A federal appeals court ruled on Monday that California may make large companies report the greenhouse gases from their own operations and the power they buy, but may not, for now, make them report emissions across their supply chains or publish reports on their climate-related financial risk.
The decision, in Chamber of Commerce of the United States v. Sanchez, No. 25-5327, came from a three-judge panel of the Ninth Circuit Court of Appeals. Judge Jacqueline H. Nguyen wrote the opinion, joined by Kiyo A. Matsumoto, a federal district judge from Brooklyn sitting by designation. Judge Mark J. Bennett agreed with part of the result and dissented from the rest. The case came up from Judge Otis D. Wright II of the Central District of California, who had refused to block either law.
The challengers are the U.S. Chamber of Commerce, the California Chamber of Commerce, the American Farm Bureau Federation, the Los Angeles County Business Federation, the Central Valley Business Federation and the Western Growers Association. Their claim is that both laws force companies to speak, in violation of the First Amendment.
The two laws, as the court describes them
SB 253, the Climate Corporate Data Accountability Act, covers any entity doing business in California with more than $1 billion in annual revenue. The opinion cites an estimate that it reaches about 1,971 companies. It asks for three kinds of numbers. Scope 1 is emissions from sources the company owns or controls. Scope 2 is emissions from the electricity, steam, heat or cooling it buys. Scope 3 is everything upstream and downstream that it does not own or control, including suppliers, business travel, employee commutes and the use of the products it sells.
SB 261, the Climate-Related Financial Risk Act, covers companies with more than $500 million in revenue that do business in the state, about 2,675 of them by the estimate the court cites. Every two years they must post a report on their own websites describing their climate-related financial risk and what they are doing about it.
Where the panel drew its lines
Scope 1 and Scope 2 survived. The majority called them commercial speech, because they are factual and tied to the company's own operations, and it applied the more forgiving intermediate scrutiny that governs that category. "In that respect, emissions disclosures function like product warnings in capital markets: higher emissions may signal a greater risk of diminished returns," Nguyen wrote. The opinion notes that about 82 percent of S&P 500 companies already report Scope 1 and Scope 2 figures under standard greenhouse gas accounting methods.
Scope 3 did not survive. Because it concerns "diffuse third-party conduct in the value chain," the court's staff summary says, it is too loosely tied to the reporting company's own business to count as commercial speech. That triggers strict scrutiny, which the panel held the requirement likely fails.
SB 261 fell entirely. The majority read it as compelling noncommercial speech, because it makes companies offer opinions about the future. "This requires covered companies to publish speculative, value-based judgments about future legislation, litigation, and reputational harm, among other things, in a state-prescribed framework," the opinion says. Even assuming the state's interests were compelling, the court held, California had gentler options, "such as by disseminating existing voluntary climate-related financial risk disclosures to the public or incentivizing voluntary disclosure by companies."
Bennett would have gone further and blocked both laws in full. His separate opinion opens with a line from the Supreme Court's 2026 decision in Chiles v. Salazar: "This case is about 'the inalienable right of every' person to decide 'how best to speak.'" He warned that the majority's reasoning could be read as treating investors' interest in a company like consumers' interest in a product, stretching commercial speech beyond speech that proposes a transaction.
Our count of the opinion
By our page count of the slip opinion, the majority runs from page 6 to page 43, about 38 pages. Bennett's partial dissent runs from page 43 to page 84, about 42 pages. The dissent is the longer of the two.
The panel heard argument in San Francisco on January 9, 2026. The ruling came 304 days later. Before that, the Ninth Circuit had already paused SB 261 with an injunction pending appeal on November 18, 2025, as a December 2025 analysis on Harvard Law School's corporate governance forum recounts. That pause had held for 356 days by Monday. The same analysis says SB 261's first reports were due January 1, 2026, which by our arithmetic makes the ruling 312 days after a deadline that never took effect, and that the California Air Resources Board had proposed August 10, 2026 as the deadline for the first SB 253 reports.
The penalty arithmetic
SB 253 lets the air board seek administrative penalties of up to $500,000 per reporting entity "in a reporting year," the opinion says. Multiplying that cap by the court's estimate of 1,971 covered companies gives a theoretical ceiling of about $985.5 million a year. That is our arithmetic, not a forecast. It assumes every covered company is penalized at the maximum, which no regulator has suggested. What it shows is the scale of the enforcement tool that remains in place for Scope 1 and Scope 2 reporting after Monday.
What happens next
The case returns to Wright, who must decide whether the Scope 3 requirement can be cut out of SB 253 while the rest stands. The opinion notes that the law has a severability clause. California could also ask the full Ninth Circuit to rehear the case. Under Federal Rule of Appellate Procedure 40, a petition is due 14 days after judgment in a case like this one, which would be November 23. A petition to the Supreme Court would be due within 90 days, by February 7, 2027, unless a rehearing petition resets the clock.
For another Ninth Circuit ruling with big business stakes this fall, see our report on the court reinstating the NFL Sunday Ticket verdict. For a different First Amendment fight against government power, see the suit over White House press bans.
Two Taps News stories summarize reporting and the analysis discussed on Two Taps and Friends. They are not legal advice. Read our standards.
