Key Takeaways
- What is Happening? On August 13, 2025, the U.S. District Court for the Central District of California (the District Court) denied the motion for a preliminary injunction filed by the United States Chamber of Commerce (USCC) and other business groups in their ongoing legal challenge to California’s Climate Disclosure Laws—the Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261). USCC and the aforementioned business groups (plaintiffs) are seeking to enjoin both laws ahead of upcoming reporting deadlines in 2026. The District Court found that the plaintiffs failed to show a likelihood that they will succeed on their First Amendment challenge to both laws.
- What is the Background? In 2023, California adopted SB 253 and SB 261, which created significant disclosure requirements regarding greenhouse gas (GHG) emissions and climate-related financial risks for large companies doing business in California. USCC filed a complaint in 2024 alleging that the two laws violate the First Amendment, the Supremacy Clause, and constitutional limitations on extraterritorial regulation. The District Court previously dismissed USCC’s Supremacy Clause and Extraterritoriality claims.
- Who is Impacted? Larger companies subject to SB 253 and/or SB 261.
- What Happens Next? The California Air Resources Board (CARB) is in the pre-rulemaking process for SB 253 and SB 261. Companies should assume that implementation of the laws will continue and prepare for initial disclosures beginning January 2026 for SB 261. The legal challenge to the laws will continue to proceed in parallel, with a trial scheduled to begin in October 2026. Other States considering enacting similar disclosure laws may be more confident moving forward in the wake of the District Court’s decision. The decision may also factor into the Federal government’s assessment of whether and how to challenge state climate disclosure laws.
For further details on the disclosure requirements under SB 253 and SB 261, read B&D’s prior news alert.
The Court’s Decision
The plaintiffs filed their case against SB 253 and SB 261 in the District Court on January 30, 2024. Their complaint alleged that the two laws violate the First Amendment, the Supremacy Clause, and constitutional limitations on extraterritorial regulation. The District Court previously dismissed the plaintiffs’ Supremacy Clause and Extraterritoriality claims. The plaintiffs filed their motion for preliminary injunction on February 25, 2025.
In reviewing the plaintiffs’ motion, the District Court assessed the likelihood of their succeeding on the merits. In making this evaluation, the District Court first affirmed that both laws are subject to First Amendment review as they compel disclosure of commercial speech. The District Court then turned to the level of scrutiny applicable to each law.
SB 253
- The District Court determined that a lower level of scrutiny (Zauderer) applies to SB 253 rather than intermediate scrutiny (generally applicable to commercial speech) because the annual Scope 1, 2, and 3 GHG emissions information required to be reported under SB 253 in conformance with the GHG Protocol is “only factual—and not misleading—information,” and uncontroversial. Contrasting SB 253 to other politically contentious disclosure laws addressing abortion services and conflict minerals, the District Court pointed out that SB 253 doesn’t require reporting companies to “take sides” in the debates around climate change or label themselves or their products as “environmentally sustainable.”
- The District Court found sufficient evidence that SB 253’s disclosure requirements are reasonably related to two of the State’s identified substantial interests: (1) providing investors with reliable information on which to make informed judgments about the impact of climate-related risks on their economic choices; and (2) reducing emissions. (The District Court rejected the State’s argument that SB 253 is rationally related to the State’s interest in protecting consumers, finding that the State’s evidence did not show that the law provides consumers with information regarding the environmental impact of their purchases.) The plaintiffs thus failed to meet their burden to show a likelihood of prevailing on their First Amendment challenge to SB 253.
SB 261
- In contrast to SB 253, the District Court applied intermediate scrutiny when evaluating SB 261, finding that the climate-related financial risk disclosures compelled by SB 261 are not factual, as “an assessment about the effect of current and future events on a company cannot be factual.”
- Under immediate scrutiny, the government can only compel speech if it directly advances a substantial government interest, and the restriction is not more extensive than necessary to serve that interest. The District Court found sufficient evidence that the State’s interest in providing reliable information to investors meets this standard.
- Notably for companies navigating the ambiguities of the Task Force on Climate-Related Financial Disclosures (TCFD) Recommendations (the primary framework enabling compliance with the law’s reporting obligations), the District Court also rejected the plaintiffs’ argument that “the definition of ‘climate-related financial risk’ is so broad and vague that California could almost certainly find fault in the disclosure (or lack of disclosure) of any company the State disfavors.” The District Court disagreed, stating that “[i]n defining ‘climate-related financial risk,’ SB 261 references a reporting framework [the TCFD Recommendations] that provides sufficiently clear guidance to covered entities how to comply with the law.”
Ordinarily, a court’s rejection of a preliminary injunction on the grounds that the challenge is not likely to succeed does not bode well for the ultimate success of the challenge. However, the District Court’s decision creates at least some daylight for the plaintiffs to ultimately succeed. The District Court noted that, had plaintiffs challenged SB 253 only as it applies to companies without California investors, it might have prevailed.
“SB 253 is not tailored to the State’s interest in providing investors with climate-related risk information to the extent the law compels disclosure from companies that have no California investors...If Plaintiffs were companies with no California investors and brought an as-applied challenge, then the fact that the law does not apply only to companies with investors may have proved fatal to SB 253.”
Nevertheless, the District Court’s decision indicates that SB 253 and SB 261 will likely proceed to implementation in 2026. Companies should continue preparing their disclosures beginning next year and monitoring CARB for additional guidance. CARB will host a second virtual public workshop as part of its pre-rulemaking process on August 21, 2025.
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