On November 5, 2024, the U.S. District Court for the Central District of California denied a motion for summary judgment that sought to declare SB 253 and SB 261 (the “California Climate Laws”) invalid on their face under the First Amendment for compelling political speech. As a result of the denial of the motion for summary judgment, litigation over the constitutionality of the California Climate Laws will continue.
In 2023, California enacted two climate-related disclosure laws, SB 253 and SB 261, which mandate that certain U.S. companies doing business in California publicly disclose their greenhouse gas (“GHG”) emissions and prepare climate risk reports. The U.S. Chamber of Commerce and five co-plaintiffs representing a coalition of business groups filed a lawsuit in January 2024 to block the California Climate Laws, arguing that they violate the First Amendment, the Supremacy Clause, and the dormant commerce clause. In denying summary judgment, the district court acknowledged that the First Amendment applies to the challenged laws, recognizing that the primary effect and purpose of SB 253 and SB 261 is compelling speech by the many companies that would be subject to the laws. The plaintiffs argued that strict scrutiny should apply and that the California Climate Laws are facially unconstitutional. However, the district court noted that, although the California Climate Laws likely constitute content-based regulation, the standard of review differs depending on the type of content-based regulation, and that more information obtained through discovery would be required to determine which standard of review should apply. Accordingly, the district court could not grant the plaintiffs’ motion for summary judgment.
Although the California Climate Laws continue to be challenged in court, California Senate Bill 219, which was signed into law on September 27, 20241, introduced several mostly non-substantive amendments to SB 253 and SB 261. In particular, these amendments extend the timeline for the California Air Resources Board (“CARB”) to adopt regulations for disclosures by six months to July 1, 2025, expressly allow for the consolidation of reporting at the parent entity level, and give CARB additional flexibility in determining the method and timeline for reporting GHG emissions.
Although the litigation surrounding the California Climate Laws is expected to continue, the European Union’s Corporate Sustainability Reporting Directive continues to march forward. In addition, a handful of other states, including Illinois, Minnesota, New York and Washington are considering their own climate-related disclosure legislation that would largely mirror key aspects of the California Climate Laws. Despite the final SEC climate rule being stayed pending resolution of the judicial review of the law, which is currently in the Eighth Circuit Court of Appeals, and despite the impending change of presidential administrations, the rapidly evolving landscape of state, federal and foreign regulations underscores the need for companies to remain prepared when it comes to their climate-related disclosures, and these requirements do not appear to be abating soon.
1 See a summary of this new law in our most recent quarterly Securities and ESG newsletter.
