By Travis Gillmore
Faced with new regulations that would require thousands of companies in California to calculate and disclose emissions, a group of businesses filed a lawsuit Jan. 30 in the U.S. District Court in Los Angeles to overturn the laws.
At issue are Senate Bills 253 and 261, requiring comprehensive greenhouse gas disclosures for businesses with revenues exceeding $1 billion and $500 million, respectively.
“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 and the federalism principles embodied in our federal Constitution,” the lawsuit alleges.
Concerns were also raised about comments made by Assemblyman Rick Chavez Zbur, who described SB 253 last year as “groundbreaking legislation with the potential to reach far beyond California’s borders.”
Described by some as costly and difficult regarding compliance, the regulations are the strictest in the nation.
Representing thousands of businesses across the state and nationwide, plaintiffs including the U.S. Chamber of Commerce, American Farm Bureau Federation, California Chamber of Commerce, and the Los Angeles County Business Federation, among others, are asking the court to overturn the two laws.
They argue that businesses’ First Amendment rights are violated by rules that require companies to engage in political speech related to climate agendas.
“It forces thousands of companies to engage in controversial speech that they do not wish to make, untethered to any commercial purpose or transaction,” the lawsuit reads. “And it does all this for the explicit purpose of placing political and economic pressure on companies to ‘encourage’ them to conform their behavior to the political wishes of the State.”
A spokesperson for one of the plaintiffs said private and public interests should be collaborating instead of creating obstacles to sustainable development.
“Businesses and government need to work together to address the problem and that requires policies that are practical, flexible, predictable, and durable,” Tom Quaadman, executive director for the U.S. Chamber of Commerce Center for Capital Markets Competitiveness, said in a press release Jan. 30 announcing the lawsuit. “California’s corporate disclosure laws are the opposite of that and violate the First Amendment by forcing businesses to engage in subjective speech.”
Complainants also allege that California businesses would be negatively affected because they would incur costs related to reporting that out-of-state and international businesses could avoid.
“The costs and compliance issues of this law will be felt by businesses of all sizes, but especially small, Main Street businesses,” Mr. Quaadman said. “The Chamber and its partners will continue to fight back against illegal and excessive government overreach at the state and federal levels, especially micromanagement that undermines responsible efforts by businesses to address climate risks.”
During Legislative analyses last year, critics argued that litigation was expected from in-state companies fighting perceived disadvantages and from out-of-state businesses challenging the state’s authority if regulators attempt to enforce the laws on other entities.
In response to the lawsuit, the authors of the two bills dismissed the allegations.
“The US Chamber has manipulated a handful of misguided California businesses to join this risky act of political theatre,” Sen. Henry Stern, author of SB 261, said in a Jan. 30 statement. “Although their arguments are weak, I’m confident that [the] California Air Resources Board and the Attorney General will take this suit seriously.”
Fellow Democratic Party colleague Sen. Scott Wiener argued the plaintiffs are attempting to “block basic transparency for the public.”
“The U.S. Chamber of Commerce’s lawsuit against these groundbreaking climate laws is straight up climate denial,” Mr. Wiener said in a Jan. 30 press release.
Rejecting the “bizarre and frivolous” constitutional claims and “bogus arguments about cost and implementation,” the senator from San Francisco said some companies are already voluntarily complying, suggesting the process is not as difficult as the suit alleges.
“The Chamber is taking this extremist legal action because many large corporations— particularly fossil fuel corporations and large banks—are absolutely terrified that if they have to tell the public how dramatically they’re fueling climate change, they’ll no longer be able to mislead the public and investors,” Mr. Wiener said.
While the lawsuit alleges that companies could incur costs of $1 million or more to comply with the new laws, Mr. Wiener argues that the costs would be “minuscule” and cites a report from ERM, a global sustainability advisory firm, which found average compliance costs of $237,000 to $533,000 per year depending on the types of emissions calculated.
California Gov. Gavin Newsom also expressed apprehension about the costs to businesses when he signed one of the laws last year.
“I am concerned about the overall financial impact of this bill on businesses, so I am instructing California’s Air Resources Board to closely monitor the cost impact as it implements this new bill and to make recommendations to streamline the program,” Mr. Newsom said in a signing statement attached to SB 253.
Citing a need to revisit the legislation, the governor also noted that the timelines defined by the bill are unattainable for some businesses—with compliance required by January 1, 2025.
“The implementation deadlines in this bill are likely infeasible, and the reporting protocol specified could result in inconsistent reporting across businesses subject to the measure. I am directing my Administration to work with the bill’s author and the Legislature next year to address these issues,” he said in the signing statement.