ExxonMobil Takes Its Turn Challenging California Climate Disclosure Laws

WHAT HAPPENED

In late October, ExxonMobil filed a complaint in the U.S. District Court for the Eastern District of California against state officials challenging the state’s new carbon emissions disclosure law (SB 253) and climate risk disclosure law (SB 261) as allegedly violating its First Amendment rights. The complaint also alleges that SB 261 is preempted by the National Securities Market Improvement Act of 1996 (NSMIA).

TAKEAWAYS

As discussed in BCLP’s August 19, 2025 post, the U.S. District Court for the Central District of California in U.S. Chamber of Commerce et al. v. Cal. Air Resources Board et al., No. 2:24-cv-00801 recently rejected similar arguments in a case brought by the U.S. Chamber of Commerce and other business interests.  Even though that decision is not binding on a court in a different federal district, the prospects for ExxonMobil’s claims remain uncertain.

In U.S Chamber of Commerce, the court denied the plaintiffs’ motion for a preliminary injunction.  The court ruled that plaintiffs had not shown a likelihood of success on the merits with respect to their First Amendment challenge to the laws.  The court applied rational basis review to SB 253, finding that although the state did not show sufficient evidence of protecting consumers or against misleading disclosures, the state had shown sufficient evidence of benefits for investors relating to disclosures of emissions, as well as the state’s interest in emissions reductions, to survive a facial challenge.  The court applied intermediate scrutiny to SB 261 and found sufficient evidence of the benefits for investors, even though not for consumers or reducing emissions. The plaintiffs have filed a notice of appeal.

The ExxonMobil complaint does not squarely distinguish the earlier case, as it seeks relief for violations of the First Amendment as applied to the company, instead of a facial challenge. Accordingly, it focuses on some elements not addressed in that court’s opinion:

• The company already reports emissions and advances policy views in annual voluntary climate solutions (ACS) reports, explaining its methodology and its disagreement with the Greenhouse Gas Protocol (GHG Protocol).
• SB 253 would require it to disclose information in terms with which it disagrees, utilizing the GHG Protocol that the company has long declared flawed, misleading and counterproductive.
• The company already reports material business risks as required under SEC rules. 
• SB 261 is expressly preempted by NSMIA and would require disclosure using the Task Force on Climate-related Financial Disclosures (TCFD) framework, which requires “granular conjecture about unknowable future developments.”

DEEPER DIVE

Background of SB 253 and SB 261

As discussed in BCLP’s recent publications (Are You Affected? California’s Climate Disclosure Laws: Reporting Deadlines and Requirements and California Climate Reporting Deadlines Loom After Denial of Preliminary Injunction), deadlines for California’s landmark climate reporting laws are coming soon.

• The first set of disclosures under the Climate-Related Financial Risk Act (SB 261) are required by January 1, 2026.
  
  SB 261 requires covered companies to publish “climate-related financial risk reports” detailing their climate-related financial risks in accordance with the recommended framework and disclosures published by the TCFD, along with “measures adopted to reduce and adapt to [that] climate-related financial risk.”
• Scope 1 and Scope 2 emissions reporting under the Climate Corporate Data Accountability Act (SB 253)are due in mid-2026 (exact date to be determined, but CARB has proposed an initial deadline of June 30, 2026).
  
  SB 253 requires covered companies to report their own worldwide emissions (Scope 1) as well as emissions associated with their energy consumption (Scope 2) and “upstream and downstream emissions” from any goods or services they consume or sell (Scope 3). Reports must use the GHG Protocol after selecting a base year, with figures recalculated under certain circumstances, including structural changes in the company, such as M&A.

ExxonMobil’s Climate Disclosures; Perceived Flaws in California Requirements

According to the complaint in Exxon Mobil Corporation v. Sanchez et al., the company already discloses significant information about its emissions and climate-related risks. Since 2022, the company has reported emissions and advanced policy views in annual voluntary climate solutions (ACS) reports. The ACS reports advocate the company’s views on energy policy and detail perceived flaws in the GHG Protocol. In the company’s view, the Protocol is the “wrong tool . . . to meet society’s objective of better living standards with reduced CO₂emissions” because it:

• Penalizes large companies by focusing on absolute emissions, or total GHG emissions associated with a company, instead of carbon intensity, or GHG emissions associated with a particular unit of output.
• Pressures companies – especially large companies – to cut production to reduce their GHG Protocol reporting, decreasing supply but not demand, instead of encouraging them to focus their efforts on meeting consumer demand through lower-emitting products.
• Leads to multi-counting by requiring reporting not only of a company’s own emissions (Scope 1) but also those associated with its energy consumption (Scope 2) and upstream and downstream emissions (Scope 3).
• Fails to account for avoided emissions – reductions achieved through improved or new carbon-efficient products.
• Relies heavily on unverified or non-auditable data from third-party sources.
• Implicitly acknowledges the weakness of its focus on total GHG emissions by requiring adjustments in prior-year data for structural changes such as M&A; by contrast, the use of carbon intensity would not require such adjustments.
• Requires reporting on Scope 3 emissions despite limitations on availability of third-party data and double-counting the emissions of other companies.

Climate Risk Disclosures. Although the company already discloses risks contemplated by SB 261, it does not purport to comply with the TCFD framework. In addition, it does not currently foresee any material climate risks specific to its limited activities in California; however, SB 261 requires reporting on a company’s worldwide climate-related risk. According to the company, “The First Amendment recognizes no valid state interest in regulating ExxonMobil’s speech to extraterritorially regulate its non-California activities.”

Unconstitutional Compulsion of Protected Speech

According to the complaint:

Statutes engage in content-based and viewpoint-based regulation of speech; subject to strict scrutiny. The company argues that by mandating speech that the company would not otherwise make, the laws engage in content-based regulation of speech. As a result, the statutes are presumptively unconstitutional and may only be justified with proof that they are narrowly tailored to serve compelling state interests.

In addition, the company contends both statutes regulate the viewpoint of the company’s speech. SB 253 requires emissions reports based on a framework (the GHG Protocol) that the company has consistently criticized as misleading and counterproductive. Similarly, SB 261 requires disclosure of business risks using a framework the company believes is unsuitable, forcing disclosure of subjective opinions about speculative topics and targets selected by the State.

Speech at issue not commercial speech entitled to relaxed scrutiny. The company claims the disclosures at issue are not commercial speech entitled to reduced scrutiny, because they do not propose a commercial transaction, are not advertisements, and do not relate to specific products or services. They are intertwined with expression of issues of public concern.

Statutes unconstitutional as applied to the company.  Regardless of the level of scrutiny, the company believes the laws lack adequate justification for requiring the company to speak in terms with which it fundamentally disagrees.  In particular, the company argues the laws:

• Do not protect consumers or stakeholders from fraud or misrepresentation, taking into account the company’s existing disclosures.
• Do not protect investors, as federal law already requires disclosure of material business risks and NSMIA expressly preempts state laws imposing additional investor-disclosure obligations on public-reporting companies. 
• Focus on emissions reduction extends worldwide, thereby exceeding California’s interests in regulating GHG. As the company engages in only minor GHG activities in the state, as applied, the laws serve an emissions-reduction function only by influencing its activities outside the state.