Exxon Mobil Corp. recently filed suit against the state of California in the U.S. District Court for the Eastern District of California. The lawsuit contends that two of the state’s climate-focused laws impinge on the company’s right to free speech.

“California enacted two statutes that purport to require Exxon Mobil Corporation to serve as a mouthpiece for ideas with which it disagrees,” the lawsuit says. “The goal is to ‘embarrass’ large corporations that California believes are uniquely responsible for climate change into ‘tak[ing] meaningful steps to reduce GHG (greenhouse gas) emissions.’ The statutes compel ExxonMobil to trumpet California’s preferred message even though ExxonMobil believes the speech is misleading and misguided. But the Constitution does not permit a State to use speech mandates to turn private parties into ‘instrument[s] for fostering public adherence to an ideological point of view [they] fin[d] unacceptable.’”

The two laws, passed in 2024, require companies to publicly report GHG emissions and financial risks related to climate change.

“SB 253 requires public and private companies that are active in the state and generate revenue of more than $1 billion annually to publish an extensive account of their carbon emissions starting in 2026,” Reuters explains. “The law requires the disclosure of both the companies’ own emissions and indirect emissions by their suppliers and customers.

“SB 261 requires companies that operate in the state with over $500 million in revenue to disclose climate-related financial risks and strategies to mitigate risk. Exxon also argued that SB 261 conflicts with existing federal securities laws, which already regulate what publicly traded companies must disclose regarding financial and environmental risks.”

There’s no legitimate state interest in justifying these speech mandates, the lawsuit contends.

“The legislative history for S.B. 253 pays lip service to informing California consumers … but the statute’s reporting regime requires ExxonMobil to estimate and ‘recalculate’ historical emissions under the GHG Protocol for any business activity, anywhere on the planet—including lithium production in Arkansas, jet-fuel production in Louisiana, and crude oil production in Guyana— regardless of whether an ounce of those products makes its way to California consumers. And while both statutes purport to protect investors, California lacks any legitimate interest in augmenting the federally regulated investor disclosures of public companies like ExxonMobil, and the legislative history is bereft of clear evidence that the GHG Protocol or TCFD (Task Force on Climate-related Financial Disclosure) framework would materially advance investors’ assessment of ExxonMobil’s business risks,” the lawsuit continues. “Nor does California have a valid interest in compelling speech to promote viewpoints and drive public opinion in a manner that it hopes will reduce [GHG] emissions that occur outside of its borders and beyond its regulatory authority.

“While California might believe that making ExxonMobil report historical emissions for an oil refinery acquired in Canada or speculative business risks for a Kazakhstan pipeline is the best way to spur climate solutions, ExxonMobil disagrees. And the First Amendment bars California from pursuing a policy of stigmatization by forcing ExxonMobil to describe its non-California business activities using the State’s preferred framing.”

The company states it has repeatedly disclosed its GHG emissions and climate-related business risks, and, to the best of its knowledge, no California official has ever suggested those disclosures are misleading or incomplete.

Exxon has asked the court to block the enforcement of these laws.

Additional lawsuit

This isn’t the first federal lawsuit filed over SB 253 and SB 261.

Last year, a coalition of business organizations filed suit in federal court against the California Air Resources Board (CARB), challenging the agency’s corporate climate disclosure laws.

The coalition’s members are:

Chamber of Commerce of the United States of America

California Chamber of Commerce

American Farm Bureau Federation

Los Angeles County Business Federation

Central Valley Business Federation

Western Growers Association

The lawsuit alleges that SB 253 and SB 261:

Unconstitutionally compel speech in violation of the First Amendment, forcing thousands of companies to engage in controversial speech they don’t wish to make, untethered to any commercial purpose or transaction;

Seek to regulate an area outside California’s jurisdiction and subject to exclusive federal control by virtue of the Clean Air Act (CAA); and

Are also unconstitutional due to federal “limitations on extraterritorial regulation, including the Dormant Commerce Clause,” because California regulations don’t limit the disclosures to emissions made in California or to California-related climate risks.

In response to this lawsuit, California Senator Scott Weiner, lead author of SB 253, issued the following statement: “The U.S. Chamber of Commerce’s lawsuit against these groundbreaking climate laws is straight up climate denial. Why is the Chamber of Commerce working so aggressively to block basic transparency for the public? We know the answer. It’s not because of the Chamber’s bogus arguments about cost and implementation, since it’s both inexpensive and easy for corporations to make these disclosures. It’s not because of the Chamber’s bizarre and frivolous First Amendment argument. Rather, 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. The Chamber and large corporate polluters don’t want the public to know how much they’re strangling the planet with carbon emissions — that’s why they filed this baseless lawsuit.”

Takeaway

Industry is advised to keep in mind the fact that California legislators are aware of constitutional laws and the risks involved in writing these laws. Therefore, although it remains to be seen how the court will rule in these suits, industry should prepare to remain in compliance with these CARB regulations. The outcome of the lawsuits, according to law firm Mayer Brown LLP, “may offer insight into the basis of potential future challenges that other similar laws may face whether in California or beyond, including, for example, the Securities and Exchange Commission’s proposed climate disclosure rules and Minnesota’s … law requiring climate risk disclosures from banks.”