The 9th Circuit and California's climate disclosure laws—what companies need to know

The 9th Circuit Court of Appeals heard oral arguments on January 9, 2026, in Chamber of Commerce et al. v. Sanchez, the consolidated appeal challenging California's two landmark climate disclosure laws, SB 253 and SB 261. A ruling is expected in Q2–Q3 2026.

SB 253 is currently enforceable law—the first compliance deadline is August 10, 2026—but the legal challenge targets both statutes, meaning the court could still strike down either or both. SB 261 enforcement is already paused by a formal injunction. For the approximately 2,600 companies covered by SB 253 and 4,100 covered by SB 261, the ruling will shape what comes next.

But regardless of how the court rules, the underlying measurement work is the same. Scope 1 and scope 2 emissions data is foundational to every major climate reporting framework in play today—not just SB 253, but also TCFD, IFRS S2, CSRD, and CDP. Companies that build this foundation now are prepared for whichever regulatory path materializes.

This post covers the legal arguments, expected timeline, practical implications of each ruling scenario, and the specific measurement steps companies should be taking now.

What's at stake: 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 are due first, with a compliance deadline of August 10, 2026. Scope 3 reporting is required starting in 2027. Third-party assurance is not required for the first filing in 2026—limited assurance for scope 1 and 2 begins in 2027, with reasonable assurance required from 2030. CARB (the California Air Resources Board, the state agency responsible for implementation) estimates approximately 2,600 companies fall within scope. SB 253 is currently enforceable.

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. SB 261 is more complex than SB 253 because it requires scenario analysis and materiality assessments. Enforcement has been paused since November 18, 2025, due to a formal injunction issued by the 9th Circuit. Once the litigation concludes, CARB has indicated it will set a new SB 261 compliance deadline. Approximately 4,100 companies are affected. No assurance is required for SB 261; reports are self-published.

"Doing business in California" is defined under California Revenue and Tax Code § 23101 based on sales only (not property or payroll). A company is covered if it is organized or domiciled in California, or has California sales exceeding approximately $735,000 (2024 threshold). Companies whose only California connection is teleworking employees are exempt, as are nonprofits, government entities, and insurance companies.

Parent-subsidiary rules: Reports can be consolidated at the parent company level. If a subsidiary qualifies independently, it doesn't need to file separately if included in a parent report. Corporate association is based on 50%+ ownership or control. Subsidiaries included in a parent report still represent separate entities subject to CARB fees.

Fees and penalties: On February 26, 2026, CARB formally adopted a flat-rate fee structure for both programs. Annual fees are estimated at $3,106 per entity for SB 253 and $1,403 for SB 261 ($4,509 if subject to both). Fees will be invoiced in September 2026. Maximum annual penalties are $500,000 for SB 253 and $50,000 for SB 261.

First-year enforcement relief: CARB issued an enforcement notice in December 2024 stating it will exercise enforcement discretion in the first year and not penalize incomplete reporting under SB 253, so long as companies demonstrate a good-faith effort and use best available methods. Good faith is interpreted to include submitting the most complete scope 1 and 2 data the company already possesses or is collecting, documenting efforts to work toward full compliance, and explaining remaining gaps with a plan to close them. If a company was not collecting emissions data when the enforcement notice was issued, it does not need to submit emissions in 2026—only a short statement explaining non-collection. This relief applies to SB 253 only.

The constitutional question

The legal challenge centers on a narrow First Amendment question: can California compel large companies to disclose their emissions and climate risk, or does that requirement constitute compelled speech, or expression required by law?

The Chamber of Commerce argues that mandating emissions data and climate risk disclosure forces companies to say something they don't want to say, exceeding California's regulatory authority and interfering with interstate commerce.

California's defense is that disclosure isn't speech—it's a factual, measurable record. The state argues disclosure is a legitimate regulatory tool, comparable to food nutrition labels or pharmaceutical safety warnings. Courts have historically given states wide latitude on disclosure requirements when the information is factual and non-controversial.

Key dates and timeline

One important caveat: even if the 9th Circuit rules in California's favor, the Chamber could appeal to the Supreme Court, pushing final resolution to 2027 or later. However, the 9th Circuit's decision still carries weight because it sets federal precedent that other circuits and states will reference.

What happens under each ruling scenario

The 9th Circuit's decision could take several forms. The court is evaluating both SB 253 and SB 261, and it could rule differently on each. Here are the most likely outcomes and what each means for companies.

Scenario 1: Both SB 253 and SB 261 are upheld

SB 253's August 10, 2026, deadline is already in effect, and a ruling upholding the law would confirm it. Companies that haven't yet measured scope 1 and scope 2 emissions face a compressed timeline—potentially two to three months to collect baseline data, validate it, and produce audit-ready reports. That's a tight window for companies starting from scratch, especially when collecting utility data (the most common bottleneck for scope 2 measurement) can take weeks on its own. CARB's first-year enforcement relief means companies demonstrating a good-faith effort won't be penalized for incomplete data in this initial cycle. Scope 3 reporting would follow in 2027.

The SB 261 injunction would be lifted, reactivating climate risk reporting requirements. CARB has indicated it will set a new SB 261 compliance deadline once the litigation concludes. Companies covered by SB 261 would need to produce climate-related financial risk reports aligned with TCFD, IFRS S2, or an equivalent framework—work that requires scenario analysis, materiality assessments, and comply-or-explain disclosures across governance, strategy, risk management, and metrics.

This is the most demanding outcome. Companies subject to both laws would face scope 1 and 2 emissions reporting, scope 3 reporting in 2027, and biennial climate risk disclosure—all requiring distinct data collection, methodology, and documentation.

Scenario 2: SB 253 is upheld; SB 261 is struck down

In this scenario, emissions reporting under SB 253 proceeds as currently required. The August 10, 2026, deadline for scope 1 and scope 2 stands, scope 3 reporting follows in 2027, and the assurance timeline remains in place (limited assurance for scope 1 and 2 from 2027, reasonable assurance from 2030).

SB 261's climate risk reporting requirement would be invalidated. Companies would no longer need to produce TCFD- or IFRS S2-aligned risk reports under California law specifically.

However, climate risk disclosure expectations don't disappear. TCFD and IFRS S2 frameworks are embedded in the EU's CSRD, ISSB standards, and CDP questionnaires. Institutional investors and lenders increasingly treat climate risk reporting as baseline due diligence. Companies already preparing SB 261 reports may find the work still serves these other obligations. Companies that haven't started climate risk reporting would face less immediate regulatory pressure from California, but the same reporting expectations from investors and international frameworks.

Scenario 3: SB 253 is upheld but scope 3 is removed; SB 261 is struck down

This outcome would narrow SB 253 to scope 1 and scope 2 emissions only, removing the scope 3 requirement that was set to begin in 2027. The August 10, 2026, deadline for scope 1 and scope 2 reporting would remain in effect. SB 261's climate risk reporting requirement would be invalidated.

For many companies, this would meaningfully reduce the compliance burden. Scope 3 measurement—covering supply chain and downstream emissions—is the most complex and resource-intensive part of greenhouse gas accounting. Removing it eliminates the need for supplier data collection, estimation methodologies for upstream and downstream activities, and the extended data infrastructure that scope 3 requires.

That said, scope 3 reporting remains a requirement under CSRD, a growing expectation in CDP questionnaires, and an area of increasing investor focus. Companies with global operations or EU reporting obligations may still need to measure scope 3 regardless of what California requires. But for companies whose primary compliance driver was SB 253, this scenario would significantly reduce the immediate workload.

Scope 1 and scope 2 measurement remains the foundation in this scenario—and with the scope 3 timeline removed, companies can focus on getting that foundation right.

Scenario 4: Both SB 253 and SB 261 are struck down

This is the least likely outcome—courts typically defer to state regulatory authority on factual disclosure requirements—but it's possible. If the 9th Circuit finds both laws unconstitutional on First Amendment grounds, California can't legally mandate emissions reporting or climate risk disclosure. No reporting requirement, no deadline, no fees.

The underlying demand for emissions data doesn't go away. Institutional investors are already requesting climate data from companies above $1 billion in revenue. The EU's CSRD is creating de facto global reporting standards. ISSB is driving convergence across jurisdictions. And CDP requests continue to expand in reach and rigor.

A ruling striking down both laws would also have broader implications. It could slow state-level climate disclosure efforts in New York, Illinois, and other states considering similar legislation. It could influence the legal trajectory of federal climate disclosure rules. And it would set a precedent on whether emissions data qualifies as protected speech under the First Amendment—a question with ramifications well beyond California.

Companies that measure and report proactively—even without a legal mandate—are better positioned in investor conversations, customer discussions, and partner evaluations. Companies that only measure when forced to do so are starting those conversations from behind.

What's consistent across all four scenarios

Scope 1 and scope 2 emissions measurement is the common denominator. It's required or expected under SB 253, TCFD, IFRS S2, CSRD, CDP, and ISSB—regardless of how the 9th Circuit rules. For most companies, scope 1 and scope 2 together represent more than 70% of total measurement effort, and once that foundation is in place, extending to scope 3 is significantly faster. Companies that build this foundation now are prepared for any outcome.

How to prepare: an audit-ready checklist for SB 253

SB 253's August 10, 2026, compliance deadline is in effect. 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 August 10, 2026. If your fiscal year ends after February 1, report FY24–25 data by August 10, 2026. This was designed to give every entity at least six months to prepare reports.

Timeline reality check

If the 9th Circuit rules by the end of Q2 2026, companies that haven't started measurement will have roughly six to eight weeks to collect, validate, and prepare audit-ready data before the August 10 deadline. Companies that start now have the time to catch data quality issues, validate supplier reporting, and refine methodology before any ruling drops. And given CARB's good-faith enforcement relief, even companies that can't achieve full completeness by August will benefit from having started the process and documented their efforts.

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 will provide 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.

Learn more

• California climate disclosure rules: a guide for companies
• Watershed's California SB 253 and SB 261 reporting solution
• California climate disclosure laws: everything companies need to know