California’s climate disclosure laws have recently survived their first legal challenge, which was brought by several business groups, including the U.S. Chamber of Commerce. These groups argued that the laws violate the First Amendment by compelling companies to report their carbon emissions and disclose their climate-related financial risks. A federal judge, however, ruled that the state’s climate disclosure requirements could proceed, though the challenge to the laws remains ongoing.
The lawsuit, filed in January, contested two key climate bills: Senate Bill (SB) 253 and Senate Bill 261. SB 253 mandates that businesses with annual revenues exceeding $1 billion must report their greenhouse gas emissions each year, while SB 261 requires businesses with revenues over $500 million to disclose their climate-related financial risks and how they plan to mitigate them. These laws aim to increase transparency and accountability for businesses operating in California in relation to their environmental impact.
U.S. District Judge Otis Wright II, in his ruling on November 5, 2024, denied the plaintiffs’ request for a summary judgment, which would have blocked the laws. While acknowledging that the First Amendment is relevant in this case, Wright explained that the court needs more detailed information to fully assess whether the laws compel speech in a way that would make them unconstitutional. He emphasized that the laws’ primary effect is to require businesses to disclose specific environmental data, which could be seen as a form of compelled speech. However, Wright stated that a thorough factual investigation is necessary before applying any constitutional scrutiny.
Despite this, the judge’s decision allows the California Air Resources Board (CARB), the agency responsible for enforcing the state’s climate laws, to continue implementing the reporting requirements. However, he did not rule out the possibility of revisiting the case, granting the plaintiffs the option to file another motion for summary judgment after further development of the facts. The legal challenge will likely continue, as business groups, including the California Chamber of Commerce, American Farm Bureau Federation, and others, argue that California is overstepping its authority and infringing on the rights of businesses.
The plaintiffs contend that the state’s climate laws violate not only the First Amendment but also the Supremacy Clause of the U.S. Constitution, which ensures that federal law takes precedence over state laws, and constitutional limits on extraterritorial regulation. The business groups argue that California is attempting to act as a national regulator of emissions, a role that they believe should fall under federal jurisdiction.
Governor Gavin Newsom signed Senate Bill 219 into law shortly before the judge’s ruling, making amendments to SB 253 and SB 261. While SB 219 introduced some changes to the original bills, such as adjustments to reporting requirements, it retained the reporting deadlines, which are set for 2026 for some businesses. Under the new laws, large companies in California will be required to disclose more detailed information about their carbon emissions and climate risks, a move aimed at enhancing corporate transparency and pushing businesses toward more sustainable practices.
The legal challenges to California’s climate laws represent an ongoing debate over the role of states in regulating corporate practices, particularly concerning environmental issues. The outcome of the case could have broader implications not only for climate policy in California but also for how states across the U.S. regulate corporate responsibility in relation to climate change. While the judge’s ruling allows the laws to move forward for now, the case is far from settled, and future developments may further shape the landscape of climate-related corporate disclosures.
