California Climate Reporting Ruling Keeps Scope 1 and 2 Disclosures in Place

California’s corporate climate disclosure rules now have a split path: companies still face a requirement to report direct and purchased energy related emissions, while disclosures about value chain emissions and climate related financial risks are paused during a continuing court challenge. That division leaves businesses with an immediate planning question: which information can they reliably prepare, and which obligations may change as the case returns to a lower court?

The Ninth Circuit appeals court issued its ruling on Tuesday, reversing part of an earlier decision that had declined to pause the requirements. It kept the Scope 1 and Scope 2 reporting provisions of Senate Bill 253 in effect, but ordered a preliminary injunction covering that bill’s Scope 3 requirements and all of Senate Bill 261. The case now goes back to the district court, which must also consider whether the Scope 3 provisions can be separated from the rest of SB 253.

Three disclosure areas, with different status

SB 253 covers companies with more than $1 billion in revenue that do business in California. Its first reporting phase concerns Scope 1 emissions, produced directly by a company’s operations, and Scope 2 emissions associated with purchased energy. Scope 3 covers emissions elsewhere in a company’s value chain, including activity by suppliers and other third parties. The initial Scope 1 and Scope 2 disclosures are due November 10, 2026.

The appeals court treated those categories differently. It found that the direct and purchased energy disclosures regulate commercial speech and left the lower court’s refusal to pause them in place. But it concluded that Scope 3 reporting, because it focuses on third party conduct, is not sufficiently tied to the reporting company’s own operations and capital transactions to receive that same treatment.

SB 261 applies to U.S. companies with more than $500 million in revenue that do business in California. It calls for reports describing climate related financial risks and the steps companies are taking to reduce or adapt to them. The appeals court found that the measure requires companies to disclose subjective assessments and ordered the requirement paused while the case proceeds.

Why the next court decision matters

The order leaves open a question that could affect the scope of SB 253: whether its Scope 3 provisions are “severable,” meaning they can be removed while the remaining reporting requirements continue. If the district court determines they cannot be separated, the status of the full measure could become less certain. The appeals court’s ruling itself leaves Scope 1 and Scope 2 reporting in place for now.

The distinction reflects a practical challenge in corporate emissions accounting. Companies can generally collect direct emissions data from their own facilities and energy purchases through internal systems and utility records. Value chain estimates reach beyond those boundaries, often requiring information from suppliers, transport providers and customers. That wider scope can make data collection more difficult and assumptions more visible. The court’s decision focused on the legal connection between those disclosures and a company’s own activity, rather than on the usefulness of the resulting emissions data.

Climate risk reporting poses a different measurement problem. Companies may need to describe how physical climate impacts or changes in the economy could affect their business, alongside actions taken to manage those risks. The ruling’s concern about subjective assessments means this reporting category remains paused while the dispute continues. It does not resolve how companies should measure climate exposure for other business or voluntary reporting purposes.

Large company reach and business planning

California’s Air Resources Board previously issued a preliminary list of more than 4,000 U.S. companies likely to fall under the rules. The scale matters beyond the companies named: firms that supply them may be asked for emissions information even if they are not themselves covered. A pause in formal Scope 3 disclosure could therefore change the timing or urgency of some data requests, though it does not by itself establish what individual companies or customers will do.

The rules were signed into law in October 2024. In early 2025, business associations led by the U.S. Chamber of Commerce sued, arguing that the disclosure requirements compelled companies to make subjective, noncommercial statements. A district court rejected an initial request to pause the rules, finding that they regulated commercial speech. In late 2025, the appeals court had already paused SB 261 while considering the challenge, but left SB 253 in place at that stage.

For companies preparing reports, the clearest near term signal is that Scope 1 and Scope 2 work remains tied to the November 10, 2026 deadline. The status of Scope 3 and climate risk disclosures is less settled, and the district court’s assessment of severability could shape how much of SB 253 survives the case. Businesses with California operations will need to track that next step while keeping their direct emissions data and energy records ready.