Split Decision: Ninth Circuit Lets California's Scope 1 and 2 Emissions Reporting Proceed But Finds Scope 3 and SB 261 Climate-Risk Reporting Likely Unconstitutional

On November 9, 2026, a divided Ninth Circuit panel issued its ruling in Chamber of Commerce v. Sanchez, the First Amendment challenge to California’s climate disclosure laws. The court allowed SB 253’s Scope 1 and Scope 2 greenhouse gas emissions reporting to proceed. However, it held that SB 253’s Scope 3 requirement and SB 261’s climate-related financial risk reporting are likely unconstitutional, and both are expected to be preliminarily enjoined.

The Court’s Analysis

Scope 1 and 2. The majority held that Scope 1 and 2 disclosures required by SB 253, covering a company’s direct emissions and the emissions from the energy it purchases, are commercial speech because they convey factual information about the company’s own operations that bears on capital transactions. The court found that California’s interests in reducing information asymmetries for investors and in reducing emissions were substantial.

Scope 3. The court held that Scope 3 disclosures mandated by SB 253, covering indirect emissions across a company’s value chain including its suppliers and customers, are not commercial speech because they concern the conduct of independent third parties rather than the company’s own operations. According to the court, the requirement was not narrowly tailored, as the connection to investment decisions is too remote, and the record contained no evidence that mandatory Scope 3 reporting reduces emissions.

SB 261. SB 261 requires a biennial climate-related financial risk report based on the Task Force on Climate-related Financial Disclosures (TCFD) framework. The court held that the report compels companies to make subjective, forward-looking judgments on a politically contested issue and is therefore noncommercial speech. The court also found that less restrictive alternatives were available, such as encouraging voluntary disclosure.

Key Takeaways

This is a preliminary-injunction ruling, not a final judgment. The Ninth Circuit sent the case back to the district court, which will decide whether the Scope 3 provisions can be separated from the rest of SB 253. Either side may seek rehearing by the full Ninth Circuit within 14 days or petition the U.S. Supreme Court for certiorari.

What Companies Should Do Now

File today. Companies covered by SB 253 must submit their Scope 1 and 2 reports to the California Air Resources Board (CARB) today, November 10, 2026. The ruling does not affect this deadline.

Check for consistency. CARB will make the reported data public. Public companies should confirm that their California figures line up with what appears in SEC filings, sustainability reports, and investor materials.

Hold off but stay ready. Scope 3 reporting was scheduled to begin in 2027. Before committing significant resources to Scope 3 or SB 261 compliance, companies should monitor for any further appeals.

Katten will continue to monitor these developments. If you have questions about SB 253, SB 261, or how this decision affects your company’s disclosure obligations, please contact your Katten attorneys.