The US and the EU may have changed their approach to sustainability regulation, but there’s still momentum for companies to do more to consider people and the planet.

In December, the European Parliament and the Council of the European Union reached a provisional agreement on how the bloc’s sustainability reporting and due diligence requirements would be simplified under its ‘Omnibus package’. These changes to the rules found under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) are one indication of how some major jurisdictions are changing their attitude to sustainability regulation and environmental, social and governance (ESG) in general – some more dramatically than others.

Yet, there’s still momentum behind the concept of corporate sustainability, with some countries moving forward with new regulations in this area, while in other jurisdictions there’s a greater emphasis on voluntary standards.

European simplification

The European Commission set out its Omnibus proposals earlier in 2025. At first glance it appeared the EU was taking similar action to the US by cutting back its corporate sustainability regulations. However, Ferdinand Fromholzer, a partner at Gibson Dunn in Munich, says the reasoning behind the changes is fundamentally different because the EU ‘does not conceptually challenge sustainability regulation’. He says the bloc’s goal is still to transform the economy based on its Green Deal.

The EU is simplifying its regulatory approach to sustainability because it’s ‘worried about the global competitiveness of its enterprises and wants to relieve some of the administrative burden connected with this legislation,’ says Fromholzer. The bloc’s current focus on competitiveness was partly triggered by a 2024 report by the economist and former Prime Minister of Italy, Mario Draghi. This report, says Clare Connellan, a partner at White & Case in London, ‘calls for greater competitiveness through a simplification of regulatory regimes’.

Later in December, the EU Parliament voted in favour of the provisional agreement. The final text now requires formal approval from the Council of the EU. Under the agreement, sustainability reporting will only be required from companies with over 1,000 employees that have a net turnover exceeding €450m. Supply chain due diligence requirements will also be limited to large companies with more than 5,000 employees and a net annual turnover of €1.5bn.

The agreement further aims to shift the reporting burden away from smaller companies: organisations with fewer than 1,000 employees won’t have to provide information to their larger business partners beyond what’s included in the voluntary reporting standards. Transition plans will also no longer be required. The CSDDD will apply to in-scope companies from 26 July 2029.

Over the course of 2025, the Omnibus proposals created some uncertainty about the future of EU corporate sustainability regulation, as well as what companies should do while the bloc’s negotiations continued.

Clara Pacce Pinto Serva, Vice-Chair of the IBA Business Human Rights Committee, says that where she’s based in Brazil, companies had already been passing on the compliance burden to smaller organisations through contractual obligations. As a result, ‘it was becoming hard for smaller companies to implement the cascading effect’ of the CSRD and the CSDDD. Serva says this wasn’t a negative consequence of the two regulations themselves but rather of how companies were choosing to implement them.

Adapting and thriving

In the summer of 2025, the IBA Law Firm Management Committee led a webinar on the theme of ‘championing sustainability in changing times’. The discussion highlighted that while the trend in recent years has been towards greater regulation of sustainability, a shift in attitudes towards ESG initiatives has left the future of this space looking less certain.

The panellists discussed how these changes have affected the advice they’re giving clients as well as how their firms approach ESG. For example, some clients are moving away from the term ‘ESG’, preferring ‘sustainability’ because they deem it less political. Sarah-Jane Denton, a director within the Operational Risk and Environment team at Travers Smith in London, explained how the term ‘sustainability’ can be used naturally to support discussions with clients about the long-term resilience of their business.

Ulysses Smith, an ESG senior advisor at Debevoise & Plimpton in New York, told the audience that clients are looking for advice that helps them keep on top of the ‘cross-cutting currents that are involved in this space’ and want law firms to be more forward-looking.

Denton also observed a need to ‘introduce those difficult dynamics’ arising from current political attitudes towards ESG into the firm’s advice to its clients. She said many clients are international, which means that even if they’re based in the UK, for example, they still need to be sensitive to developments in the US. Her firm’s job, she said, is to help clients understand what they can say on ESG or sustainability that will keep them compliant in one jurisdiction without dramatically elevating their risk in another.

America’s ‘dramatic’ shift

The ‘cross-cutting currents’ Smith referred to predominantly come from the US and from the EU’s aforementioned simplification measures. US President Donald Trump has been vocal in his criticism of ESG and diversity, equity and inclusion (DEI) initiatives. In the first few days of his second administration, he signed multiple executive orders targeting DEI initiatives in the public and private sectors, saying they were ‘illegal and immoral’.

In the spring, President Trump issued another executive order, one that required the Attorney General to identify local and state-level initiatives considered to be contrary to the administration’s goal of unleashing American energy, and to end their enforcement where they’re determined to be illegal. According to the order, the Attorney General should prioritise ‘state laws purporting to address “climate change” or involving “environmental, social, and governance” initiatives, “environmental justice,” carbon or “greenhouse gas” emissions, and funds to collect carbon penalties or carbon taxes’.

During 2025, litigation was brought against state-level climate initiatives, with mixed results. For example, in November, a US appeals court issued an injunction pending appeal to temporarily halt enforcement of a Californian disclosure law, the Climate-Related Financial Risk Act. However, another piece of climate legislation was not halted. In October, a spokesperson for the Californian governor’s office said the state had ‘confidence’ in the laws.

‘The sustainability lens in the US has shifted pretty dramatically’ says Michael Showalter, an officer of the IBA Environment, Health and Safety Law Committee. He says that companies in the US are much more worried about the impact of government policy changes on their operations. He adds that despite the federal government’s position on ESG, businesses are still concerned about the same things, such as doing their best for their shareholders, or for the communities they’re operating in. The sustainability lens is still there, he says – it’s just changed.

Taylor Pullins, a partner at White & Case in Houston, says the change in leadership at the US Securities and Exchange Commission (SEC) marks a shift in policy direction on corporate sustainability regulation. The SEC’s climate disclosure rules, says Pullins, ‘were the most significant regulatory development […] in respect of ESG disclosure’. He highlights that the SEC’s decision not to defend those rules in litigation – as of March 2025 – ‘is a really significant development under the Trump administration, a big policy shift’.

Showalter, who’s a partner at ArentFox Schiff in Chicago, says there could be tension between the federal and the state approach to sustainability regulation in the future. ‘You’re going to see a lot of market demand in certain states to continue in the environmental space,’ he says.

Ripples in the pond

Serva, who’s Head of the Business and Human Rights practice at TozziniFreire in São Paulo, says that 15 per cent of Brazil’s exports go to the EU and the remainder is focused on the US and Asia. She says Brazil is accustomed to adjusting its practices to the expectations of the jurisdictions it relies on and now the country is ‘receiving different messages from different countries, which creates a very bad scenario’.

The EU’s Omnibus package had an impact in Brazil in 2025, says Serva, with some companies ceasing their attempts to proactively implement the CSRD and the CSDDD given the uncertainty on whether they’d ultimately be subject to these directives. She says the US approach is also affecting organisations in Brazil, with many deleting terms such as ‘diversity and inclusion’ and ‘gender’ from their internal policies.

Serva adds that Brazil’s national approach to sustainability regulation has been influenced by developments in the US and the EU. For example, discussions on implementing a bill in respect of mandatory human rights due diligence in Brazil have slowed down. She says the federal executive branch was creating a national policy, to be implemented through a decree, on business and human rights, but work on this has decelerated too. Environmental licensing laws are also being reviewed to make them more flexible and so that it’s easier for businesses to operate in Brazil.

With the approval of the Omnibus package and the expected enforcement of the two EU directives in 2026, there’s been a shift in activity in Brazil. ‘It’s been an intense start [to] the year,’ says Serva. ‘We see companies reacting fast, resuming their human rights impact assessments, analysing the risks their operations pose to human rights and reviewing their corporate governance to make it compatible with [the] requirements and with best practices.’

Other jurisdictions remain less affected by developments in the US and the EU and are pressing ahead with their own corporate sustainability regulatory agenda. Els Reynaers, Co-Chair of the IBA Environment, Health and Safety Law Committee, says the Indian approach is increasingly defined by the country’s Securities and Exchange Board and is predominately voluntary. It’ll be phased in, targeting the largest companies first.

Reynaers, who’s a partner at M V Kini in Mumbai, believes it’s important that these requirements are voluntary and that the penalties aren’t too severe, to allow companies to get used to the new language. ‘India has very realistic and long-term climate change goals,’ she says, adding that the country is ‘looking at 2070’. Reynaers says the long-term approach means industry is very positive in how it has responded to India’s sustainability regulation.

Beyond regulation

Some argue that corporate reporting is important because if a business measures a particular variable, it can be held accountable for its progress towards it. As the cliché goes, what gets measured, gets done. If there’s a reduction in sustainability regulation in some jurisdictions, there’s a question of whether businesses will consequently do less to address the climate crisis, business and human rights and other ESG issues.

Without regulation, ‘there’s little incentive for a corporation to throw money onto issues that pull it back and put a brake on the regular business operations [of] profit maximising,’ says Markus Beham, a former Co-Vice Chair of the IBA Human Rights Law Committee. He adds that without an economic incentive and compliance rules, companies will ‘step back on initiatives or measures that they’ve already taken’.

Showalter doesn’t agree with the idea that command and control regulation is necessary for all change. However, he recognises that some of the sustainability challenges we face are so substantial that regulation can be helpful. He adds that certain aspects of ESG remain regulated by other areas of law. In the US, for example, the Uyghur Forced Labor Prevention Act prohibits ‘goods made with forced labor in the Xinjiang Uyghur Autonomous Region’ in China from entering the country. The law remains applicable regardless of changes to other aspects of corporate sustainability regulation.

Connellan says companies are trying to steer their own course via their policies and procedures. Regulation is just one driver when companies are thinking about overall risk management, she says. The other drivers for companies to address sustainability issues include competitive advantage, stakeholder engagement and litigation risk.

A reduction in regulation could also lead to a rise in litigation. Robert van Beemen, a former Chair of the IBA Law Firm Management ESG Subcommittee, argues that in the absence of government action on sustainability, NGOs and other stakeholders may take matters into their own hands. ‘Increasingly board members can be held liable for their business activities and the decisions they have made,’ he says by way of example. Cases have already been brought that take this approach to put pressure on companies to address their impact on people and the planet.

Beham, who’s Chair of Public Law, International Law and European Law at the European University Viadrina in Frankfurt, says that the enforcement of sustainability regulation in the EU could follow a similar pattern to the approach the bloc has taken to competition law, where the European Commission brought test cases against high-profile companies.

There’s still a role for voluntary standards. Some jurisdictions align their mandatory reporting requirements to standards developed by the International Sustainability Standards Board (ISSB), such as IFRS S1 and 2. The UK, for example, has consulted on new sustainability reporting standards based on these and aims to publish finalised versions for voluntary use in 2026. It’ll then consider introducing requirements for some UK companies to report against the new standards.

Fromholzer says the European Financial Reporting Advisory Group, which developed the reporting standards for the CSRD, wants to align its measures more closely with those of the ISSB, with the aim of reducing the overall compliance burden on companies.

Reynaers believes that voluntary reporting will resonate with companies that are already thinking along those lines, providing ‘something they can rally around in a constructive manner’. She believes that as soon as certain actions become mandatory, a mentality of only meeting the goal at a superficial level can develop.

The lawyer as navigator

As regulatory approaches to sustainability change, lawyers should ensure their clients have the information available to them to navigate the challenges that could lie ahead, Beham says. They should alert the client to the possible risks should these regulations enter into force.

Pullins says that before any regulation was proposed, many US companies understood that sustainability issues ‘were material issues that needed to be included in the scope of corporate strategy’. He says that part of a lawyer’s role is to work with companies on their sustainability perspective, through the governance process and with the board and management, to ensure it’s part of a broader and sustained approach to corporate strategy rather than being based on current federal policy changes.

If sustainability is a trait that businesses wish to market, Showalter says lawyers can help by making sure any statements their clients make are appropriately sourced and compliant with the law.

Lawyers can add significant value to international companies by guiding them on the concrete applicability of any rules, Fromholzer explains. He adds that lawyers can take a more analytical approach than other advisers, which helps businesses understand the goal of the legislation and enables them to take targeted action rather than pursuing a compliance-driven, tick-the-box approach.

Connellan says that lawyers don’t just work with clients on compliance, they also help them manage risk, which can come in various forms. Additionally, lawyers can assist ‘clients with strategic advice as their global business considerations may change through the different transitions,’ she adds.

The IBA’s webinar also asked how law firms can implement best practice on sustainability within their own organisation. Van Beemen, who’s also a partner at DRB Group in The Hague, says that firms can establish ESG committees and that some organisations are establishing a carbon cap on business travel for their employees.

He argues that the largest area of focus for law firms should be advised emissions, which are those associated with the clients they have and the matters they advise on. Van Beemen says that this isn’t just about saying no to certain clients or work, but also about seeing the opportunities associated with understanding sustainability issues and the role the firm’s clients play in relation to those matters.

During the IBA webinar Smith described how individual lawyers can understand the intersections between their own practice area and the different components of ESG. Firms should collate all of the relevant expertise in the organisation to enable them to work on ESG or sustainability matters in a more holistic way, says van Beemen. ‘It’s not just giving ESG advice to your clients, it’s also how you are organising it,’ he explains, adding that, for him, there’s no such thing as ‘the ESG partner’ because the subject isn’t only one law or regulation, but rather ‘covers almost everything we do’.

Voluntary frameworks, such as B Corp certification and the Science-Based Targets initiative, could play an important role for law firms, especially those that see sustainability as offering a competitive edge, adds van Beemen. ‘These kinds of organisations can guide law firms on this difficult, complex journey,’ he says.

‘There’s already momentum’

Serva says one of the challenges of implementing corporate sustainability regulation is that we’re ‘reacting to an accumulation of not doing anything for a really long period’. This inaction has led to the environmental catastrophes and severe human rights violations we see today. She sees a conflict between the urgency of addressing these crises with the challenge of changing entrenched business attitudes and practices. The current debate about corporate sustainability regulation centres on whether the approach is ‘supposed to be quick […] or if it needs to be more gradual,’ she says.

To some extent, the future of regulation in this space ‘will depend on how sustainability can be made profitable as a business model,’ believes Beham. He says it would make a significant difference, for example, if a legal framework was enacted to ensure it wasn’t possible for a business to be outbid, or to lose its competitive edge, because it adheres to high sustainability standards. In this way, sustainability regulation could be shaped so that ‘it creates a competitive advantage for the relevant actors,’ he says.

In the US, Pullins expects more activity at the state rather than at the federal level, while in the EU, Fromholzer predicts ‘a risk-based and more focused sustainability regulation’.

Beham suggests that the sustainability due diligence proposals have brought about a shift in mindset on the best way to address business and human rights issues that will be influential in the future, even if the regulation itself isn’t enacted. ‘It might be a step in the direction of something new,’ he says. For van Beemen, ‘whether we have regulatory frameworks or not […] all those risks will not go away’. Stakeholders will find ways to engage with and pressure businesses on sustainability issues, meaning ‘the risk for business is real,’ he says.

Connellan highlights that there’s already momentum behind corporate sustainability regulation. Beyond the US and the EU, other parts of the world are looking at measures of their own. For example, the Mexican Banking and Securities Commission now requires issuers to report sustainability information in line with IFRS S1 and 2. Other countries are also looking at adopting these two standards in some form. South Korea and Thailand are both working on laws relating to mandatory human rights due diligence. ‘The pace might be different, and the scope might be different [across jurisdictions], but the way that companies consider their risks will take account of their impact on people and the environment and that will continue to be the case,’ Connellan says.

Rachael Johnson is a freelance journalist and can be contacted at rachael.editorial@gmail.com

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