Business Groups Sue California to Block Climate Disclosure Laws

The CCDAA and CRFRA impose climate-related disclosure requirements, including requiring the annual disclosure of Scope 1, 2, and 3 greenhouse gas (“GHG”) emissions, on public and private entities that “do business” in California and have annual revenues above certain thresholds. California Governor Gavin Newsom signed both the CCDAA and CRFRA into law on October 7, 2023, but the implementation of these laws has already faced several hurdles. Upon signing the laws, Governor Newsom sent letters to the state senate pushing back on several features of the laws, including their implementation deadlines, and noted that his administration would seek to work with the authors of the legislation to address these issues. Additionally, on January 10, 2024, Governor Newsom released a budget proposal that featured cuts to the overall funding of the California Air Resources Board (“CARB”) and paused funding for the implementation of all newly signed laws, including the CCDAA and CRFRA, until May 2024. These first-of-their-kind laws¹ have also been subjected to public scrutiny and concern from many in the business community, but the plaintiffs’ lawsuit marks the first legal challenge against the laws, and potentially signals what may await the Security and Exchange Commission’s climate-related disclosure rules once adopted.

The plaintiffs allege that the laws compel businesses to speak noncommercially on controversial political matters and, thus, are presumptively unconstitutional under the First Amendment to the U.S. Constitution. The plaintiffs further claim that requiring disclosure of “out-of-state emissions” is an unconstitutional attempt to regulate GHG emissions outside of California’s own borders in violation of the Supremacy Clause of the U.S. Constitution. Furthermore, the plaintiffs allege that the laws impose significant compliance burdens on companies, especially with regard to the reporting of Scope 3 GHG emissions. The plaintiffs therefore request that the court declare the two laws null, void, and with no force or effect and enjoin the CARB from taking any action to implement or enforce the laws.

Certain California politicians have already commented publicly on the claims, providing some indication for how the state may respond to the lawsuit. For example, State Senator Scott Wiener, who authored the CCDAA and previously spoke with Vinson & Elkins about the climate laws, issued a statement in which he characterizes the lawsuit as “baseless.” In his statement, Senator Wiener argues that it is “both inexpensive and easy for corporations to make these disclosures,” and further claims that “many major corporations like Apple and Google are already making these [climate-related] disclosures.”

The relief sought by the plaintiffs, if granted, would halt implementation and enforcement of the new disclosure laws in full.  The lawsuit, however, is in its infancy, and it remains to be seen how courts will address the allegations or the relief requested.

We will continue monitoring this case and developments with respect to climate disclosure requirements generally. Please contact Vinson & Elkins to discuss these matters and their implications.

¹ Note, however, that other states, including Washington, New York, and Illinois, have proposed similar climate change reporting bills.