ESG Compliance a Key Focus for U.S. Businesses in 2025
2025 is expected to be a significant year for many U.S. businesses when it comes to Environmental, Social, and Governance (ESG) compliance. While ESG regulations have been a focal point for companies with operations in the European Union and the United Kingdom, more U.S. companies are now starting to pay attention to the importance of ESG compliance. This shift in focus means that executives, sustainability specialists, internal auditors, compliance practitioners, and in-house counsel need to be prepared to navigate the evolving landscape of ESG compliance in the coming years.
One of the key developments in the realm of ESG compliance is the status of federal ESG regulations, particularly those set by the U.S. Securities and Exchange Commission (SEC). Under the Biden administration, the SEC adopted rules to standardize climate-related disclosures for public companies. However, these rules have faced legal challenges, leading to uncertainty surrounding their enforcement. Acting SEC Chairman Mark Uyeda has described the rules as “deeply flawed” and has indicated a need for further deliberation on the appropriate next steps, leaving the fate of these rules uncertain for the time being.
However, states like California are taking the lead in implementing ESG regulations. In 2023, California enacted a series of laws aimed at regulating climate-related disclosures, including the Climate Corporate Data Accountability Act (SB 253) and SB 261. These laws require large business entities to report on their greenhouse gas emissions and disclose their climate-related financial risks by specific deadlines. The laws also mandate following specific frameworks for disclosures and obtaining verification from independent third parties.
Under SB 253, businesses with total annual revenues exceeding $1 billion are required to report their GHG emissions from different scopes starting in 2026. Additionally, SB 261 mandates disclosures related to climate-related financial risks for entities with over $500 million in total annual revenue by January 1, 2026. These disclosures are crucial for understanding the impact of climate-related risks on financial outcomes and implementing measures to mitigate those risks.
The California Air Resources Board (CARB) is tasked with regulating these laws, and in December 2024, they issued an enforcement advisory outlining the reporting deadlines for businesses to comply with SB 253. While the U.S. Chamber of Commerce and other parties have taken legal action to block enforcement of these laws, the federal court has dismissed some claims while others remain pending CARB’s rulemaking. As a result, businesses covered by these laws should start preparing for compliance as soon as possible.
In addition to mandatory disclosures, California has also introduced voluntary carbon market disclosure laws to further promote transparency in emissions reporting. With the state taking proactive steps to regulate ESG compliance, businesses operating in California need to be aware of these evolving requirements and ensure they are ready to meet them. As ESG compliance continues to gain prominence in the corporate world, companies must adapt to meet the growing demand for transparency and accountability in the realm of environmental, social, and governance practices.
