George Markezinis
2025 finds environmental, social, and governance requirements with a turnaround—a drop that had started to be noticed since last year as the SEC ESG proposal was challenged with an underprioritization. Specifically, legal issues led to the suspension of the long-anticipated climate-related disclosure rules, initially adopted in March 2024, a month later.
In addition to the SEC approach and the advent of the new administration, it is more likely that companies will see less federal ESG oversight. However, handling complex requirements will still be of importance since there are institutional investors who are strongly demanding ESG disclosure. These investors hold between 20% and 30% of many companies’ stock, which puts them at odds with the growing anti-ESG movement. Federal regulations might step back, yet state-level initiatives keep ESG reporting vital for U.S. businesses. California’s mandatory climate reporting laws, starting in 2026, serve as a prime example.
.
The SEC cutting of climate disclosure requirements marked a major shift from the 2022 proposal, with legal challenges and political dynamics in the digital world leading to these modifications.
SEC’s greatest curtailment was the Scope 3 greenhouse gas emissions disclosure requirements removal and the changing of Scope 1 and Scope 2 emissions reporting rules. These now apply to large accelerated filers and accelerated filers when material. On top of that, the SEC removed the need to assess financial statement effects on each line item.
So, when do these regulatory rules take effect? As of this year’s fiscal year, SEC large accelerated filers must gather climate risk and governance data to create their first report in 2026, while SEC accelerated applicants will start collecting data in 2026 for their 2027 reports. Non-accelerated filers and smaller reporting companies will begin their first climate-related risk disclosures in 2028.
The new approach introduces a materiality level for Scope 1 and Scope 2 greenhouse gas emissions. When they report their emissions, companies can now select the method for defining organizational boundaries and disclose any differences from solidified financial statements. The SEC established a safe zone that shields registrants from liability. This pertains to disclosures on transition planning, scenario analysis, and internal carbon price. However, financial statement disclosures must still follow existing audit requirements and management’s internal control over financial reporting.
Companies find it arduous to comply with their ESG strategies due to the growing of regulatory requirements. According to the EY Global Integrity Report 2024, 37% of organizations cannot easily cope with the changing ESG regulations in different jurisdictions.
The emergence of more than 1,255 ESG regulations globally between 2011 and 2023 has created a complex web of reporting obligations. Companies don’t deal very well with three basic challenges:
On the one hand, there is the pressure of meeting stakeholder needs, and on the other, there is the concern of lacking enough influence or resources to put ESG initiatives into action effectively.
According to an October 2022 survey by KPMG, GRI Standards are used by 78% of the world’s top 250 companies and an average of 68% of the top 100 companies in 58 countries, including the US.
Despite complexity and challenges, companies find their practical way to get through them, while they also focus on putting reliable risk management frameworks in place for ESG activities. Businesses are improving the process of collecting data, although 47% still use spreadsheets to gather it. IT systems and targeted training programs are among the initiatives the companies invest in to boost compliance effectiveness.
They must stay watchful of global compliance requirements, which often need better automation capabilities and system infrastructure. Businesses operating in multiple jurisdictions need to review whether they should adapt to the strictest regulations or keep separate reporting systems for each jurisdiction.
US states show a complex mix of ESG regulations, with 41 states either putting in place or thinking about ESG investing rules.
Recent California laws SB 253 and SB 261 created detailed climate disclosure requirements. Companies that earn more than USD 1.00 billion yearly will need to report Scope 1 and 2 emissions by 2026, with Scope 3 emissions following in 2027. The rules also require businesses with annual earnings above USD 500.00 million to submit climate-related financial risk reports by 2026. The California Air Resources Board got extra time until July 2025 to create implementation rules.
20 states now have active anti-ESG rules that mostly limit ESG factors in investment choices. Eight states, however, have created pro-ESG regulations
Legal teams face mounting obstacles as they deal with conflicting state rules. Company lawyers must follow one state’s emissions guidelines without breaking another state’s rules about fossil fuel industry restrictions. Different disclosure requirements across states make this job even harder. State legislatures currently have more than 75 anti- or pro-ESG bills waiting for approval. Companies need to watch state-specific rules carefully while keeping their practices consistent across all regions.
The EU’s Corporate Sustainability Reporting Directive has become a driving force that shapes global ESG disclosure requirements.
The directive will affect over 10,000 non-EU companies, including 3,000 from the U.S., along with an estimated 50,000 EU companies.
US companies need to comply when they generate over €150 million in EU turnover across two consecutive years. They must also meet one of two conditions: they should either operate an EU subsidiary that qualifies as “large” or run an EU branch with net turnover exceeding €40 million. These companies must file reports under European Sustainability Reporting Standards starting in 2025 for their 2024 fiscal year.
The International Sustainability Standards Board serves as the lifeblood of global standardization efforts. Through collaboration with GRI and the IFRS Foundation, two key pillars have emerged:
Companies encounter significant difficulties as they try to meet requirements from different countries. They need to build resilient due diligence systems that cover risk assessments and supplier audits. Many businesses have deepened their commitment to data collection by using advanced technologies. Blockchain technology helps trace supply chain movements effectively.
Another key aspect that companies must pay close attention to is the double materiality assessment. This means they need to assess how they affect sustainability and how these issues influence their financial stability. This approach requires complete reporting on environmental effects, social responsibility, and governance structures. US companies with international operations must develop strategies that line up with different jurisdictional requirements while keeping their corporate practices consistent.
The changing ESG reporting rules present both challenges and opportunities for US businesses. Along with the major pullback from the SEC and federal regulations, companies must deal with a manifold set of rules from different states and countries. Regional compliance has become more crucial with California’s complete climate reporting laws and the EU’s CSRD requirements.
Organizations must find smart solutions to manage multiple reporting frameworks, meet stakeholder expectations, and maintain data accuracy in the complex world of ESG reporting. On top of this complexity, businesses operating in different states are experiencing chaos over their respective approaches to ESG investing rules.
The global aspect brings another key factor to think about, especially when they have European operations. These companies must arrange their reporting to match both US and international standards. This includes IFRS sustainability disclosure standards and GRI frameworks. Companies that want to succeed with ESG compliance need strategies that work across federal, state, and international rules and keep their corporate practices and data consistent in all areas where they operate.
