A federal lawsuit filed on January 30, backed by the US and California Chambers of Commerce, as well as four business groups, challenges the constitutionality of California’s latest corporate climate change disclosure laws.
This lawsuit may anticipate obstacles the Securities and Exchange Commission (SEC) will face manifesting its climate change disclosure rules. The plaintiff, the US Chamber of Commerce – a body that has expressed resistance toward SEC’s pending rules – could potentially induce a further holdup in their enactment.
Governor Gavin Newsom signed into law in October 2023 what is known as the Climate Accountability Package. This package comprises the Senate Bill 253 or the Climate Corporate Data Accountability Act and the Senate Bill 261 or the Climate-Related Financial Risk Act. These laws collectively enact the most comprehensive climate change disclosure requirements in the US.
The Climate Corporate Data Accountability Act demands companies with an annual revenue over $1 billion and with any business operations in California to publicly disclose Scope 1 and 2 greenhouse gas emissions beginning in 2026 and Scope 3 emissions in 2027. Scope 1 and 2 refer to direct and indirect emissions from a company, while Scope 3 pertains to indirect emissions from sources that a company neither owns nor directly controls.
The Climate-Related Financial Risk Act obliges companies generating more than $500 million in revenue to publicly disclose financial risks related to climate change and measures being taken to address them, starting in 2026. Unlike the SEC’s proposed regulations, these laws extend to privately held companies.
The lawsuit calls upon three constitutional grounds for preventing the implementation of these laws: the First Amendment, Dormant Commerce Clause, and the Supremacy Clause, claiming that the laws represent a violation of the First Amendment and overreach California’s jurisdiction.
While this case is still unfolding, it is subjected to great attention from over 10,000 businesses that the California disclosure laws cover, as well as various states planning to adopt similar legislation. The case is officially known as Chamber of Commerce of the United States of America v. California Air Resources Board.