Key takeaways
- The Ninth Circuit affirmed SB 253’s scope 1 and 2 requirements, confirming the core obligations for the first mandatory corporate emissions law in the US.
- First scope 1 & 2 reports were due November 10, 2026.
- The court found that scope 3 and SB 261 requirements are likely unconstitutional. Enforcement of both is blocked while the case continues.
- This is not the final decision but gives us some signal. The case now goes back to the district court to understand if scope 3 can be severed from scope 1 & 2 requirements, and for final resolution of the case.
The laws in question: SB 253 and SB 261
SB 253, the Climate Corporate Data Accountability Act, requires companies with more than $1 billion in annual revenue doing business in California to report greenhouse gas emissions annually. Scope 1 and scope 2 emissions were due first, with a compliance deadline of November 10, 2026. CARB (the California Air Resources Board, the state agency responsible for implementation) estimates approximately 2,600 companies fall within scope.
SB 261, the Climate-Related Financial Risk Act, applies to companies with more than $500 million in annual revenue. It requires climate-related financial risk reporting using TCFD (the Task Force on Climate-related Financial Disclosures), IFRS S2 (the International Financial Reporting Standards sustainability disclosure standard), or an equivalent framework mandated by a regulated exchange or national government. Companies must explain which framework they're using and disclose any omissions on a comply-or-explain basis.
What the Ninth Circuit Court of Appeals ruled on SB 253 and SB 261
On November 9, 2026—one day before the first SB 253 reporting deadline—the Ninth Circuit Court of Appeals ruled in the Chamber of Commerce vs CARB (California Air Resources Board) case. The Chamber had asked the courts to grant an injunction for SB 253 and SB 261 while it challenged both under the First Amendment. The Ninth Circuit Court agreed with the district court on scope 1 and 2 emissions reporting, and rejected an injunction, but reversed the ruling on scope 3, blocking reporting requirements. On SB 261 it maintained the pause.
Scope 1 and 2: The panel held that scopes 1 and 2 emissions data constitute “commercial speech” as they relate to “factual information on emissions generated through the reporting entities’ own operations and bear on capital transactions.” The finding provided a fairly robust defense of this section, noting that this data was useful for investors and for reducing emissions.
Scope 3: The court determined that third-party, value-chain emissions are insufficiently related to the reporting entity’s own operations, and so do not qualify as "commercial speech.” As a result, the panel found that scope 3 reporting obligations are likely unconstitutional.
SB 261: The court found that climate risk reports ask companies to disclose data based on “subjective ideological assessments.” It also noted that even if California’s aims are to provide greater transparency to investors and to reduce emissions, this could be achieved via “less restrictive means.”
What this ruling is—and isn't
The ruling answers one question: whether the laws can be enforced while the case continues. It does not decide whether they are ultimately constitutional.
The case will now be sent back to the district court first to determine whether scope 3 requirements can be severed from scopes 1 and 2. There is strong reason to believe they can—the law explicitly provides separate reporting timelines for each part, and the SEC ruling set a precedent for requiring scopes 1 & 2 only.
The case now goes back to the district court, which had paused the main case due to the appeal. Both sides also have 14 days to request the Ninth Circuit to rehear the case, and they can include a request for a larger panel of judges. The Supreme Court could also potentially decide to take up the case.
What the ruling changes
SB 253 scope 1 and 2: the deadline stands, and first reports were due November 10, 2026. Companies doing business in California with more than $1 billion in annual revenue should file emissions reports, or their reason for not doing so.
SB 253 scope 3: the district court is now expected to block the requirement, following the Ninth Circuit's ruling. Once it does, the 2027 scope 3 deadline will be on hold. The district court will also decide whether scope 3 can be removed without affecting the rest of SB 253.
SB 261: little changes. Enforcement of SB 261 was already paused, and this ruling is expected to keep that pause in place. There are no SB 261 requirements to meet right now.
What companies should do next
If you're in scope for SB 253, you should have submitted your scope 1 and 2 report by November 10, 2026. If you have missed the deadline and are in scope, you may still decide to submit a report before year-end rather than actively non-comply.
Companies should also continue to build scope 3 programs. The work you've already done on value chain mapping and supplier data collection holds its value—for the eventual outcome of this case, and for the growing number of frameworks that require scope 3, including IFRS S2, Australia's AASB S2, the EU's CSRD, and the UK's forthcoming mandatory SRS requirements.
The bigger lesson: don't build a one-off report for a single rule. Build a disclosure program that works across jurisdictions.
Watershed has reporting frameworks for SB 253 ready to deploy, including verification support and assurance for scope 1 and 2. If you're navigating the scope 3 outlook or what global requirements mean for your disclosure obligations, our team can help. View the interactive tour of Watershed for California compliance or schedule time with our team.
How to prepare: an audit-ready checklist for SB 253
SB 253's November 10, 2026, compliance deadline is in effect. It has already passed, but it's better to comply late than not at all. Third-party assurance is not required for the first filing (see assurance timeline above).
Here's what compliance requires:
Collect scope 1 data
Scope 1 covers direct emissions from sources your company owns or controls: fuel purchased and consumed by facilities and fleet vehicles, direct combustion emissions from operations, and any process emissions from manufacturing. This is typically the most straightforward part of measurement because the data lives in procurement and facilities records.
Collect scope 2 data
Scope 2 covers indirect emissions from purchased electricity, steam, heating, and cooling. This requires utility data, which often takes time to request and validate—especially if your company operates across multiple locations with different utility providers. Scope 2 data collection is usually the bottleneck, so start here.
Document methodology
Which GHG Protocol guidance are you using (Corporate Standard, Corporate Value Chain)? What assumptions are you making about grid emission factors and conversion rates? What baseline year are you measuring against? This documentation matters for both regulatory compliance and audit purposes. Auditors need to trace your methodology, not just your numbers.
Build validation infrastructure
Audit-ready means an auditor can walk through your work and confirm every number. That requires independent verification capability, traceability from each reported figure back to source documentation, and a data system structured for review. If your emissions data lives in disconnected spreadsheets, you'll need to consolidate before audit season.
Connect to other reporting frameworks
Structure your measurement system so data flows into TCFD, IFRS S2, and CDP frameworks without remeasurement. If you measure once for SB 253 and then have to re-measure for CSRD or CDP, you've doubled the work. Build the infrastructure once and use it across frameworks.
Fiscal year alignment
Companies report fiscal year data under SB 253. For the first reporting cycle in 2026: if your fiscal year ends before February 1, report FY25–26 data by November 10, 2026. If your fiscal year ends after February 1, report FY24–25 data by November 10, 2026. This was designed to give every entity at least six months to prepare reports.
Federal and international context
California's laws don't exist in a vacuum. Several parallel developments are shaping the broader disclosure landscape:
- The EU's CSRD is already in effect and requires detailed sustainability reporting from companies meeting certain size and revenue thresholds. US companies with EU operations or EU-listed subsidiaries may already be subject to CSRD requirements, making scope 1 and 2 measurement a near-term obligation regardless of US regulatory outcomes.
- State-level momentum isn't limited to California. Other states (New York, Illinois) have introduced or are considering similar climate disclosure legislation. The 9th Circuit's ruling will influence how those efforts proceed—a ruling upholding California's laws would provide legal precedent for state-level climate disclosure nationwide.
- 39 countries have adopted or are in the process of adopting ISSB-aligned climate disclosure rules.
The regulatory direction is clear even if the specific timeline isn't. Companies building emissions measurement infrastructure now are preparing for the regulatory environment of the next three to five years, not just for a single law.
What to do next
If you're evaluating your company's readiness, start by assessing what scope 1 and scope 2 emissions data you already have—utility bills, vehicle logs, fuel records—and where that data lives. Identify who owns the data across facilities, operations, procurement, and finance. Determine whether you have independent verification capability or need to build it. And map your measurement approach against TCFD and IFRS S2 requirements so you're not rebuilding the system later for a different framework.
The 9th Circuit ruling in Chamber of Commerce v. Sanchez provided regulatory clarity on SB 253 and SB 261. But the measurement work required to comply—and to meet investor, customer, and international reporting expectations—is the same regardless of the outcome.
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