulate commercial speech because they compel factual information about emissions from a company’s own operations that investors, insurers, and other capital-market participants use to decide whether and on what terms to transact with the company. The Court reasoned that “emissions disclosures function like product warnings in capital markets.”

Commercial speech generally receives intermediate scrutiny, under which California (the State) must show that the law directly advances a substantial interest through means not more extensive than necessary. The Court concluded that the Scope 1 and Scope 2 disclosure requirements likely satisfy intermediate scrutiny because they directly advance the State’s substantial interests in mitigating information asymmetries for investors and in reducing emissions. The Court did not decide whether the more deferential Zauderer standard applies.

Throughout its analysis, the Court emphasized that these disclosures consist of factual emissions data reported using standardized measurement protocols the industry has long employed and that SB 253 does not require any reporting entity to attribute culpability, to assign moral significance to its emissions, or to endorse the State’s climate-policy positions. Companies remain free to contextualize their disclosures, to dispute their significance, or to provide explanatory commentary. The Court also concluded that the State’s third asserted interest, preventing misleading “greenwashing” claims, is not sufficiently supported by the record. Turning to the remaining injunction factors, the Court found that the Chambers had not shown irreparable harm from the Scope 1 and Scope 2 disclosure requirements.

Scope 3 Disclosure Requirement Likely Unconstitutional: Because Scope 3 disclosures concern what the Court called “diffuse third-party conduct in the value chain,” the Court held that they are insufficiently tethered to a company’s own operations and capital transactions to qualify as commercial speech. That conclusion triggered strict scrutiny, a demanding standard that requires the State to show that the law furthers a compelling interest and is narrowly tailored to achieve it, and to use a less restrictive alternative where one would serve. Even assuming the State’s interests are compelling, the Court concluded that the State had not shown that the Scope 3 disclosure requirement is narrowly tailored. The Court found that companies do not possess Scope 3 data the way they possess Scope 1 and Scope 2 data, and that data collected from value-chain participants may be difficult to verify and prone to error. The Court also found that nothing in the record indicated that estimates based on industry averages or proxy data are more reliable than estimates the State or the public could generate, that the connection between Scope 3 emissions and a reporting company’s risk exposure or profitability is too remote, and that no study in the record examined mandatory Scope 3 reporting.

SB 261 Likely Unconstitutional: The Court held that SB 261 compels noncommercial speech because the climate-risk framework it incorporates requires companies to make predictive and normative judgments about how climate change should shape their future operations, a subject the Court described as “politically fraught,” within a State-prescribed framework. The Court found that a company’s option to state that it faces no climate-related risks does not change the noncommercial nature of the required speech. The Court also noted that the State “all but concedes it cannot satisfy” strict scrutiny. Even assuming the State’s interests are compelling, the Court found that SB 261 is not narrowly tailored because less restrictive means were available, such as disseminating existing voluntary climate-related financial risk disclosures to the public, incentivizing voluntary disclosure, or directly regulating emissions.

Severability Question Remanded: SB 253 contains a severability clause, Cal. Health & Safety Code § 38532(i), which addresses whether the rest of a law can stand if a court strikes down one part. The Court remanded for the trial court to decide, in the first instance, whether the Scope 3 disclosure requirement is severable.

Further Proceedings and the 2027 Legislative Session

On remand, the severability question matters beyond Scope 3. The Court found that, absent severance, the Scope 3 defect would exist in “every application” of SB 253, and that the Chambers had shown that enforcement of the statute as written would cause irreparable injury. The trial court’s answer therefore bears on whether the Scope 1 and Scope 2 disclosure requirements can be enforced on their own.

Importantly, the ruling is not a final decision on whether the laws are constitutional. The Court evaluated only whether the Chambers are likely to succeed for purposes of preliminary relief, and the litigation will continue in the trial court. The Court’s commercial-speech analysis also rests heavily on Stolfi, in which a petition for certiorari was filed in the U.S. Supreme Court in February 2026.

Separately, the California Legislature resumes in January 2027, and the authors of SB 253 and SB 261 could revisit these topics and propose new legislation aimed at obtaining this type of information.

Takeaways and Next Steps

Putting aside the severability question, the ruling leaves the near-term SB 253 obligations described in our August 4 post intact while unsettling the Scope 3 and SB 261 work that was to follow. The Court’s opinion reflects as much: it treats factual emissions data from a company’s own operations as commercial speech, and it treats disclosures that depend on third-party conduct or require value-laden judgments on a politically fraught subject as noncommercial speech subject to strict scrutiny.

• Scope 1 and Scope 2 — No Change to Near-Term Obligations: The Court declined to block the Scope 1 and Scope 2 disclosure requirements, and companies should plan to meet the November 10, 2026 deadline rather than assume that the ruling extends or suspends it.
• Scope 3 — Plans Now Uncertain: Our August 4 post discussed CARB staff’s proposal to phase in Scope 3 reporting beginning in 2027, initially requiring five categories, and encouraged companies to provide sector-specific input. With the Court concluding that the Scope 3 disclosure requirement likely violates the First Amendment, those plans now depend on further proceedings, including the trial court’s severability decision. Companies may wish to reassess the timing and scope of any Scope 3 work being undertaken specifically for SB 253 compliance.
• SB 261 — Court Found Likely Unconstitutional, but Further Proceedings Remain: As our August 4 post noted, the Ninth Circuit had enjoined enforcement of SB 261 pending appeal, an order the court entered on November 18, 2025. The Court has now reversed the trial court’s denial of a preliminary injunction as to SB 261 in its entirety. Companies that paused SB 261 preparation can reasonably continue to do so, but should monitor how the trial court implements that relief, and any further proceedings, before making additional decisions about SB 261 compliance.

This post is as of the posting date stated above. Sidley Austin LLP assumes no duty to update this post or post about any subsequent developments having a bearing on this post.