Ninth Circuit Blocks California’s SB 261 Climate Risk Reporting and SB 253 Scope 3 Mandate

On November 9, 2026, a three-judge panel for the federal appeals court covering California (the U.S. Court of Appeals for the Ninth Circuit) issued an 84-page opinion that temporarily blocks two key parts of California's new climate disclosure laws – SB 253 and SB 261. For now, here is where things stand:

• SB 253 – Reporting of Scope 1 and Scope 2 emissions. Scope 1 and 2 cover emissions from sources that a company owns or controls, and from the electricity, steam, heating, and cooling a company utilizes. These reporting obligations were not blocked and remain in effect.
• SB 253 – Reporting of Scope 3 emissions. Scope 3 covers indirect emissions across a company's "value chain" (suppliers, customers, business travel, commuting, use of sold products). These reporting obligations have been temporarily blocked and reporting of Scope 3 emissions is not required at this time.
• SB 261 –Reporting of climate-related financial risk. SB 261 requires a report every two years describing how climate change could affect a company's finances and operations. This entire law has been temporarily blocked, and these reports are not required at this time.

Note that the Court of Appeals decision is not the final word on the legality of these laws. The court issued a "preliminary injunction," a court order that pauses parts of SB 253 and 261 while the pending legal challenges continue before the lower federal district court. It is possible that the blocked reporting obligations for Scope 3 emissions and SB 261 climate related financial risk could be reinstated, so companies should avoid dismantling their data systems and work already underway.

In U.S. Chamber of Commerce v. Sanchez, Plaintiffs challenged the constitutionality ofSB 253 (Climate Corporate Data Accountability Act), Cal. Health & Safety Code § 38532, and SB 261 (Climate-Related Financial Risk Act), Cal. Health & Safety Code § 38533.

SB 253: Greenhouse Gas Emissions. SB 253 requires that entities doing business in California with more than $1 billion in annual revenue file an annual public disclosure to the California Air and Resources Board (CARB) of their Scope 1, Scope 2, and Scope 3 greenhouse gas emissions. Scope 1 covers emissions from sources a company owns or controls, such as its own facilities and vehicles. Scope 2 emissions are tied to electricity, steam, heating, and cooling which a company purchases. Plaintiffs argued that reporting Scope 1 and Scope 2 emissions compelled ideological speech on climate change. The panel disagreed, finding that these disclosures are factual, standardized data about the company’s own operations, measured by standard methods most companies already use and investors rely on to judge value and risk.

Scope 3 emissions cover indirect emissions throughout a company’s “value chain.” This includes suppliers, customers, business travel, employee commuting, and the use of products a company sells. The Court held that Scope 3 emission reporting was not commercial speech because it concerns the conduct of third parties rather than the reporting company’s own operations. In the panel’s view, the connection Scope 3 emissions reports have to investor decisions is too remote to survive a First Amendment challenge. Accordingly, the panel reversed the District Court’s denial of a preliminary injunction and remanded the issue back to the lower court to determine whether Scope 3 is severable from Scope 1 and Scope 2 reporting requirements under the law.

SB 261: Climate financial risks. SB 261 requires companies doing business in California with more than $500 million in annual revenue to publish on their website and with CARB a climate-related financial risk report every two years. Eligible companies must assess and publicly describe how climate change could affect their finances and operations, including risks from new regulations, lawsuits, shifting markets, reputational harm, and physical events like extreme weather. Companies must also describe their governance, strategy, and targets for managing that risk. The panel held that SB 261 likely violates the First Amendment because it compels noncommercial speech and requires companies to make predictive and normative judgments about how climate change will affect their business and how they should report. It characterized this report as answering a “speculative and contested policy question” on a political subject and found that less restrictive alternatives are available for California to achieve its objectives, such as offering incentives and regulating emissions directly. Accordingly, the panel reversed the District Court’s denial of a preliminary injunction.

This decision does not entirely resolve the question of either law’s validity under the First Amendment. The case will now return to the U.S. District Court for the Central District of California, which will address Scope 3 severability and ultimately the merits of the case. Either party may also seek en banc review by the full Ninth Circuit or review by the U.S. Supreme Court.

We recommend the following:

• Keep Scope 1 and Scope 2 reporting on track. Companies currently required to prepare a SB 253 report should continue preparing and reporting Scope 1 and Scope 2 emissions according to the law.
• Pause, but do not abandon, Scope 3 reporting. Scope 3 reporting is not required at this time. We recommend preserving supplier data requests, calculation methods, and internal workflows so your company can resume quickly if the requirement is reinstated.
• Pause, but do not abandon, SB 261 climate risk reports. SB 261 reports are not required at this time. Keep drafts, risk assessments, and governance documentation organized and current so they can be finalized if the law takes effect again.
• Coordinate with legal, finance, and sustainability colleagues. Before changing any public statements, vendor contracts, or internal timelines, confirm the approach with your legal department, particularly where your company has made voluntary commitments or reports under other frameworks
• Watch for updates. The litigation is ongoing, and the status of these requirements could change. Michael Best will notify clients of any changes.
• Michael Best will continue to monitor developments in Scope 3 issues and SB 261 and notify clients of any changes in the status of reporting requirements. If you have any questions about how this decision affects your company’s climate disclosure obligations, please contact the Michael Best Environmental Team.