A federal appeals court has narrowed the scope of a pair of California laws that require companies, including financial institutions, to report greenhouse gas emissions and climate risks.
In 2023, California lawmakers passed two bills requiring certain businesses in the state to disclose a wide range of greenhouse gas emissions. Senate Bill 253 requires businesses with total annual revenues exceeding $1 billion to report Scope 1, 2 and 3 emissions. SB 261 requires companies with total annual revenues exceeding $500 million to biennially publish a report on climate-related financial risks, including measures to address the risks.
The U.S. Chamber of Commerce and several business groups challenge the laws, claiming they violate the First Amendment. A district court ruled in favor of the state. However, in a decision released Monday, the Ninth Circuit U.S. Court of Appeals ruled that SB 253’s reporting requirements for Scope 3 emissions were unlawful given that businesses do not have direct control over the emissions, which result from using supply chains. The appeals court upheld reporting requirements for Scope 1 and 2 emissions, which businesses have more control over.
The appeals court also struck down SB 261 in its entirety because, by forcing companies to report climate risks, the state was compelling protected, noncommercial speech. “Applying strict scrutiny, the panel held that even assuming overcoming information asymmetries and reducing emissions are compelling state interests, SB 261 fails on tailoring grounds because the state could have employed less restrictive means to accomplish its goals,” the majority ruled.
In related news, the Office of the Comptroller of the Currency recently urged California regulators to clarify that national banks and federal savings institutions are not required to comply with climate disclosure rules, citing federal preemption. The OCC also said the laws would impose undue burden, particularly on smaller banks; harm California customers and disrupt customer relationships; and raise constitutional concerns.
