California climate disclosure rules face major legal setback as court targets scope 3

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🗞️ Driving the news: A US appeals court has dealt a major setback to California's corporate climate disclosure framework, ruling that Scope 3 emissions reporting under SB 253 is likely unconstitutional under the First Amendment
• The Ninth Circuit also reversed the denial of preliminary injunctive relief against SB 261, which requires companies to report climate-related financial risks, while allowing Scope 1 and Scope 2 emissions reporting to proceed

🔭 The context: The court distinguished emissions generated directly by companies or through purchased electricity from Scope 3 emissions arising across suppliers and customers
• It found the latter insufficiently connected to companies' own operations to qualify as commercial speech, meaning the requirement faces stricter constitutional scrutiny
• The ruling is preliminary, not a final judgment on the laws' constitutionality

🌍 Why it matters for the planet: Scope 3 emissions often represent a substantial share of corporate carbon footprints, covering supply chains, product use and other indirect sources
• Limiting mandatory disclosure could make it harder for investors, regulators and the public to assess companies' full climate impacts and track progress towards decarbonisation

⏭️ What’s next: The case returns to the district court, which must determine whether the Scope 3 provisions can be separated from the rest of SB 253
• Companies are urged to continue to monitor the litigation
• Scope 1 and Scope 2 reporting remains in place, while Scope 3 and SB 261 requirements face preliminary injunctive relief

💬 One quote: The court found Scope 3 disclosures “insufficiently tethered to the reporting entity’s own operations and capital transactions” to qualify as commercial speech

📈 One stat: The court's ruling affects three emissions-reporting categories under SB 253: Scope 1 and 2 remain in place, while Scope 3 faces preliminary injunctive relief.

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