The federal district court for the Central District of California denied business groups’ motion for a preliminary injunction enjoining California’s laws requiring certain companies to submit annual reports on their Scope 1, Scope 2, and Scope 3 greenhouse gas emissions (SB 253) and requiring certain companies to disclose “climate-related financial risk information” (SB 261). The business groups asserted that the laws compel speech in violation of the First Amendment. As a threshold matter, the court found that the groups’ First Amendment challenge to SB 253 (unlike other claims they brought) was ripe for review even though the California Air Resources Board had yet to issue implementing regulations. Next, the court declined to alter its prior conclusion that both laws were subject to First Amendment review. The court found that both laws regulate commercial speech but applied a different level of scrutiny to each law. For SB 253, the court found that the Scope 1, Scope 2, and Scope 3 disclosure requirements required reporting only of factual, and not misleading, information. The court also found that the required factual disclosures were “uncontroversial” and therefore determined that it would apply the less stringent Zauderer review standard. For SB 261, the court concluded that the reporting requirements compel disclosure of more than factual information and are therefore subject to intermediate scrutiny. Applying the Zauderer standard to SB 253, the court found that the plaintiffs were unlikely to succeed on the merits of their facial First Amendment challenge because the disclosure requirements are reasonably related to the State’s substantial interests in providing reliable information to investors and in reducing emissions and mitigating climate change. However, the court concluded that the State’s interests in addressing misleading speech and in providing reliable information to consumers would likely not satisfy the Zauderer standard. Applying intermediate scrutiny to SB 261, the court found that the plaintiffs were unlikely to succeed on their First Amendment claim because the State “made a sufficient showing as to the benefits of investors’ desire for the specific disclosures required by SB 261 to achieve the legislature’s objective in reliable information that enables investors to make informed judgments about the impact of climate-related risks on their economic choices.” The court found that the State’s interests in emissions reduction and protecting stakeholders from fraud or misrepresentation would not survive First Amendment scrutiny. The court also found that the business groups did not show irreparable harm in the absence of a First Amendment violation and that the balance of equities favored denial of the preliminary injunction.

Lawsuit challenging two laws enacted by California that require companies to estimate and publicly disclose greenhouse gas emissions and climate change risks.

Chamber of Commerce of the United States of America v. California Air Resources Board

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Federal Court Said Business Groups Were Unlikely to Succeed in Facial Challenges to California’s Climate Disclosure Laws

Filed

United States of America

California

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Justice is the ethical and political framework that addresses fairness, including issues of responsibility, rights, and structural inequity.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

A loan is a policy instrument where funds are provided to a borrower with the expectation of repaying the principal plus interest.

A ban is a legal action that prevents the sale or supply of a product or service, or that recalls a product from the market. Examples are bans on SF6, greenwashing, fossil fuel advertisement or single-use plastics.

A target to reduce the prevalence of a greenhouse gas over a specific time frame

A commitment to balance GHG emissions with removal by a certain point in time, effectively reducing the net emissions to zero

Either money or something of monetary value is transferred between two or more organisations, people or countries.

Conditions that enhance the feasibility of adaptation options. Enabling conditions include finance, technological innovation, strengthening policy instruments, institutional capacity, multi-level governance and changes in human behaviour and lifestyles.

The release of heat-trapping gases, primarily from human activities such as burning fossil fuels, agriculture and industry.

A long-lived, colourless gas, chiefly emitted from fossil fuel combustion, deforestation and cement production.

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

Any compulsory, unrequited payment to the government levied on corporations or individuals. This can be for environmental reasons, such as introducing a Carbon tax to set a price that emitters must pay for the greenhouse gases they emit.

This sector involves the wholesale and retail selling of goods.

This sector creates and distributes information and entertainment through television, radio, print, and digital platforms.

This sector includes firms and individuals offering specialised expertise in fields such as law, accounting, consulting, science and engineering.

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

Activities that involve the cultivation of crops and raising of livestock for food, fibre, and other products essential for human life and industry.

Any substance with chemical properties that can cause physical harm to people or damage the environment, including ammonia, carbon monoxide, phosphine, chlorine, arsenic, cadmium, mercury, pesticides, dioxins, microplastics, benzene, asbestos, aflatoxins, fluoride, methanol, and toxins from marine sources.

Slow onset events evolve gradually from incremental changes over many years or from increased frequency or intensity of recurring events. As defined in the Cancun Adaptation Framework (2010), slow onset events include risks and impacts from rising temperatures, desertification, biodiversity loss, land and forest degradation, glacial retreat, ocean acidification, sea level rise, and salinization.

Federal Court Said Business Groups Were Unlikely to Succeed in Facial Challenges to California’s Climate Disclosure Laws

Target

Policy instrument

Risk

Impacted group

Fossil fuel

Greenhouse gas

Economic sector

Adaptation/resilience

Finance