Business groups are pushing the Ninth Circuit Court of Appeals to block a costly new law that would require thousands of companies that do business in California to submit detailed reports on “climate-related financial risk” including greenhouse gas emissions of their own operations and all their suppliers.
California says the law signed by Gov. Gavin Newsom passes constitutional muster under the lower standard for commercial speech. But critics including the U.S. Chamber of Commerce say the law violates the First Amendment by compelling companies to publicly support the state’s positions on the controversial topic of human impact on global warming.
“California is perfectly free to undertake its own public-education campaign about the perils of climate change,” the Washington Legal Foundation said in a brief to the Ninth Circuit. “What it may not do is commandeer private companies, under the guise of investor protection, to parrot the state’s views. The state as ventriloquist is no better than the state as censor.”
A federal judge rejected the Chamber’s call for an injunction blocking the law, ruling California only requires companies to submit information about climate risk that would be useful for investors and help consumers assess “climate-friendly” claims by business. The portal for submitting reports opens Dec. 1, with reports due by Jan. 1.
The Chamber disputed the judge’s findings in an Oct. 2 brief, saying the law compels companies to state climate risks as the state defines them. The lower level of scrutiny for commercial speech only applies to information needed to complete transactions, while California requires companies to make “speculative climate-risk narratives disconnected from any economic transaction,” the Chamber says.
If the law was constitutional, “states could demand disclosure of anything any audience might want to know such as executives’ political affiliations—by mislabeling it commercial speech,” the Chamber says.
California’s law applies to an estimated 10,000 companies with more than $500 million in annual revenue that do business in the state, while a stricter section requiring emissions data applies to about 5,000 firms with more than more than a $1 billion in sales.
Complying with the law will be tougher for smaller companies because of all the recordkeeping and compliance teams required to compile information, said Cory Andrews, chief of litigation at the Washington Legal Foundation.
“This is an undue burden,” Andrews said. “Smaller and less prepared firms are going to face proportionally higher costs, in the hundreds of thousands of dollars.”
The U.S. Supreme Court has upheld laws regulating commercial speech, such as with Zauderer v. Office of District Council, a 1985 decision involving an attorney’s false advertising claims about fees. California says its law will prevent “greenwashing,” where companies make false statements about their impact on climate.
The Chamber says the law goes way beyond policing purely commercial speech, however. Companies must set “goals and targets for addressing climate-related issues” or publicly explain why they haven’t done so.
The lower court ruled the state-mandated reports would “function as advertisements,” citing a study finding 80% of large companies made green pledges or other climate claims. The WLF dismissed that reasoning as “nonsensical,” because it conflates what companies choose to say with what the state forces them to say.
Businesses can have some hope the 9th Circuit will intervene. The appeals court last year struck down a similar law requiring X and other social-media companies to file reports with the California Attorney General detailing how they moderate six categories of content including “hate speech,” “extremism,” and “disinformation or misinformation.”
In 2023 the court rejected a requirement for cancer warnings on Roundup herbicide under California’s Prop. 65 law, saying the science supporting the warnings was disputed and controversial and a label would violate the First Amendment. The court also struck down cancer warnings for acrylamide, a chemical found in many roasted food products and coffee.
The Fifth Circuit last year stayed a similar climate-reporting rule the Securities and Exchange Commission proposed under the Biden administration amid challenges by business groups and Republican state attorneys general. Those cases are now before another federal appeals court.
