Sacramento, California — In a significant development for climate policy, two pivotal laws, SB 253 and SB 261, were enacted in October 2023 as part of California’s Climate Accountability Package. These laws impose requirements on companies operating in the state with annual revenues of at least $500,000 under SB 253 and $1 million under SB 261, mandating them to publicly disclose climate-related information. Specifically, SB 253 necessitates the reporting of greenhouse gas emissions across all scopes, while SB 261 requires a biennial assessment of climate-related fiscal impacts to be submitted to the California Air Resources Board (CARB). Implementation of these disclosures is scheduled to start in 2026.
In January 2024, a lawsuit was filed by the U.S. Chamber of Commerce and other business groups against CARB, challenging the legality of these laws. The plaintiffs argue that the requirements infringe on First Amendment rights by mandating companies to disclose potentially controversial climate information. They also contend that the laws conflict with the federal Clean Air Act, asserting that California is overstepping its authority by attempting to regulate greenhouse gases beyond state borders. Furthermore, they claim the laws impose undue burdens on interstate commerce, violating the dormant commerce clause.
On February 25, 2025, the Chamber of Commerce sought a preliminary injunction to prevent CARB from enforcing SB 253 and SB 261 during the ongoing litigation. They argued that without such an injunction, businesses would be forced to address the contentious issue of climate change in their disclosures, which could significantly affect their operations and public perception.
The court, however, denied the request for an injunction, allowing CARB to proceed with its enforcement plans. In making this decision, the court evaluated the likelihood of the plaintiffs succeeding in their First Amendment claims regarding the compelled disclosures. The ruling suggests the court is not inclined to strike down the laws based on those grounds.
During its examination, the court analyzed whether the First Amendment applies to the requirements set forth in SB 253 and SB 261, determining the appropriate level of scrutiny for evaluation. It distinguished the disclosure obligations of these laws from those typically associated with public companies filing securities reports, noting that the California laws are broader in scope.
For SB 253, which mandates disclosure of greenhouse gas emissions, the court found that the data required is factual and uncontroversial. The covered companies are not compelled to express opinions on climate change or suggest responsibility for emissions, thus not infringing on constitutional protections associated with free speech. In contrast, the court applied intermediate scrutiny to SB 261, as its disclosure requirements necessitate subjective assessments of future climate risks, distinguishing them from purely factual reporting.
The court subsequently analyzed whether the interests presented by CARB in support of SB 253 were sufficient to withstand constitutional scrutiny. CARB argued that the laws would enhance transparency for investors, encourage emission reductions, and mitigate risks associated with climate change. While the court concluded that the investor protection interest was compelling, it found that the other two interests did not meet constitutional standards.
For SB 261, the court again recognized the investor protection interest as legitimate under the more stringent review applicable to this law. However, it determined that CARB had not adequately demonstrated the necessity of the information to prevent misleading disclosures or facilitate emissions reductions.
Ultimately, the court indicated that the Chamber of Commerce had not demonstrated the likelihood of success on the merits of its First Amendment challenges regarding either law. Furthermore, it ruled that the plaintiffs would not suffer irreparable harm from the implementation of SB 253 and SB 261, suggesting that the public interest in enforcing these climate measures outweighs any potential harm to the businesses involved.
Looking ahead, businesses must prepare for the impending reporting deadlines established by SBs 253 and 261, with the court’s ruling clearing the path for enforcement. Although the Chamber of Commerce’s effort to overturn these laws may not succeed in the short term, the legal disputes surrounding their validity are likely to continue for an extended period.
MoFo’s environmental and climate teams remain vigilant, ready to assist companies in navigating the complexities of emissions and climate risk disclosures mandated by California law.
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