Two California climate disclosure laws have withstood an attempt to block them in a lawsuit challenging their constitutionality. Our Environment, Land Use & Natural Resources Group breaks down what the federal court’s decision means for companies impacted by the laws’ requirements.
- The court rejected the plaintiffs’ First Amendment facial challenge to the regulations
- As litigation continues, similar First Amendment lawsuits are less likely to succeed
- Affected businesses should continue to prepare for the new disclosure requirements coming in 2026
On August 13, 2025, the Central District of California denied the Chamber of Commerce and business groups’ motion to enjoin California’s climate disclosure laws SB 253 and SB 261 on First Amendment grounds.
In the order, the court concluded that both laws regulate commercial speech and under the applicable lower levels of scrutiny, the plaintiffs failed to show a likelihood of success on the merits in their facial challenges based on California’s substantial government interests in providing investors with reliable information and in reducing emissions.
While we expect litigation to continue, this ruling indicates that a challenge under the First Amendment, while subject to lower levels of scrutiny, is less likely to succeed.
SB 253 and SB 261
SB 253, the Climate Corporate Data Accountability Act, requires annual disclosure of Scope 1, 2, and 3 greenhouse gas emissions by U.S.-organized companies doing business in California with total annual revenues of more than $1 billion based on the prior fiscal year. Scope 1 and 2 disclosures will be required beginning in 2026, but an exact date is not yet set. SB 261, the Climate-Related Financial Risks Disclosure Act, requires biennial disclosure of climate-related financial risks by U.S.-organized companies doing business in California with total annual revenues exceeding $500 million based on the prior fiscal year. Noncompliance can result in fines of up to $500,000 a year under SB 253 and up to $50,000 a year under SB 261.
Procedural History
The only claim before the court was the plaintiffs’ First Amendment compelled speech facial challenge. In their first amended complaint, the plaintiffs pleaded four causes of action – violations of the First Amendment, the Supremacy Clause, and the Constitution’s limits on extraterritorial regulation, and attorneys’ fees and costs. Earlier this year, the court dismissed the preemption and extraterritoriality claims against both climate disclosure laws. The plaintiffs moved for preliminary injunction of both laws on First Amendment grounds.
Ripeness and Threshold Issues
As a threshold matter, the court found that the plaintiffs’ challenge to SB 253 was ripe. Even though the California Air Resources Board (CARB) has not issued implementing regulations, the court determined that “SB 253 is clear that covered companies will be required to report Scope 1, 2, and 3 emissions.” The court also found that the plaintiffs demonstrated hardship to their members through the costs of developing systems to collect and analyze climate-related information. Furthermore, the court rejected California’s argument that the First Amendment does not apply to SB 253 or SB 261, finding instead that the climate disclosure laws are broader than traditional securities disclosures and as a result invite First Amendment scrutiny.
First Amendment Facial Challenge
The court held that SB 253 and SB 261 regulate commercial speech and, therefore, lower levels of scrutiny, not strict scrutiny, applied. The lowest level of scrutiny applied to SB 253 because the court found it regulates commercial speech of “purely factual and uncontroversial information.” Scope 1, 2, and 3 emissions are “factual in nature” and “not misleading,” the court reasoned, and SB 253 does not require companies to take responsibility for those emissions or “agree or even comment on” the climate change policy debate. “That some may look favorably or unfavorably on a company based on its emissions report does not transform an otherwise non-controversial disclosure into a controversial one,” the court added. On the other hand, intermediate scrutiny applied to SB 261 because assessments about the effects of current and future events on a company are “more than factual information.”
Under these lower levels of scrutiny, the court found that the plaintiffs failed to show a likelihood of success on the merits in their facial challenges to both SB 253 and SB 261. Because the plaintiffs brought a facial challenge, the court followed the U.S. Supreme Court’s recent decision in Moody v. NetChoice and analyzed all applications of the climate disclosure laws – including applications to companies with and without green-advertising campaigns and companies with and without investors – to determine whether a “substantial majority” of those applications likely fail under the First Amendment.
The court found that a substantial majority of applications of SB 253 would survive First Amendment scrutiny as reasonably related to substantial government interests. The court discussed three substantial government interests – providing investors with reliable information to make informed judgments, achieving reductions in emissions, and correcting misleading information.
First, SB 253 was not reasonably related to the substantial government interest in providing investors with reliable information “to the extent the law compels disclosure from companies that have no California investors.” However, because “a large percentage of SB 253’s covered companies are public” and likely have California investors, the plaintiffs were unlikely to succeed in their facial challenge regarding the investor interest.
Second, the court found that California provided sufficient evidence to support a finding that SB 253’s mandatory disclosures may lead to emissions reductions and thus were reasonably related to that substantial government interest.
Third, SB 253 was not reasonably related to California’s interest in correcting misleading information because California’s evidence failed to show the prevalence of covered companies engaging in misleading speech and SB 253 was overbroad in applying to companies that do not have emissions reductions pledges.
Similarly for SB 261, the court found that the plaintiffs did not show a likelihood that the substantial government interest in providing investors with reliable information to make investment decisions would fail intermediate scrutiny in a substantial majority of applications. However, the court acknowledged that the plaintiffs did show a likelihood that SB 261’s required disclosures do not directly advance California’s interests in reducing emissions or in protecting against fraud or misrepresentation.
Irreparable Harm and Balance of the Equities
Because the plaintiffs did not demonstrate First Amendment violations, the court determined they failed to show irreparable harm. The court also concluded that the balance of the equities favored denial of the preliminary injunction because “enjoining SBs 253 and 261 would delay the State from advancing the public interests for which it adopted the laws.”
Potential Future As-Applied Challenges
The court warned that the plaintiffs’ decision to bring a facial, rather than an as-applied, challenge to SB 253 “comes at a cost.” If the plaintiffs were companies with no California investors and brought an as-applied challenge, then the fact that SB 253 does not apply only to companies with investors “may have proved fatal.”
As a result, we may expect companies affected by the climate disclosure laws to bring as-applied challenges to the laws, particularly after the initial disclosure deadlines.
Conclusion
We encourage companies that are covered under the California climate disclosure laws to continue to prepare for disclosure. We expect CARB to issue guidance on the disclosure requirements in its upcoming August 21 workshop, and we will issue an update on any material information provided.
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