SBs 253 and 261, two key parts of California’s broader Climate Accountability Package, were signed into law in October of 2023. SBs 253 and 261 mandate that companies doing business in California at $500K and $1M financial thresholds, respectively, provide public climate‑related disclosures. Under SB 253, covered companies must disclose greenhouse gas emissions (Scopes 1, 2, and 3) and, under SB 261, must disclose biennially climate-related fiscal impacts to CARB. These disclosure requirements are currently set to go into effect beginning in 2026. See our prior client alert for detailed discussion on the two laws.
In a January 30, 2024 complaint against the California Air Resources Board (“CARB”), the U.S. Chamber of Commerce (the “Chamber of Commerce”) and a collection of other business groups challenged SBs 253 and 261, arguing the laws: (1) compel speech in violation of the First Amendment by forcing covered entities to disclose climate-related information; (2) are preempted by the federal Clean Air Act because they attempt to regulate greenhouse gases (“GHG”s) outside of California’s borders and therefore violate the Supremacy Clause of the U.S. Constitution; and (3) unduly burden interstate commerce in violation of the dormant commerce clause. See our prior client alert for more discussion of this lawsuit.
The Chamber of Commerce moved for a preliminary injunction on February 25, 2025, seeking to enjoin CARB from implementing and enforcing SBs 253 and 261 while the litigation is pending. The Chamber of Commerce specifically relied on its compelled speech theory, arguing that, because litigation is certain to continue beyond the two laws’ 2026 effective dates, companies would be compelled to speak on the “controversial issue” of climate change absent an injunction preventing enforcement.
Summary of the Court’s Decision on Plaintiffs’ Preliminary Injunction Motion
The court denied that motion, allowing CARB to move forward with enforcement efforts. At the preliminary injunction stage, the court examines, among other things, the likelihood of plaintiffs’ success on the merits of their claim. This denial therefore signals that the Court is unlikely to strike SBs 253 and 261 down on First Amendment grounds.
In so deciding, the court engaged in a multi-step analysis, considering whether the First Amendment applies to SBs 253 and 261, what level of constitutional scrutiny to apply, and whether the laws survive the appropriate level of scrutiny.
As to whether the First Amendment applies, the court rejected CARB’s argument that the information SBs 253 and 261 require escapes First Amendment review because they are analogous to requirements that public companies file securities filings—laws that traditionally fall outside First Amendment Review. The court here noted that the laws do not uniformly require disclosure of the purely factual data securities filing regulations require. The court further noted that the laws, as drafted, apply broadly to any company that “does business in California” and meets the relevant financial thresholds, in contrast to securities regulations that only apply to public companies.
On the appropriate level of constitutional scrutiny, the court found that SB 253 is subject to the lowest level of scrutiny under the First Amendment, but SB 261 is subject to intermediate scrutiny. First, the court held that, contrary to the Chamber of Commerce’s arguments, SBs 253 and 261 only compel commercial speech, meaning they are subject to less searching review than other kinds of compelled speech. The court then analyzed whether the laws compel speech of purely factual and uncontroversial information. If the answer was yes, the laws would be subject to the lowest level of scrutiny. Here, the court’s opinion on the two laws diverged.
As to SB 253, the court held that disclosure of Scopes 1, 2, and 3 emissions is purely factual and uncontroversial. This sort of emissions data, the court held, is undisputedly factual, with defined meanings and recognized methods of calculation, and the fact that companies are not also compelled to disclose so-called “Scope 4” avoided emissions did not render those disclosures misleading. The court further held that the fact that emissions data relates to a controversial issue—climate change—does not make the data itself controversial speech because it does not require companies to “take a side” on this issue by saying their emissions are good or bad or even to comment on whether they are actually responsible for those emissions. As to SB 261, on the other hand, the court held that intermediate scrutiny applied because the compelled disclosures are not factual, as they necessarily involved an assessment of the effects of current and future events on the company, which cannot be factual. Having found that the compelled disclosures are not factual, the court did not consider whether they are uncontroversial.
Having decided the appropriate level of scrutiny, the court then analyzed whether SBs 253 and 261 passed constitutional muster. CARB presented three government interests in support of SB 253: (1) ensuring that investors and consumers get reliable information about the impact of climate-related risks of their economic choices; (2) causing companies to reduce their emissions and thereby mitigate the risks California and its residents face from climate change; and (3) protecting California investors, consumers, and other stakeholders from fraud or misrepresentation related to greenwashing. The court ultimately held that the protection of investors survived constitutional review, as a large portion of companies covered by SB 253 are public and/or have California investors, meaning the law was appropriately tailored. The court further held that the emission reduction interest also passed review as CARB presented studies suggesting that these disclosures could reduce emissions. On the other hand, the court held that the misleading speech interest failed constitutional review because CARB did not show that misleading speech related to emissions is prevalent.
CARB presented the same government interests in support of SB 261. Here, the court held that only the state’s interest in reliable information for investors and consumers passed the more stringent intermediate scrutiny applicable to SB 261, as the state had made a sufficient showing the benefit of investors’ desires for the sort of information required by SB 261. The court held that the state had not carried its burden on misleading information for the same reasons discussed above, and on emission reduction held that the state had failed to carry its burden because the studies it had presented concerned emissions disclosures, not climate risk disclosures. Thus, the court held that the Chamber of Commerce had not shown a likelihood that it would succeed on the merits of either First Amendment challenge as to either SB 253 or 261.
Finally, the court held that the Chamber of Commerce had not shown it would be irreparably harmed by the laws’ compelled speech and that the balance of the equities favored denial because an injunction would delay enforcement of laws that California had implemented to advance public interests. Therefore, the court declined to enjoin enforcement of SB 253 and 261.
Takeaways
This decision has two major takeaways. First, companies should be prepared to comply with the 2026 reporting deadlines for the information required by SBs 253 and 261, as the court gave CARB the green light to begin enforcement. Second, the fight to get these laws struck down is not over. Though the court ultimately held that the Chamber of Commerce was unlikely to succeed on the merits of its First Amendment challenge, the court also pointed out serious flaws in CARB’s arguments in favor of the laws and confirmed that SB 261 is subject to a more searching level of constitutional review for First Amendment purposes. Moreover, the Chamber of Commerce’s two other arguments against SBs 253 and 261, that the laws are preempted by the federal Clean Air Act because they attempt to regulate GHGs outside of California’s borders and therefore violate the Supremacy Clause of the U.S. Constitution and violate the Dormant Commerce Clause by attempting to unduly burden interstate commerce, remain live and will continue to be litigated, likely for months or years to come.
MoFo’s environmental and climate teams continue to monitor developments and are prepared to assist companies with preparing their emissions and climate risk disclosures under California and other state law.
