California’s SB 253, Scope 3 emissions reporting requirements and the First Amendment have become the focus of a major legal dispute after a federal appeals court found parts of the state’s corporate climate disclosure framework likely unconstitutional. The US Court of Appeals for the Ninth Circuit issued its decision on November 9, partially reversing a lower court’s refusal to grant business groups preliminary protection against the legislation.

The case, United States Chamber of Commerce v. Sanchez, challenges two laws signed by Governor Gavin Newsom in 2023. SB 253 requires large companies operating in California to disclose greenhouse gas emissions, while SB 261 establishes reporting obligations covering climate-related financial risks.

The appellate court distinguished between emissions generated directly by businesses and those occurring throughout their supply chains. It maintained that California could continue requiring Scope 1 and Scope 2 disclosures but found insufficient constitutional grounds for the broader reporting provisions.

The judges determined that Scope 3 disclosures involve emissions generated by third parties, including suppliers and customers, making the requirements different from reporting pollution directly associated with a company’s operations. The court concluded that these disclosures fail the strict constitutional scrutiny applied to noncommercial speech.

The decision also reversed the lower court’s position on SB 261, finding that mandatory climate-risk assessments require companies to communicate subjective judgments about future economic conditions and politically contested issues.

However, the ruling does not eliminate California’s entire disclosure framework. The district court must still determine whether the Scope 3 provisions can be separated from the remainder of SB 253.

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