A U.S. appeals court on Nov. 9 ruled that California cannot enforce parts of its climate disclosure laws that require large companies to report indirect greenhouse gas emissions and climate-related financial risk.

A federal district court last year denied a request for a preliminary injunction from the U.S. Chamber of Commerce, the American Farm Bureau Federation, and several California business groups seeking to block the state’s climate disclosure laws. The Ninth Circuit Court of Appeals partially reversed that decision on Monday.

In an 84-page ruling, the three-judge panel upheld the lower court’s decision allowing California to enforce provisions of the Climate Corporate Data Accountability Act, also known as SB 253, that require companies to disclose emissions from purchased energy and sources they directly own and control.

The panel ruled in favor of blocking enforcement of provisions requiring companies to report indirect greenhouse gas emissions across their value chains, including those from suppliers and customers.

The panel found the provision too broad to address the state’s goal of closing information gaps because it requires companies in California with more than $1 billion in total annual revenue to disclose activities beyond their operations.

“Because Scope 3 disclosures concern diffuse third-party conduct in the value chain, they are insufficiently tethered to the reporting entity’s own operations and capital transactions to qualify as commercial speech,” Circuit Judge Jacqueline Nguyen wrote for the court.

The panel also blocked enforcement of SB 261, which requires companies with more than $500 million in annual revenue to biennially disclose climate-related financial risks. It said the law was not narrowly tailored, finding that the state could employ less restrictive measures.

“SB 261 requires companies to opine on whether climate change poses financial risks to their operations and business model, thereby making predictive judgments about uncertain future conditions,” Nguyen wrote.

“The compelled disclosures require companies to go beyond providing economic information tethered to any commercial transaction. Instead, companies must share value-laden judgments on a politically fraught subject, and thus the disclosures fall outside the commercial speech doctrine.”

Circuit Judge Mark Bennett partially dissented from the panel’s ruling, saying that he would have blocked both SB 253 and SB 261.

“In my view, both laws compel disclosure of information lacking a close tether to commercial transactions. I reach that conclusion because neither law informs market participants about a specific product,” Bennett said.

California Gov. Gavin Newsom signed both laws in 2023, making California the first U.S. state to require the disclosures. Opponents said the laws would impose massive costs on public and private businesses and violate the First Amendment’s free speech protections.

Jennifer Barrera, president and CEO of the California Chamber of Commerce, one of the plaintiffs, said the Ninth Circuit’s ruling showed the state’s climate disclosure laws amounted to legislative overreach.

“In both instances, California lawmakers failed to recognize that even when addressing the issue of climate change, the ends don’t justify the means,” Barrera said in a statement.

California Attorney General Rob Bonta’s office said it was pleased that part of the emissions disclosure law can be enforced and was evaluating the next steps.

Reuters contributed to this report.