Significant Challenge Against California Climate Disclosure Laws

California didn’t just dip a toe into corporate climate transparencyit cannonballed into the deep end.
Two landmark statutes, widely known as SB 253 and SB 261, aim to make large companies publicly disclose
greenhouse gas emissions and climate-related financial risks. Supporters call it overdue transparency.
Critics call it an expensive, constitutionally questionable mandate. Either way, the legal fight has arrived
in a big wayand it’s already reshaping how companies plan for 2026 and beyond.

This article breaks down what California’s climate disclosure laws require, why business groups (and at least one
major energy company) are challenging them, what courts have done so far, and what practical steps businesses can
takeeven while the rules are still moving. Think of it as your map through a regulatory maze where the walls
keep politely changing places.

What California’s climate disclosure laws actually require

California’s “Climate Accountability Package” is often summarized as: “Tell the world your emissions” (SB 253)
and “Tell the world your climate risk” (SB 261). Both apply to many companies that aren’t headquartered in
California but “do business” in the state. In other words: if California is part of your revenue story,
California may want to be part of your disclosure story.

SB 253: Climate Corporate Data Accountability Act (emissions reporting)

SB 253 targets large entities (public and private) that do business in California and exceed a revenue threshold.
Covered companies must publicly report greenhouse gas emissions using widely recognized accounting approaches,
including direct emissions (Scope 1), purchased electricity-related emissions (Scope 2), and value-chain emissions
(Scope 3). If Scope 3 makes you sigh dramatically, you’re not aloneScope 3 is where the data lives in a thousand
supplier spreadsheets… and occasionally in someone’s memory.

The phased approach matters. Scope 1 and Scope 2 reporting begins first, with Scope 3 following later.
Scope 3 is typically the biggest lift because it can include emissions from suppliers, transportation,
product use, and other indirect sources. That’s also why the law includes a “safe harbor” concept for certain
Scope 3 misstatements made in good faithan acknowledgement that early Scope 3 reporting can involve estimates,
imperfect data, and lots of “best available information.”

SB 253 also contemplates third-party assurance requirements that ramp up over time. Translation: it’s not enough
to post numbers; companies should expect verification expectations to rise, similar to how financial reporting
matures from internal summaries to auditor-tested statements.

SB 261: Climate-Related Financial Risk Act (risk reporting)

SB 261 focuses on climate-related financial risk. Covered entities must publish a climate-related financial risk
report on a recurring schedule. The report is expected to address the company’s climate-related risks and the
measures adopted to reduce and adapt to those risks. SB 261 is less about “tons of CO₂e” and more about
“what could climate impacts do to revenue, costs, assets, supply chains, and strategy?”

Importantly, the report is designed to be prepared using recognized frameworks such as the Task Force on
Climate-related Financial Disclosures (TCFD) recommendations or comparable standards. That framework angle is a
big part of the legal controversy: critics argue California is effectively forcing companies to speak using a
particular framing; supporters argue it’s simply standardizing business-risk disclosure the way we already do
for other risks.

The “significant challenge”: who is suing, and what’s the argument?

A major legal challengeled by business groups including the U.S. Chamber of Commercehas attacked SB 253 and
SB 261 on multiple fronts. While legal complaints can look like they were written by someone paid per footnote,
the core themes are surprisingly simple:

• Compelled speech (First Amendment): Opponents argue the laws force companies to publish speech they wouldn’t otherwise make, using California’s preferred framing.
• Overreach beyond state borders: Critics contend California is effectively regulating conduct and disclosure nationwide, because large companies operate across state lines.
• Conflict with federal frameworks: Some arguments point to overlap with federal securities regulation and the broader federal-state tension around disclosure rules.
• Cost and feasibility: Especially for Scope 3, opponents argue the laws require estimates that can be expensive, uncertain, and vulnerable to second-guessing.

And then there’s the plot twist: separate litigation has also emerged from individual companies.
ExxonMobil, for example, has publicly challenged the laws, arguing (among other things) that the required
methodology and narrative framing compel speech and could stigmatize business activities by forcing disclosures
through California’s lens.

What courts have done so far (and why that matters for 2026)

Court action has already created an uneven landscape: SB 253 has continued moving forward, while SB 261 has
faced a significant pause in enforcement at the appellate level. That split matters because SB 261’s first
reporting deadline was set to arrive soonermeaning courts had to decide whether to “hit pause” to prevent
potentially irreversible compliance burdens while the appeal proceeds.

Why SB 261 got paused while SB 253 kept rolling

The practical reason is timing and urgency. SB 261’s reporting obligations were scheduled to begin before the
first SB 253 deadline proposed by regulators. When a court weighs emergency relief, the calendar is not a minor
characterit’s the whole mood of the scene.

There’s also a legal texture difference. SB 253 can be characterized as requiring disclosure of factual,
quantifiable business information (emissions inventories) aligned with established accounting frameworks.
SB 261 requires a narrative report about risk, strategy, and adaptationareas that can feel more subjective,
forward-looking, and therefore more vulnerable to a “compelled speech” argument (depending on how a court frames
commercial speech and what level of scrutiny applies).

The Ninth Circuit appeal: uncertainty as a business condition

The ongoing appellate process has introduced a familiar corporate headache: planning under uncertainty.
If you’re a compliance leader, you now have to answer questions like:
“Are we building a SB 261 report for 2026?” and “Do we treat SB 261 as postponed, or as a pop quiz that could be
rescheduled at any moment?”

The most realistic answer for many organizations is “both.” Build the backbone now, because the best time to
discover gaps in governance, scenario analysis, and risk documentation is not the week you planned to finally
take a vacation.

CARB rulemaking: the moving target behind SB 253

California’s Air Resources Board (CARB) is responsible for implementing key parts of SB 253 and administrating
elements of SB 261. That means CARB workshops, draft templates, fee discussions, and enforcement discretion
guidance are not side notesthey’re the practical reality companies have to follow.

California also passed an amending bill (SB 219) that adjusted certain implementation mechanics, including
regulatory timelines and aspects of how reporting could be organized (for example, consolidating reporting at
a parent level in some cases). The broader theme has been: the state is trying to build a reporting “machine”
for thousands of companies, and building machines takes timeespecially when every stakeholder has a different
definition of “reasonable.”

A concrete example: the first SB 253 deadline in practice

While the statute sets the direction, CARB’s proposals have provided the practical dating of the dance.
CARB staff materials have floated an “on or before” deadline for first-year Scope 1 and Scope 2 reporting in
2026, with a date proposed in August 2026. That proposed timing influences everything from internal data
collection to assurance provider engagement to supplier outreach.

In plain business terms: if you want assurance-ready numbers, you can’t wait until the year you’re reporting.
You need processes, controls, documentation, and a repeatable methodotherwise you’re doing climate accounting
the way people do taxes at 11:58 p.m. on April 14: frantic, snack-fueled, and emotionally fragile.

Why the challenge is “significant” even if the laws survive

A challenge can matter even without a final takedown. Litigation forces regulators to clarify rules, narrows
weak provisions, delays deadlines, andmost importantlychanges corporate behavior. Companies that never planned
to measure Scope 3 emissions now have internal teams building data pipelines. Finance leaders who once treated
climate risk as “ESG’s thing” now have to map it into enterprise risk management. Boards are asking better
questions, partly because they have to, and partly because nobody wants to look surprised in public filings.

Here are a few real-world “significance” effects the legal fight is already producing:

• Budget acceleration: Climate disclosure isn’t optional when a regulator can ask for it and plaintiffs can sue over it.
• Vendor ecosystem growth: Assurance providers, data platforms, and consultants are scaling because demand is locked to deadlines (even disputed deadlines).
• Stronger internal controls: Companies are building audit trails for emissions numbers the way they build audit trails for financial metrics.
• Governance upgrades: Climate risk is increasingly treated like supply chain risk or cybersecurity risk: board-level, recurring, and measurable.

What companies should do now: a practical playbook

Whether you love these laws, hate these laws, or feel emotionally neutral (a rare and admirable superpower),
the smartest approach is to separate legal uncertainty from operational readiness. Courts may change the rules;
they will not retroactively give you time back.

1) Confirm whether you’re coveredand why

Start with the basics: revenue thresholds, “doing business” criteria, entity structure, and whether reporting
can be consolidated at a parent level under applicable guidance. Document your conclusion like you’re going to
explain it to a skeptical auditor who hasn’t had coffee yet.

2) Build your emissions inventory like a financial process

For SB 253 readiness, treat emissions accounting as a system:
set boundaries, define data owners, create a calendar, and build controls around data quality.
If you’re missing supplier data, document your estimation approach and your plan to improve it.

3) Don’t wait to start Scope 3 strategy

Even if Scope 3 is later, it’s the slowest part. Start by identifying “hot spots”:
purchased goods, transportation, product use, and other categories that dominate your value chain.
Many companies begin with screening estimates, then move toward supplier-specific data over time.

4) Treat SB 261 as enterprise risk work, not marketing work

A climate risk report should connect to strategy, risk management, and metricsideally using a recognized
framework for structure. That means involving finance, operations, legal, and risk teams early.
If the report feels like a glossy brochure, you’re probably doing it wrong.

5) Prepare for assurance and scrutiny

External assurance (even “limited assurance”) requires documentation, consistent methodology, and traceable
data. Pilot an internal assurance-style review before you bring in an external provider.
The goal is to find problems while the fixes are cheap.

The federal backdrop: why states are filling the space

Part of the reason California’s laws have attracted so much attention is the uneven federal landscape.
The Securities and Exchange Commission adopted federal climate disclosure rules, but the regulatory and legal
environment has been unstable, with litigation and agency decisions affecting whether and how those federal
rules will be defended and implemented.

In that uncertainty, states step in. California isn’t the only jurisdiction pushing corporate climate
transparency, but it is uniquely influential because so many companies do business there.
When California moves, compliance teams everywhere feel the tremor.

Bottom line: the challenge is real, but so is the direction of travel

California’s climate disclosure laws are facing a significant, high-stakes legal challengeone that has already
resulted in a partial pause and ongoing appellate review. But even under uncertainty, the compliance direction
remains clear: large companies are being pushed toward standardized emissions and risk disclosure, backed by
enforcement authority and public visibility.

The smartest response is not panic and not denial. It’s preparation with flexibility: build systems that can
meet likely obligations, track legal developments closely, and be ready to adjust. Because nothing says “future
proof” like having the data and governance to back up what you saywhether a regulator requires it or your
customers demand it.

Experiences from the field: what this fight feels like inside companies

If you’ve never lived through a major disclosure change, here’s the surprise: the hardest part isn’t publishing
a report. The hardest part is getting the organization to agree on what’s real, what’s measurable, and who owns
the work. California’s climate disclosure lawsand the significant challenge against themhave turned that
internal reality into a shared corporate experience across industries.

One common experience is the “Scope 3 awakening.” Teams often start optimistic: “We already have sustainability
initiatives!” Then they realize Scope 3 is not a single data pointit’s a web. Suppliers use different units,
different accounting methods, and different definitions of “close enough.” Procurement teams may suddenly find
themselves asking vendors for emissions factors the way they ask for delivery timelines. And vendors, in turn,
may respond with the corporate equivalent of a shrug emoji: “We’re working on it.”

Another frequent experience is the tug-of-war between speed and perfection. Legal uncertainty makes some leaders
want to wait (“Let’s see what the courts do”), while operational reality pushes the other way (“If we wait,
we’ll miss the runway”). Many organizations settle into a compromise: build a minimum viable inventory now, then
refine. That usually means starting with “best available data,” documenting assumptions, and creating a roadmap
to improve accuracy year over year. It’s less glamorous than a grand launchbut it’s how durable compliance
programs are actually built.

Finance teams are also having a very relatable moment: “So you want this to be rigorous… like financial
reporting… but with supply chain data… and evolving methodologies.” Exactly. The experience here often mirrors
early Sarbanes-Oxley era vibes: building controls, clarifying data ownership, and realizing that a spreadsheet
living on someone’s laptop is not a “control environment.” Companies that are doing this well treat emissions
data like financial data: defined processes, version control, evidence retention, and review checkpoints.

For SB 261-style risk reporting, the experience is often a crash course in organizational honesty. Climate risk
reports require a company to articulate what it believes about physical risks (like extreme weather), transition
risks (like policy shifts), and strategic resilience. That can reveal gaps: maybe there’s no consistent climate
scenario planning, or maybe risk management hasn’t integrated climate into its enterprise framework. Many teams
respond by borrowing what already works: the same risk taxonomy used for cyber risk and supply chain risk gets a
climate category, with owners, metrics, and escalation paths.

And then there’s the human experience of working under public scrutiny. Companies worry about being accused of
greenwashing, but they also worry about being accused of doing too little. That tension creates a new internal
standard: say only what you can support. The best teams are learning to write disclosures that are specific and
documented without being melodramatic. They avoid sweeping promises, explain boundaries, and use plain language.
It’s less “we will save the planet” and more “here is what we measured, how we measured it, and what we’re
doing next.”

If there’s a silver lining, it’s this: the compliance work has a way of improving decision-making. Once you can
measure emissions drivers and map climate risk into strategy, the conversation gets more concrete.
Even as litigation continues, many organizations are discovering that building these capabilities isn’t just a
legal responseit’s operational intelligence. The court fight may decide timing and scope. The internal work is
already changing how companies understand their own footprints and risks.