California’s Climate Risk Disclosure Law Paused: What SB 261’s Injunction Means for Businesses

California’s ambitious climate disclosure regime has hit a significant roadblock. On November 18, 2025, the Ninth Circuit Court of Appeals granted an injunction halting enforcement of SB 261, the Climate-Related Financial Risk Act, pending resolution of a constitutional challenge. This ruling comes just weeks before the law’s first compliance deadline of January 1, 2026, creating uncertainty for thousands of companies doing business in the state.

What SB 261 Requires

SB 261 mandates that U.S. companies with over $500 million in annual revenue and operations in California publish a climate-related financial risk report every two years, starting January 2026. These reports must outline climate-related financial risks and strategies for mitigation and adaptation, aligning with frameworks such as TCFD or IFRS S2.

The Ninth Circuit’s Decision

The injunction stems from a lawsuit led by the U.S. Chamber of Commerce and other business groups, arguing that SB 261—and its companion law, SB 253—violates the First Amendment by compelling speech on controversial policy matters. While SB 261 enforcement is paused, SB 253, which requires greenhouse gas emissions disclosures for companies with revenues over $1 billion, remains unaffected. CARB has proposed an initial SB 253 compliance deadline of August 10, 2026.

Oral arguments on the SB 261 appeal are scheduled for January 9, 2026, but the court could rule earlier or later, leaving companies in limbo. Meanwhile, CARB has delayed issuing final implementing regulations for both laws until Q1 2026, though statutory deadlines technically remain in place.

Legal Landscape

The Ninth Circuit’s injunction does not invalidate SB 261—it merely pauses enforcement. If lifted, compliance obligations could resume immediately. Adding to the complexity, ExxonMobil filed a separate challenge in October 2025, asserting similar constitutional claims and arguing federal preemption under the National Securities Markets Improvement Act. That case is now on hold pending the Ninth Circuit’s decision.

What Companies Should Watch

• Ninth Circuit Ruling: A decision could come before or after January’s oral arguments.
• CARB Rulemaking: Draft regulations expected in early 2026 will clarify scope, definitions, and enforcement.
• Potential Supreme Court Review: If SB 261 survives appeal, plaintiffs may escalate.
• SB 253 Compliance: No injunction applies—companies should continue preparing for emissions disclosures.

Recommendations

Despite the injunction, companies should maintain a “ready posture”:

• Continue Preparations: Draft SB 261 reports using TCFD or IFRS S2 frameworks.
• Assess Applicability: Review CARB’s preliminary list of covered entities and revenue thresholds.
• Integrate ESG Strategy: Align SB 261 planning with SB 253 efforts for efficiency.
• Monitor Developments: Stay alert for Ninth Circuit rulings and CARB updates in Q1 2026.

Bottom Line

The Ninth Circuit’s injunction offers temporary relief, but uncertainty looms. Businesses should prepare for rapid compliance pivots while tracking litigation and regulatory developments closely.