How are Climate and Business Related?

Climate change and businesses are interconnected in far and local ways. Many businesses are impacted by climate change, which can impose financial stress on companies. Financial stress can look like supply chain disruptions, hikes in operational costs, and direct climate impacts to infrastructure logistics.  California Senate Bill 261 (S.B. 261) and Senate Bill 253 (S.B. 253) makes this relationship between climate and business clearer for consumers and investors. 

The world currently falls short of limiting average global warming to 1.5 degrees Celsius, implying further climate change disruptions. The effects of climate change are becoming apparent in the United States with unprecedented wildfires and billions in property damage from floods, storms, and extreme precipitation. Businesses locally and internationally are facing increasing pressure from governments to disclose how climate risks could affect their core operations and the longevity of their business models.

What Are Climate Disclosure Laws Designed to Achieve? 

Lawmakers intended and introduced California’s climate disclosure laws to enhance transparency. Investors can make more informed decisions with reports on climate-related financial risks. Investors balance investment risks and a company’s potential long-term financial standing. These bills standardize disclosure requirements and equips investors and consumers alike with credible information. Decision-relevant information can affect an investment’s materiality and a person’s actions. Materiality is the omission of information that could influence a person’s judgment in investment decisions. Climate disclosure laws standardize transparency, disclosure requirements, and equip investors and consumers with credible information.

People continue to factor environmental considerations into their day-to-day decisions.  So, companies are incentivized to reduce emissions to appeal to evolving consumer preferences. A 2021 Gallup poll shows that for 75% of Americans, a business’s environmental impact influences their purchasing decisions either a “great deal” or a “fair amount.” Climate disclosure laws enable consumers to act on their preferences by equipping them with information about a company’s environmental performance. 

What are California’s Climate Disclosure Laws?  

Senate Bill 261: Climate-Related Financial Risk Reporting 

S.B. 261 is formally titled “Climate-Related Financial Risk”. The bill requires firms that do business in California to make a publicly available climate-related financial risk report once every two years. It only affects firms with annual revenues above $500 million. These climate reports are administered by the California Air Resources Board (CARB). 

They must describe the risks climate change poses to the business’s long-term financial outcomes, commonly referred to as climate-related financial risk. Such risks include:

• Physical risks: The risks caused by climate change such as property damage and extreme weather events. 
• Transitional risks:  The legal, technological, market, and reputational risks companies face amid a global transition to a low-carbon economy.

Submitted reports must follow the framework provided by the Task Force on Climate-related Financial Disclosures (TCFD) or an equivalent standard. The TCFD outline suggests businesses must increasingly recognize the reputational risks from shifting consumer preferences. The TCFD framework calls for reporting across four key categories:

• Governance: Discloses the firm’s organization and leadership responsible for climate-related issues.
• Strategy: Assesses the risks and opportunities of climate-related risks and financial planning.
• Risk Management: Describes how the firms incorporate climate-related risks into their overall risk assessment.
• Metrics and Targets: How a firm measures its climate impact and tracks its progress.

 

Senate Bill 253: Climate Corporate Data Accountability Act and Greenhouse Gas Emissions Disclosure

S.B. 253, titled “Climate Corporate Data Accountability Act,” requires firms that do business in California to publicly disclose their greenhouse gas emissions (GHG) annually. The bill is also administered by CARB, and only affects businesses with annual revenues exceeding $1 billion. GHG emissions are broken down into three different scopes:

• Scope 1 emissions: Direct GHG emissions from sources a company controls.
• Scope 2 emissions: Indirect GHG emissions caused by a company’s energy purchases.
• Scope 3 emissions: All other indirect GHG emissions such as the disposal of products.

 

What Are the Legal Challenges to California’s Climate Disclosure Laws?

The U.S. Chamber of Commerce and ExxonMobil argue that California’s climate disclosure laws infringe on a company’s First Amendment rights to free speech. However, the free speech rights of corporations were an open question in the past.  The Supreme Court ruled in 2010 in Citizens United v. Federal Election Commission that political speech is the cornerstone of a democracy, and that this is “no less true because the speech comes from a corporation rather than an individual.” The 2010 ruling provided corporations with the same free speech rights that people are afforded. This makes the lawsuits against California plausible. 

The U.S. Chamber of Commerce,  a lobbying group representing business interests, expresses concern over climate disclosure laws. The Chamber argues that the bill forces “speculative and politically charged narratives” and makes companies participate in subjective speech. Subjective speech is an “expression of belief, opinion, or personal preference that importantly “cannot be proved true or false by any generally accepted criteria”. The Chamber stated it is “nearly impossible for a company to accurately calculate” indirect GHG emissions and climate-related financial risk.  The Chamber initially attempted to pause both S.B. 261 and S.B. 253. A lower California court denied this, but the Chamber appealed. Litigation at higher levels is still ongoing.

ExxonMobil filed its lawsuit soon after the U.S. Chamber of Commerce, making similar claims in their challenge to S.B. 261 and S.B. 253. They assert that both climate disclosure laws are violations of the First Amendment.The bills“impose content-based speech regulations” that serve no interest to the state according to Exxon Mobil. In a rebuttal to these arguments, the California Attorney General’s Office maintains that S.B. 261 and S.B. 253 “merely require factual, noncontroversial disclosures that serve legitimate state interests” such as reliable information, transparency, and encouraging voluntary reductions in emissions.

Looking Ahead: Uncertainty in California’s Climate Disclosure Laws

S.B. 261’s Enforcement Temporarily Paused 

On November 10, 2025, the U.S. Chamber of Commerce submitted an application to Justice Kagan to have their lawsuit brought before the Supreme Court. The federal court agreed to temporarily pause California’s climate disclosure laws. On November 18, 2025, the Ninth Circuit temporarily paused enforcement of S.B. 261, which was intended to take effect on January 1, 2026.  The Chamber withdrew its application from the Supreme Court after the Ninth Circuit Court of Appeals’ temporary block. It’s likely the U.S Chamber of Commerce will appeal again to the Supreme Court.  

In an oral argument on January 9, the Ninth Circuit panel of judges expressed doubts about the U.S. Chamber of Commerce’s claims. The panel argued that the bill only requires data to be reported and that climate disclosure laws do not require companies to take a political stance on climate change. The panel also scrutinized S.B. 261 for its “breadth and vagueness” in disclosure requirements. As litigation proceeds, companies may choose to voluntarily submit their climate-related financial risk reports using CARB’s S.B. 261 reporting docket. Companies that do not submit a report will not be penalized. ‘

S.B. 253 Enforcement Continues

S.B. 253 remains in effect by the Ninth Circuit Court of Appeals. Companies have until August 10, 2026 to disclose their scope 1 and scope 2 GHG emissions. Scope 3 emissions will be required beginning in 2027. However, they are being considered for removal due to court concerns that reporting on these emissions could be “burdensome” to firms.

Frequently Asked Questions