Companies following the ongoing legal challenge to California’s climate disclosure laws in hopes that the court would strike down or limit the scope of these laws will be disappointed by the order issued by the U.S. District Court for the Central District of California on February 3, 2025. The order dismissed constitutional challenges levied against SB 253, which requires large companies “doing business” in California to annually report their greenhouse gas (GHG) emissions, and SB 261, which requires disclosure of climate-related financial risks. The ruling clears the path for the California Air Resources Board (CARB) to develop implementing regulations for SB 253, which are statutorily required to be issued by July 1, 2025.

The Court’s Order

Following their adoption in October 2023, California’s climate laws were challenged by several business interests, including the U.S. Chamber of Commerce and the California Chamber of Commerce. The plaintiffs argued that SB 253 and SB 261 were unconstitutional because they: 1) compelled speech in violation of the First Amendment; 2) sought to regulate GHGs in violation of the Supremacy Clause; and 3) constituted extraterritorial regulation in violation of the dormant Commerce Clause. The court deferred a motion for summary judgment on the First Amendment claim on November 5, 2024, and its February 3 order dismissed the remaining two claims.

The court found the plaintiffs’ SB 253 claims were unripe because SB 253 does not mandate any action by the plaintiffs, but instead, only requires CARB to develop and adopt regulations to require GHG reporting. In contrast, the court found the plaintiffs’ SB 261 Supremacy Clause and dormant Commerce Clause claims ripe for consideration because SB 261 is essentially self-implementing (although there are indications that CARB intends to develop implementing regulations, based on its recent information solicitation). The court dismissed the plaintiffs’ SB 261 claims on the merits, rejecting plaintiffs’ argument that SB 261 “is a de facto regulatory scheme” that regulates GHG emissions in conflict with the Clean Air Act and other federal laws. Nor did the court find any merit in the plaintiffs’ dormant Commerce Clause claim, which argued that SB 261 places a burden on interstate commerce that outweighs any benefits to California. However, the court dismissed the dormant Commerce Clause claim without prejudice, providing the plaintiffs 21 days to amend their complaint.

A Big Win for California, but Questions Remain

The order represents a big win for the state of California’s effort to become the first U.S. government, federal or state, to impose mandatory climate-related reporting obligations on companies. The court’s decision keeps the laws alive and paves the way for CARB to adopt regulations implementing their purpose. However, the ultimate future of both laws is still uncertain and the court’s order leaves many open questions for potentially covered entities.

By delaying any assessment of SB 253 until CARB issues final regulations, the court took no action to constrain or set any parameters around CARB’s rulemaking, and its order does not contain any tea leaves for potentially covered entities to interpret the scope and applicability of the law. Such entities will have to wait for the release of the rules to understand the scope and nature of the specific reporting requirements. However, CARB does not appear to be on track to meet its July 1, 2025, statutory deadline for adopting implementing rules for SB 253. To date, CARB has not initiated any additional public phase of its rulemaking beyond a December 16, 2024, request for public feedback on several high-level questions relating to both SB 253 and SB 261. CARB recently extended the original deadline for response to its information solicitation from January 21, 2025, to March 21, 2025, due to the Los Angeles area wildfires. While the court’s recent order does not impede CARB’s rulemaking and enforcement of SB 253 and 261, it is also not the last word on these laws. The First Amendment challenge to the laws remains before the court, and challenges to CARB’s future regulations are all but guaranteed, leaving the ultimate fate of the laws uncertain. In the meantime, however, CARB must move forward with its regulatory process, and while CARB has indicated that it will exercise some limited enforcement discretion in the first compliance year, companies must ensure they will be prepared to comply with both laws beginning in 2026.