A new California law that requires major U.S. companies to disclose their carbon emissions and report on climate-related financial risks survived its first legal challenge by the U.S. Chamber of Commerce. In a recent ruling, U.S. District Judge Otis Wright II refused to immediately block the law on constitutional grounds, as the Chamber had requested. The judge, however, left the door open for future challenges if more information emerges to support the Chamber’s argument.
Signed into law in October 2024 by California Governor Gavin Newsom under a combined bill, SB 219, the legislation, SB 253 and SB 261, requires direct Scope 1 and 2 emissions reporting for companies with annual revenues above $1 billion that do business in California. Indirect Scope 3 emissions include supply chain emissions, commuting by employees, and waste. SB 261 applies to companies with revenues over $500 million, and it also requires those companies to disclose climate-related risks as well as report measures undertaken to mitigate the same. Reports under this new law are expected to start reporting from 2026.
Just a short time after enactment, the U.S. Chamber of Commerce, joined by other business groups, filed a lawsuit against the state, arguing that this sets of rules infringed on businesses’ First Amendment rights by compelling them to participate in “subjective speech.” The Chamber also argued that it would be impossible for many companies to trace and report emissions from global supply chains. Disclosing climate-related risks and mitigation strategies will also be “subjective reporting.” The plaintiffs asked for summary judgment to immediately put a stop to the law before offering evidence in the discovery phase.
This would put the Chamber at risk, Judge Wright declared, because choosing to pursue a “facial challenge”—asserting that the law is inherently unconstitutional and should be immediately dismissed—”comes at a cost.” In this case, the court simply had no way of knowing whether the kinds of applications the Chamber worried about really would violate the First Amendment, given the fuller evidentiary record he said they would require to make such determinations: balancing “constitutional and unconstitutional applications.”.
Although the judge rejected the state’s argument that the law should not be subject to First Amendment scrutiny at all, he intimated that it can be subject to a lower level of scrutiny precisely because it regulates commercial speech. That could be true, he said, because the law appears designed to prevent misleading environmental claims by companies marketing themselves as environmentally conscious. The judge held that more information would be needed in order to determine whether a lesser standard was applicable in this situation.