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Friday’s Ninth Circuit oral arguments offered a clearer view into how the court is evaluating California’s climate disclosure laws, particularly how SB 253 and SB 261 function as disclosure requirements under the First Amendment doctrine. Rather than questioning the relevance of climate risk or emissions information, the panel focused on issues of scope, tailoring, and how these disclosures relate to existing commercial disclosure frameworks.
- The court focused on how California’s climate disclosure laws operate, not whether climate risk and emissions data are relevant to investors.
- Judges drew clear distinctions between SB 253 and SB 261, signaling that different provisions may be evaluated differently.
- No judge suggested climate disclosure itself is illegitimate. Questions centered on tailoring, scope, and implementation mechanics.
- The State emphasized that both laws are disclosure regimes, not emissions regulation, and do not penalize companies based on performance.
- The hearing reinforced that climate disclosure remains a point-in-time transparency exercise, not a mandate to adopt specific governance structures or climate strategies.
The hearing shed light on the specific legal vulnerabilities courts are scrutinizing and what that means for organizations planning their compliance strategies in 2026 and beyond. Greenplaces walks you through those vulnerabilities and provides context so you can best prepare for disclosure.
Legal questions before the court
A three-judge panel — Judges Nguyen, Bennett, and Matsumoto — heard arguments brought by the U.S. Chamber of Commerce, represented by Eugene Scalia, challenging California’s climate disclosure requirements. At the center of the dispute is whether SB 253 and SB 261 amount to unconstitutional compelled speech or fall within the bounds of permissible commercial regulation.
The challengers argued that California is requiring companies to make expansive, costly disclosures that are untethered to any specific product or transaction. The state countered that investment decisions themselves are the relevant commercial activity and that standardized climate and emissions data corrects a market failure by providing investors with decision-useful information.
Scope 3 requirements under SB 253
Much of the court’s questioning on SB 253 focused on Scope 3 emissions: emissions that occur in a company’s value chain rather than from its own operations. That attention suggests Scope 3 faces the greatest constitutional risk.
Scalia argued that Scope 3 reporting creates a risk of “false attribution” by requiring companies to disclose emissions they do not directly control. Judge Matsumoto explored whether this obligation remains within the realm of factual, informational disclosure. In response, the state emphasized several limiting features of SB 253: it does not require absolute precision, does not mandate third-party verification, and does not impose penalties based on the level of reported emissions.
These guardrails, the state argued, underscore that the law is designed to inform markets — not to compel ideological expression or assign blame — while allowing companies to rely on reasonable estimates as reporting methodologies continue to mature.
Notably, Judge Nguyen raised the issue of severability, asking whether the court could invalidate Scope 3 while leaving Scope 1 and Scope 2 requirements intact. That question highlights the court’s interest in preserving the broader disclosure framework even as it evaluates specific elements of the statute.
SB 261’s breadth challenge
Judges questioned how companies could provide these disclosures without exercising judgment. In response, the State emphasized that SB 261 mirrors established risk-disclosure practices already familiar to many companies, similar to how firms already commonly assess geopolitical, supply-chain, or regulatory risks in financial disclosures.
Critically, SB 261 does not require companies to adopt a specific climate strategy or to conclude that climate change poses a material risk. A company may disclose that it has assessed climate risk and determined that the risk is not material to its business.
The “tethering” problem
Judge Bennett repeatedly asked a fundamental question: what is the specific commercial transaction these disclosures are tied to?
The State argued that investment, lending, and insurance decisions are themselves commercial transactions, and that standardized climate disclosures address information gaps that currently distort market pricing. Judges probed how this theory aligns with recent compelled-speech precedent, signaling that doctrinal clarity rather than the usefulness of the information is likely to drive the court’s analysis.
The state cited investor reliance on this data, with support from institutional investors like CalPERS. However, as Scalia argued in rebuttal, investor interest alone cannot justify compelled speech without limits.
What companies should monitor in the months ahead
Timing: A decision is expected within three to six months, potentially by early to mid-2026, as compliance and fee deadlines approach in August.
Possible procedural paths: discussed by the court include a split decision that treats different provisions separately, such as:
- Scope 3 requirements potentially being enjoined or sent back for severability analysis
- SB 261 facing remand due to concerns about breadth and tailoring
- Scope 1 and Scope 2 disclosures potentially surviving, though still subject to contextual scrutiny under Supreme Court precedent
The SEC factor: There were repeated references to the fact that the SEC considered, but ultimately declined to adopt, requirements as expansive as California’s and to the SEC’s existing required disclosures. Governor Gavin Newsom described SB 253 as “too much” and “costly” when signing it. These points may undermine California’s argument that its rules are narrowly tailored and necessary.
Strategic implications for sustainability teams
While the court deliberates, companies face a complex planning environment:
- Continue core preparation. Even if Scope 3 is struck down, Scope 1 and Scope 2 disclosures may remain. Emissions accounting foundations are still valuable investments.
- Prioritize resources carefully. Given Scope 3’s vulnerability, many organizations may focus on strengthening Scope 1 and 2 systems before committing significant resources to third-party supply chain data.
- Monitor federal developments. The court’s attention to SEC actions suggests federal disclosure rules could eventually preempt state mandates.
- Design for flexibility. A fragmented ruling would create uneven compliance obligations. Disclosure systems should be adaptable to shifting regulatory requirements.
The bigger picture
The Ninth Circuit hearing underscored that the debate over SB 253 and SB 261 is not about whether climate risk and emissions information matter, but about how disclosure regimes should be structured under existing constitutional frameworks. For companies, the takeaway is steady rather than reactive: focus on credible, good-faith disclosure practices, treat reporting as a snapshot in time, and stay prepared to adjust as legal clarity continues to develop.
Greenplaces will continue tracking this case closely and provide updates as the decision is issued. In the meantime, companies should balance near-term readiness with contingency planning for multiple regulatory outcomes.
