A coalition of business organizations recently filed suit in federal court against the California Air Resources Board (CARB), challenging the agency’s corporate climate disclosure laws. The laws at issue are the Climate Corporate Data Accountability Act (SB 253) and the Climate-Related Financial Risk Act (SB 261).

The bills, signed into law on October 7, 2023, form California’s Climate Accountability Package, which requires large companies doing business in the state to disclose greenhouse gas emissions, carbon embedded in supply chains, and climate-related financial risks.

The organizations bringing the lawsuit are:

• The Chamber of Commerce of the United States of America
• The California Chamber of Commerce
• The American Farm Bureau Federation
• The Los Angeles County Business Federation
• The Central Valley Business Federation
• The Western Growers Association

The lawsuit alleges that SB 253 and SB 261:

• Unconstitutionally compel speech in violation of the First Amendment, forcing thousands of companies to engage in controversial speech against their will, untethered to any commercial purpose or transaction.
• Seek to regulate an area that’s outside California’s jurisdiction and subject to exclusive federal control by virtue of the Clean Air Act (CAA).
• Are also unconstitutional due to federal “limitations on extraterritorial regulation, including the Dormant Commerce Clause,” because the California regulations don’t limit the disclosures to emissions made in California or to California-related climate risks.

The laws “impermissibly compel thousands of businesses to make costly, burdensome, and politically fraught statements about ‘their operations, not just in California, but around the world,’” the lawsuit states.

In response to the lawsuit, California Senator Scott Weiner, lead author of SB 253, issued the following statement:

“The U.S. Chamber of Commerce’s lawsuit against these groundbreaking climate laws is straight up climate denial. Why is the Chamber of Commerce working so aggressively to block basic transparency for the public? We know the answer. 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 Chamber and large corporate polluters don’t want the public to know how much they’re strangling the planet with carbon emissions — that’s why they filed this baseless lawsuit.

“The climate crisis is a real and present threat to our planet and to businesses’ success. Investors and consumers have a right to know the details of how billion-dollar companies are navigating the greatest challenge of our time, and many major corporations like Apple and Google are already making these disclosures and support these laws because they understand that need. While corporate lobby groups continue to wage an unhinged misinformation campaign against these laws, investors and consumers are being deprived of vital information to navigate our rapidly warming planet.”

It’s important for industry to keep in mind that California legislators are aware of constitutional laws and the risks involved in writing these laws. Therefore, although it remains to be seen how the court will rule in this suit, industry should prepare to remain in compliance with these CARB regulations.

“While the lawsuit seeks only to challenge SB253 and SB261, it may offer insight into the basis of potential future challenges that other similar laws may face whether in California or beyond, including, for example, the Securities and Exchange Commission’s proposed climate disclosure rules and Minnesota’s recently passed law requiring climate risk disclosures from banks,” advises Mayer Brown LLP.