Ninth Circuit Blocks California Scope 3 and Climate-Risk Reporting Requirements

The Ninth Circuit issued an important decision yesterday addressing California’s climate disclosure laws, SB 253 and SB 261. In United States Chamber of Commerce v. Sanchez, No. 25-5327 (9th Cir. Nov. 9, 2026), the court allowed California’s Scope 1 (direct emissions) and Scope 2 (emissions from the energy purchased) greenhouse gas reporting requirements to move forward. It held, however, that the State’s Scope 3 (other emissions connected with the supply chain and products) and climate-related financial risk reporting requirements likely violate the First Amendment, and reversed the district court’s denial of a preliminary injunction as to both.

The decision is significant for manufacturers and automotive suppliers, particularly companies that have been preparing to collect greenhouse gas information throughout their supply chains. 

What the Court Decided 

SB 253 applies to companies doing business in California with annual total revenues exceeding $1 billion, regardless of how much of that revenue is generated in California. It requires covered companies to report Scope 1 emissions from sources they own or control, Scope 2 emissions associated with purchased energy, and Scope 3 emissions associated with their upstream and downstream value chains.

The Ninth Circuit drew a clear distinction between these requirements. 

The court upheld, at this stage of the litigation, the Scope 1 and Scope 2 requirements. In the court’s view, these disclosures report measurable data from a company’s own operations that bears on commercial and investment decisions, which makes them commercial speech. The court also accepted, for now, that California has a substantial interest in requiring this information: to inform investors and to help reduce emissions.

The court reached a different result for Scope 3. Unlike Scope 1 and Scope 2 data, which comes from a company’s own business records, Scope 3 requires a company to account for emissions generated by suppliers, customers and other parties the company does not own or control. The court reasoned that requiring companies to compile and estimate information about third parties’ activities is too far removed from their own operations to count as commercial speech and therefore is subject to strict scrutiny. The court also found the State's evidence on emissions reductions lacking for Scope 3: the studies of mandatory reporting in the record all involved Scope 1 or Scope 2, and none addressed mandatory Scope 3 reporting. Because strict scrutiny applied, California had to satisfy a demanding standard, and the court concluded that the State likely had not done so at this preliminary stage.

The court also blocked SB 261, which applies to companies doing business in California with annual revenues exceeding $500 million. That law requires covered companies to publish biennial reports on their websites addressing climate-related financial risks and the measures they have adopted to address those risks. The court concluded that these requirements reach past objective facts, asking companies instead to forecast uncertain future conditions and offer their own opinions on climate change, business risk, and corporate strategy.

What This Means for Manufacturers and Automotive Suppliers 

The decision provides meaningful relief, but it does not eliminate California climate reporting requirements. 

Companies subject to SB 253 should continue preparing to report Scope 1 and Scope 2 emissions. Those requirements survived the challenge and, unless the litigation takes another turn, remain the principal California compliance obligation for covered companies.

The more significant development for automotive suppliers is the court’s treatment of Scope 3. Automotive supply chains can involve hundreds or thousands of suppliers across multiple tiers, making Scope 3 data collection one of the most difficult and costly aspects of greenhouse gas reporting. The Ninth Circuit’s decision directly calls into question California’s ability to require companies to collect and report those value-chain emissions.

That does not mean suppliers should stop tracking greenhouse gas (GHG) information altogether. Automotive original equipment manufacturers (OEMs) and Tier 1 customers may continue to request emissions and other sustainability information from suppliers through purchasing requirements, supplier questionnaires, and contractual obligations. Those private commercial requirements are different from California compelling the disclosure by statute. 

The decision therefore creates an important distinction for suppliers: a particular Scope 3 data request may no longer be necessary solely to comply with California law, but the same information may still be required by a customer or another reporting regime. Companies should identify why they are collecting particular sustainability information before discontinuing existing programs, including how to protect confidential information.

What Companies Should Do Now 

Manufacturers and automotive suppliers should consider: 

• Continuing Scope 1 and Scope 2 preparations. Companies potentially covered by SB 253 should maintain their emissions inventories, supporting documentation, and reporting systems. 

• Reevaluating Scope 3 projects. Companies that were undertaking extensive supplier outreach or implementing new systems solely to satisfy SB 253 should reconsider the timing and scope of those efforts. 

• Separating California requirements from customer requirements. Suppliers should determine whether GHG data requests originate from SB 253, an OEM or Tier 1 customer requirement, another jurisdiction, or a voluntary sustainability program before changing course. 

• Reviewing climate-risk reporting work. Companies preparing SB 261 reports should reassess those efforts in light of the Ninth Circuit's ruling. 

• Watching the remand closely. The Ninth Circuit left it to the district court to determine whether the Scope 3 provisions can be severed from the remainder of SB 253. Further litigation also remains possible.

Bottom Line 

For manufacturers, the decision divides California’s climate disclosure regime into two categories. Reporting factual emissions information concerning a company’s own operations remains viable, while California's attempts to require companies to report emissions generated throughout their value chains or make judgments about future climate-related business risks have been significantly curtailed.

For automotive suppliers, the practical result is that Scope 1 and Scope 2 compliance remains important, while the regulatory justification for broad Scope 3 supplier-data collection has, at least for now, been substantially weakened. 

For more information, please contact the authors of this Client Alert or your Butzel attorney.

Beth S. Gotthelf
248.227.6920
gotthelf@butzel.com

Susan L. Johnson
248.258.1307
johnsons@butzel.com

Samantha Luckham
313.225.5334
luckham@butzel.com