US Chamber of Commerce and Others Sue California Over Climate Disclosure Laws

By Brian MacLeod

Six groups, including the US Chamber of Commerce and American Farm Bureau Federation, are suing California over corporate climate disclosure laws that were enacted on January 30, 2024.

In a complaint filed on January 30, the groups are asking a California federal court to block the enforcement of Senate Bills 253 and 261, which were signed into law in October 2023 by Governor Gavin Newsom. The groups believe that the bills violate the first amendment and the legislation conflicts with federal principles.

Senate Bill 253 is the Climate Corporate Data Accountability Act. It requires companies that make over $1 billion in gross annual revenue to report their operations and supply chain emissions. The bill requires companies to report three scopes of their greenhouse gas emissions:

• Scope 1: Direct Operational Emissions;
• Scope 2: Indirect Emissions from energy use; and
• Scope 3: Indirect Emissions from up and down the supply chain.

Under the legislation, the California Air Resources Board can fine companies up to $500,000 annually for violations. The bill applies to both private and public companies. In that respect, Senate Bill 253 differs from the US Securities and Exchange Commission’s proposed climate disclosure rule, which would apply only to public companies.

Senate Bill 261 requires companies that make over $500 million in annual revenue to create a biennial report on their climate-related financial risks. Governor Newsom claims that he told his staff to work with lawmakers to address possible issues with this law including its cost to businesses, potential inconsistent reporting, and impractical deadlines of implementation.

In their complaint, the business groups argue that “both laws unconstitutionally compel speech in violation of the First Amendment and seek to regulate an area that is outside California’s jurisdiction and subject to exclusive federal control by virtue of the Clean Air Act.” The groups believe that California may regulate emissions within its own borders, but “do not have the right to regulate emissions in other states or other parts of the world.”

The suit puts a focus on two farmers in Texas and Missouri that say their operations will be swept into these laws by the Scope 3 reporting requirements. The groups worry that it will be a huge burden for businesses to keep up with the documentation and recordkeeping that will be required to comply with the new laws and could eventually lead to consolidation throughout the agriculture industry.

Tom Quaadman, an Executive Director of the US Chamber’s Center for Capital Markets Competitiveness, states many public companies are ahead of government regulators when it comes to disclosing climate risks, but the costs and compliance issues of these laws “will be felt by businesses of all sizes, especially small, Main Street businesses.” The California Air Resources Board did not comment on active litigation according to a representative.

The case is Chamber of Commerce of the United States of America et al. v. California Air Resources Board et al., case number 2:24-cv-00801, in the US District Court for the Central District of California. The complaint can be found here.