Business coalition sues California over nation-leading climate disclosure laws

The U.S. Chamber of Commerce and American Farm Bureau Federation led a coalition of business organizations in filing a lawsuit on Tuesday aiming to block California's two landmark corporate climate disclosure laws.

The measures signed into law by Gov. Gavin Newsom last year would “impermissibly compel thousands of businesses to make costly, burdensome, and politically fraught statements” about their operations around the world, the business groups said in their complaint filed in U.S. District Court for the Central District of California.

The plaintiffs are seeking a ruling blocking implementation of the laws, SB253 and SB261, on grounds that they violate the First Amendment by compelling speech on a “controversial” issue and that California is attempting to act as a de facto national emissions regulator. The Wall Street Journal was first to report the lawsuit.

Thousands of large businesses operating in the state will be required to disclose their carbon footprint and climate-related financial risks under the two first-in-the-nation laws. Notably, SB253 also requires companies to disclose Scope 3 emissions generated throughout their value chains.

State Sen. Scott Wiener, the San Francisco Democrat who sponsored SB253, said the lawsuit amounts to "straight up climate denial."

“Why is the Chamber of Commerce working so aggressively to block basic transparency for the public? We know the answer," Wiener said in a statement. "It’s not because of the Chamber’s bogus arguments about cost and implementation, since it’s both inexpensive and easy for corporations to make these disclosures. It’s not because of the Chamber’s bizarre and frivolous First Amendment argument. Rather, the Chamber is taking this extremist legal action because many large corporations — particularly fossil fuel corporations and large banks — are absolutely terrified that if they have to tell the public how dramatically they’re fueling climate change, they’ll no longer be able to mislead the public and investors."

The two laws overcame fierce business opposition en route to enactment last year, led by the California Chamber of Commerce. Newsom signaled concern over the implementation timeline and potential cost to businesses for SB253 specifically, and opted not to fund the California Air Resources Board’s rulemaking process for the law in his recently announced budget proposal. CalChamber had previously hinted at desires for “cleanup” legislation.

Alex Stack, a spokesperson for Newsom, said in a statement that the governor is "in the process of reviewing this complaint" and pointed to Newsom's message during his signing statement in which he said the new laws demonstrate the state's "bold responses to the climate crisis, turning information transparency into climate action.”

The lawsuit sets the stage for a significant legal fight over California's ability to compel large corporations and big polluters to disclose their emissions — and is likely to reverberate beyond the state as others seek to follow suit.

“We support cost-effective policies that reduce greenhouse-gas emissions as quickly as possible in order to address climate change,” CalChamber President and CEO Jennifer Barrera said in a statement. “However, these new climate reporting laws are far from cost-effective and they will not have any notable impact on climate change. Compelling businesses to report inconsistent and inaccurate information unnecessarily places them at risk for enormous penalties. This will be particularly costly for small businesses who do not have the resources to accurately measure their climate emissions.”

California’s efforts come in the midst of an evolving landscape on corporate climate disclosures. While many large companies do so voluntarily, given the significantly increased interest in the data on the part of investors, jurisdictions around the world are attempting to codify standards for the disclosures.

The Securities and Exchange Commission has yet to finalize a nearly two-year-old climate risk disclosure rule that has faced legal threats and political pushback. Meanwhile, European rules are set to compel a wide range of new disclosures, including on companies’ carbon footprints, that would apply to large U.S. companies operating on the continent.

And with California’s new laws and delays at the SEC, other blue states like Washington, New York and Illinois have proposed copycat bills of their own modeled after the laws that cleared Sacramento.