A federal appeals court on Nov. 18 paused a California law that would require many companies to prepare climate-related financial risk reports.

A three-judge panel from the U.S. Court of Appeals for the Ninth Circuit prohibited California officials from taking steps to enforce the law, Senate Bill 261, set to take effect in January 2026.

The one-page decision, which did not offer any reasoning, also allowed California to enforce a separate law, Senate Bill 253, that requires large companies to disclose their carbon emissions annually.

The U.S. Chamber of Commerce is one of the groups that sued over the law, arguing that it violates the companies’ First Amendment rights.

“The U.S. Chamber welcomes the Ninth Circuit’s decision to pause California’s unconstitutional climate disclosure law, pending appeal,” Daryl Joseffer, chief counsel for the chamber, said in a statement.

“Stopping this law before its January 1 deadline was critical to businesses and the protection of their First Amendment rights. We look forward to continuing our appeal and securing an injunction of both climate disclosure laws, which result in massive compliance costs for companies and their supply chains. One state should not have the ability to impose this kind of burden on the entire country.”

Lindsay Buckley, a spokesperson for the California Air Resources Board, which is drafting rules to implement the laws, said the agency was reviewing the ruling and could not comment further. The state has argued that the laws don’t violate the First Amendment because commercial speech isn’t protected in the same way as other speech under the Constitution.

Senate Bill 261 required the board to adopt regulations to require large companies to prepare a public report every two years that contains “specified information, including a review of the disclosure of climate-related financial risk contained in a subset of publicly available climate-related financial risk reports and an analysis of the systemic and sectorwide climate-related financial risks facing the state.”

Gov. Gavin Newsom signed it in 2023. The law applies to companies that make more than $500 million a year and do business in California. The Air Resources Board estimates that more than 4,100 businesses will have to comply with the legislation if it takes effect.

The emissions reporting law, which the state passed the same year, applies to businesses that make more than $1 billion a year and do business in the state, which applies to roughly 2,600 companies, according to state air regulators. Businesses will have to report pollution from burning fossil fuels directly, as well as releases from activities such as delivering products from warehouses to stores and employee business travel.

The Chamber of Commerce and other business groups have said companies will need to spend significant amounts of money, potentially more than $1 million, to comply with the laws. ERM, an advisory firm, estimated that compliance costs would range from $237,000 to $533,000.

The Associated Press contributed to this report.