ESG disclosure requirements are changing quickly. New climate laws, global reporting standards, and political scrutiny are creating a more complex reporting environment for companies.
At the Society for Corporate Governance’s Sustainability Practices Forum last week, companies addressed the increasingly fragmented regulatory environment U.S. companies face and discussed navigation strategies for balancing regulatory risk, investor expectations, and transparency. Here are our key takeaways:
Closely Monitor California Climate Laws
California is leading the way in climate disclosure, and companies across the U.S. are paying close attention. California often sets trends for other states, and New York, Colorado, Illinois, and New Jersey have stated that they’re considering similar climate disclosure requirements. Companies operating in multiple states may need more flexible reporting systems to keep up with state-level changes, including:
- Different reporting deadlines and thresholds
- Inconsistent disclosure requirements
- Increased compliance workload
February may bring more clarity on California reporting requirements and implementation timelines; specifically:
- On February 26, the California Air Resources Board’s (CARB) will hold a public hearing to discuss both SB 261 and SB 253 (Corporate Greenhouse Gas Reporting).
- The Ninth Circuit Court of Appeals may rule on CA SB 261 (Climate-Related Financial Risk Disclosure), which will determine how companies assess and report climate-related financial risks.
Consider Regulatory Requirements alongside Political Risk
While ESG regulations are expanding in some areas, political resistance is also increasing.
State and federal pushback is becoming more coordinated, especially around topics such as debanking, diversity and inclusion programs, and climate-related policies. On January 19, Texas’s Attorney General issued an anti-DEI opinion affecting the public sector. This opinion may also impact private companies that work with government agencies or operate in regulated industries.
Prepare for Possible Proxy Advisory Voting Changes
In December, the White House issued an Executive Order directing the SEC and FTC to strengthen oversight of proxy advisory firms. Related legislation could also be introduced in the House in 2026.
Plan for More Global Reporting Complexity
Counter to growing anti-ESG sentiment in the U.S., ESG reporting requirements continue to expand in other regions. The EU’s Corporate Sustainability Reporting Directive (CSRD) is still moving forward (albeit after contentious streamlining efforts), and in the UK sustainability reporting standards aligned with the International Sustainability Standards Board (ISSB) are also progressing. While these standards are not yet mandatory for most U.S. companies, global companies likely will soon need to manage this fragmented landscape.
Embrace Best Practices to Stay Ahead
Some organizations are choosing to focus only on mandatory disclosures. While this may reduce exposure in the near-term, it can increase the risk of greenhushing, which can hurt transparency and trust with investors, customers, and employees. Staying informed and taking a proactive approach can reduce longer-term compliance risk and improve reporting efficiency:
1: Track regulatory updates at the state, federal, and global levels
2: Build flexible ESG reporting processes
3: Improve internal data collection and controls
4: Maintain clear and consistent stakeholder communications