ESG Compliance 2025: Navigating the Fragmented Landscape - From SEC Retreat to State and International Mandates

Executive Summary

The environmental, social, and governance (ESG) disclosure landscape in 2025 presents a paradox: comprehensive federal climate rules have effectively disappeared while state and international mandates accelerate with unprecedented scope and complexity. Companies that expected regulatory simplification instead face a fragmented compliance environment requiring sophisticated, multi-jurisdiction strategies.

The SEC's March 2025 withdrawal from defending climate disclosure rules eliminated what would have been a unified federal framework. Simultaneously, California's climate accountability laws continue advancing toward January 2026 implementation, affecting thousands of companies doing business in the state. Meanwhile, the European Union's Corporate Sustainability Reporting Directive (CSRD) expands to capture U.S. companies with significant EU operations, requiring comprehensive value chain disclosures far exceeding anything contemplated domestically.

This report examines the strategic implications of regulatory fragmentation, provides practical frameworks for multi-jurisdiction compliance, and identifies how forward-thinking organizations can transform mandatory disclosure into competitive advantage. Companies navigating this landscape must develop flexible compliance architectures that accommodate varying requirements while building stakeholder trust through transparent sustainability communications.

The Federal Retreat: SEC Climate Rule Withdrawal and Its Strategic Implications

From Comprehensive Framework to Voluntary Guidance

The SEC's climate disclosure rule, adopted March 6, 2024, represented the most ambitious federal sustainability reporting mandate in U.S. history. The rule would have required public companies to disclose material climate-related risks, governance structures, and—for large accelerated filers—Scope 1 and 2 greenhouse gas emissions with third-party assurance.

Implementation never occurred. Immediate legal challenges resulted in preliminary injunctions, and the Eighth Circuit consolidated nine separate lawsuits questioning the SEC's statutory authority. On March 27, 2025, the Commission voted 3-2 to withdraw its defense of the rules, effectively ending federal climate disclosure requirements.

In July 2025, the SEC took the extraordinary step of asking the Eighth Circuit to proceed with ruling on statutory authority questions rather than allowing the Commission to rescind the rules administratively. This unusual approach suggests current leadership prefers judicial limitation of the agency's climate-related powers over regulatory reversal that future administrations might undo.

What Remains: Existing Guidance and Materiality Standards

The SEC's withdrawal doesn't create a disclosure vacuum. Companies remain subject to:

2010 Interpretive Guidance on Climate Disclosures: The SEC's Commission Guidance Regarding Disclosure Related to Climate Change remains effective, requiring material climate-related disclosure under existing securities law frameworks when climate matters impact financial condition, operating results, or business operations.

Regulation S-K and S-X Requirements: Traditional disclosure obligations for material risks, legal proceedings, and MD&A discussions apply to climate matters when material. Companies cannot ignore climate-related information simply because specific climate rules don't exist.

Antifraud Provisions: Material misstatements or omissions regarding climate-related matters, including in voluntary ESG reports, remain subject to securities law enforcement. The SEC has brought enforcement actions for misleading ESG claims, and this enforcement priority continues despite rule withdrawal.

Investor Demand Persistence: Institutional investors managing trillions in assets continue demanding climate disclosure regardless of regulatory requirements. Proxy voting guidelines, investment due diligence processes, and index inclusion criteria increasingly incorporate climate data requirements.

Strategic Implications of Federal Withdrawal

The absence of federal requirements creates several strategic considerations:

Competitive Disclosure Decisions: Companies must independently determine disclosure strategies without federal baseline requirements. Those providing robust climate information may gain investor confidence and stakeholder trust. Those providing minimal disclosure risk reputational damage and investor pressure.

Litigation Exposure Shifts: Without specific disclosure rules, companies face heightened scrutiny of voluntary climate statements under general antifraud provisions. Vague aspirational statements without supporting data create litigation risk. Silence on material climate matters may violate existing Regulation S-K obligations.

State and International Mandates Fill the Void: Federal withdrawal doesn't eliminate disclosure obligations—it fragments them. Companies operating across multiple jurisdictions face overlapping, sometimes inconsistent requirements without the simplification a federal framework would provide.

California Climate Accountability: SB 253 and SB 261 Implementation

Comprehensive State Mandates Advance Despite Federal Retreat

California's climate accountability package—Senate Bill 253 (Climate Corporate Data Accountability Act) and Senate Bill 261 (Climate-Related Financial Risk Act)—represents the most comprehensive state-level climate disclosure mandate in U.S. history. The laws survived legal challenges, legislative delay attempts, and implementation obstacles to remain on track for January 2026 compliance.

SB 253: Greenhouse Gas Emissions Disclosure Requirements

Scope and Applicability:

SB 253 requires companies doing business in California with total annual revenues exceeding $1 billion to publicly disclose greenhouse gas emissions annually, measured and reported in accordance with the Greenhouse Gas Protocol.

The California Air Resources Board (CARB) estimates approximately 2,596 entities meet these criteria, including both public and private companies. "Doing business in California" remains undefined in statute, with CARB considering adopting the interpretation in Revenue and Tax Code Section 23101 or developing alternative criteria through rulemaking.

Reporting Requirements and Timeline:

Companies must disclose:

• Scope 1 Emissions (Direct): GHG emissions from sources directly owned or controlled by the company

• Scope 2 Emissions (Indirect Energy): GHG emissions from purchased electricity, steam, heating, or cooling

• Scope 3 Emissions (Value Chain): All other indirect emissions occurring in the company's value chain, both upstream and downstream

Implementation Schedule:

• June 30, 2026: First Scope 1 and 2 emissions disclosure for fiscal year 2025 (proposed deadline, subject to final rulemaking)

• 2027: Scope 3 emissions disclosure begins for fiscal year 2026

• Flexibility for First Year: Companies may report Scope 1 and 2 data from any of the past three fiscal years (2023, 2024, or 2025) in first report to reduce initial compliance pressure

Third-Party Assurance:

Emissions disclosures require independent third-party verification, though CARB continues developing specific assurance standards and timelines through the rulemaking process. The agency indicated verification requirements will be determined through additional public consultation, with limited assurance expected initially.

Enforcement and Penalties:

CARB may assess penalties up to $500,000 annually for non-filing, late filing, or other compliance failures. However, CARB committed to "enforcement discretion" for the first reporting cycle, imposing no penalties on entities demonstrating "good faith efforts" to comply, even if reports are incomplete.

This safe harbor approach recognizes implementation challenges resulting from delayed regulatory guidance while maintaining pressure for meaningful compliance attempts.

SB 261: Climate-Related Financial Risk Reporting

Scope and Applicability:

SB 261 applies to companies doing business in California with total annual revenues exceeding $500 million—a lower threshold than SB 253, capturing approximately 4,160 entities per CARB estimates. Unlike SB 253, SB 261 specifically excludes insurance companies.

Reporting Requirements:

Covered entities must publicly disclose a climate-related financial risk report biennially (every two years), including:

• Physical Risks: Acute risks (extreme weather events, natural disasters) and chronic risks (temperature shifts, sea level rise, resource availability changes) affecting operations, assets, and financial performance

• Transition Risks: Policy changes, market shifts, technology disruptions, and stakeholder sentiment changes related to climate mitigation and adaptation

• Mitigation and Adaptation Measures: Strategies and actions the company is taking to address identified risks

• Opportunities: Potential business opportunities arising from climate change or response strategies (optional but encouraged)

Framework Alignment:

SB 261 directs companies to align disclosures with the Task Force on Climate-Related Financial Disclosures (TCFD) recommendations or other frameworks meeting TCFD standards. CARB released a draft disclosure checklist in September 2024 based on streamlined 2017 TCFD recommendations.

For the first reporting cycle (due January 1, 2026), CARB indicated flexibility in several areas:

• Reports may cover either fiscal year 2024 or 2025 depending on what is reasonable for the organization

• GHG emissions can be excluded from the first report (despite TCFD normally requiring this information)

• Formal qualitative scenario-based resilience assessments are not required initially

Enforcement and Penalties:

Maximum penalties of $50,000 annually may apply for non-compliance. CARB established a public docket system (opening December 1, 2025) where companies register the URL of their published climate risk reports to facilitate transparency and public review.

SB 219: Amendments and Refinements

California passed Senate Bill 219 in September 2024, amending aspects of SB 253 and SB 261:

Key Changes:

• Extended CARB's deadline to develop SB 253 regulations from January 1, 2025 to July 1, 2025 (though CARB did not meet even this extended deadline and now anticipates late 2025 finalization)

• Modified Scope 3 disclosure timing, allowing CARB to specify the schedule rather than mandating disclosure 180 days after Scope 1 and 2

• Permitted parent companies to report on a consolidated basis for subsidiaries doing business in California

• Provided CARB discretion on whether to manage disclosures internally or contract with third parties

Critically, SB 219 did not change compliance deadlines for covered companies—the January 1, 2026 deadline for SB 261 and 2026 reporting for SB 253 remain unchanged despite delayed regulatory guidance.

Administrative Costs and Fees

CARB projects significant program administration costs:

• One-time setup costs: $20.7 million

• Annual ongoing costs: $13.9 million combined for both programs

To fund these activities, CARB proposes annual fees for covered entities:

• SB 253: $3,106 per reporting entity

• SB 261: $1,403 per reporting entity

• Combined: $4,509 for entities subject to both laws

Fees will adjust annually for inflation and may change based on actual program participation and costs.

Strategic Response to California Requirements

Immediate Actions for Covered Companies:

1. Confirm Applicability: Determine whether your company meets revenue thresholds and "does business in California" criteria. Monitor CARB's forthcoming entity list for your company's inclusion.

2. Assess Current Data Availability: Inventory existing GHG data collection processes, particularly for Scope 1 and 2 emissions. If you already report to CDP, participate in voluntary frameworks, or comply with other jurisdiction requirements, evaluate how existing data aligns with California requirements.

3. Scope 3 Preparation: Begin identifying Scope 3 emissions sources and evaluating data collection feasibility across your value chain. This is typically the most challenging disclosure area, requiring supplier engagement and estimation methodologies for indirect emissions.

4. Leverage Existing Climate Risk Assessments: If you've conducted TCFD-aligned or other climate risk analyses, review them for SB 261 compliance readiness. Identify gaps and plan enhancements.

5. Budget for Compliance: Factor in software/consulting costs for emissions calculation, third-party assurance fees, legal review, and CARB administrative fees.

European Union Corporate Sustainability Reporting Directive: Global Reach

CSRD Scope and Ambition

The Corporate Sustainability Reporting Directive, which took effect January 5, 2023, replaces and significantly expands the Non-Financial Reporting Directive. The CSRD captures approximately 50,000 companies—including many U.S. entities—requiring comprehensive sustainability disclosures far exceeding climate-specific reporting.

U.S. Company Applicability

Three Pathways to CSRD Scope:

1. Large U.S. Companies Listed on EU-Regulated Markets: U.S. companies with securities (equity or debt) listed on EU exchanges fall within CSRD scope based on size criteria:

   • More than 250 employees, OR

   • More than €50 million in net turnover, OR

   • More than €25 million in total assets

   Meeting two of three criteria in consecutive years triggers requirements.

2. Large EU Subsidiaries of U.S. Companies: U.S. parent companies with EU subsidiaries exceeding the above thresholds must ensure subsidiary-level CSRD compliance, even if the parent isn't listed in the EU.

3. Non-EU Parent Consolidated Reporting: U.S. companies generating significant EU revenue with at least one EU subsidiary or branch must file consolidated sustainability reports at the global parent level if they:

   • Generate more than €150 million in EU revenue for two consecutive years, AND

   • Have at least one large EU subsidiary or branch exceeding size thresholds

This third pathway brings entire U.S. corporate groups—including all non-EU operations—into CSRD reporting scope based solely on EU business activity level.

Recent Simplification Proposals

In February 2025, the European Commission proposed two "Omnibus" packages significantly reducing CSRD burdens:

Omnibus I - Postponement (Adopted April 2025):

• Wave 2 companies (large unlisted EU entities): Reporting delayed from 2026 (FY 2025) to 2028 (FY 2027)

• Wave 3 companies (listed SMEs): Reporting delayed from 2027 (FY 2026) to 2029 (FY 2028)

• Wave 1 companies (previously subject to NFRD): No change—reporting continues as planned for FY 2024 in 2025

Omnibus II - Scope Reduction (Proposed, Not Yet Final):

• Limit CSRD to companies with more than 1,000 employees

• Simplify European Sustainability Reporting Standards (ESRS) through future delegated acts

• Reduce value chain reporting burdens on smaller companies

The two-year postponement for Waves 2 and 3 provides breathing room for many companies, but Wave 1 entities—including large U.S. companies already listed on EU exchanges—continue facing 2025 reporting obligations on 2024 fiscal year data.

ESRS: Comprehensive Sustainability Standards

Companies within CSRD scope must report according to European Sustainability Reporting Standards covering:

Environmental Disclosures:

• Climate change (including Scope 1, 2, and 3 emissions)

• Pollution

• Water and marine resources

• Biodiversity and ecosystems

• Resource use and circular economy

Social Disclosures:

• Company workforce conditions

• Workers in value chain

• Affected communities

• Consumers and end-users

Governance Disclosures:

• Business conduct and ethics

• Corporate governance structure

Cross-Cutting Standards:

• General principles

• General disclosures

• Double materiality assessment

Double Materiality: The CSRD's Distinctive Approach

CSRD embraces "double materiality," requiring companies to report on both:

Financial Materiality: How sustainability matters affect the company's financial performance, position, and cash flows (investor perspective)

Impact Materiality: How the company's activities affect people and the environment, whether or not those impacts create financial effects (stakeholder perspective)

This approach fundamentally differs from U.S. securities law's traditional investor-focused materiality standard. Companies must disclose sustainability impacts deemed immaterial to financial performance but material to external stakeholders—a significant expansion of reporting obligations.

Mandatory Assurance Requirements

Unlike voluntary assurance common in U.S. sustainability reporting, CSRD mandates third-party assurance over all disclosed sustainability information. Initially, "limited assurance" (similar to review-level procedures) applies, with plans to transition to "reasonable assurance" (audit-level procedures) in future years.

This requirement significantly increases compliance costs and demands robust internal controls over sustainability data comparable to financial reporting systems.

Implementation Timeline for U.S. Companies

Assuming no further postponements beyond Omnibus I:

2025 (FY 2024 Reporting):

• Large U.S. companies listed on EU-regulated markets with more than 500 employees (if previously subject to NFRD)

2028 (FY 2027 Reporting):

• Large U.S. companies listed on EU-regulated markets not previously subject to NFRD

• Large EU subsidiaries of U.S. companies

2029 (FY 2028 Reporting):

• Non-EU parent companies required to file consolidated reports based on EU revenue thresholds

Note: These dates reflect Wave 2 and Wave 3 postponements. Monitor for potential scope reductions under Omnibus II proposals.

Additional International Frameworks: ISSB and Beyond

IFRS Sustainability Disclosure Standards

The International Sustainability Standards Board (ISSB), established by the IFRS Foundation, published two baseline sustainability disclosure standards in June 2023:

IFRS S1 - General Requirements: Framework for disclosure of sustainability-related financial information

IFRS S2 - Climate-Related Disclosures: Specific requirements for climate-related risks and opportunities

Multiple jurisdictions globally are adopting or basing national standards on ISSB framework, creating international convergence around climate disclosure. While not directly mandatory for U.S. companies, ISSB standards influence:

• Voluntary reporting frameworks companies adopt

• Investor expectations for disclosure quality

• International subsidiary requirements as countries adopt ISSB-based regulations

Other Jurisdiction-Specific Requirements

United Kingdom: Companies must report climate-related financial disclosures aligned with TCFD recommendations under the Companies Act.

Canada: Canadian Securities Administrators propose mandatory climate disclosure rules for reporting issuers.

Australia: Government consulting on mandatory climate-related financial disclosure aligned with international standards.

Japan: Revised Corporate Governance Code encourages TCFD-based climate disclosure for listed companies.

U.S. multinational companies with operations in these jurisdictions may face location-specific requirements even absent federal U.S. mandates.

Strategic Framework: Navigating the Fragmented Landscape

Establishing a Multi-Jurisdiction Compliance Architecture

Companies operating across multiple jurisdictions need flexible compliance systems accommodating varying requirements while minimizing duplication:

1. Conduct Comprehensive Jurisdiction Mapping

Document all locations where your company operates, generates revenue, or maintains legal presence. For each jurisdiction, assess:

• Current ESG disclosure requirements

• Pending regulatory developments

• Compliance timelines and deadlines

• Reporting frameworks (TCFD, GRI, ISSB, ESRS)

• Assurance requirements

Create a compliance matrix showing which entities must report under which regulations, identifying overlaps and conflicts.

2. Build Modular Data Collection Systems

Design data collection and management systems capturing information usable across multiple frameworks rather than building separate processes for each requirement:

• Establish consistent GHG accounting following Greenhouse Gas Protocol (accepted by most frameworks)

• Develop standardized climate risk assessment methodologies adaptable to different disclosure formats

• Create centralized sustainability data repositories feeding multiple reporting outputs

• Implement controls and documentation supporting potential assurance requirements

3. Prioritize Based on Timing and Materiality

Not all requirements demand equal attention. Prioritize compliance efforts based on:

• Mandatory vs. voluntary requirements

• Nearness of compliance deadlines

• Financial and reputational consequences of non-compliance

• Stakeholder (investor, customer, employee) priorities

• Business strategic importance of jurisdictions

4. Align Internal and External Reporting

Sustainability disclosure should inform, and be informed by, internal business strategy:

• Integrate climate risk assessment into enterprise risk management

• Align sustainability metrics with operational KPIs and executive compensation

• Use external reporting as mechanism for driving internal accountability

• Ensure board-level oversight of sustainability matters

5. Monitor Regulatory Evolution

The fragmented landscape continues evolving rapidly. Establish processes for:

• Tracking regulatory developments in all relevant jurisdictions

• Participating in public comment processes to influence emerging requirements

• Engaging with trade associations and legal counsel

• Conducting periodic compliance re-assessments as regulations change

Disclosure Strategy Decisions: Minimum Compliance vs. Leadership Positioning

Companies face strategic choices regarding disclosure approaches:

Minimum Compliance Approach:

• Disclose only what regulations mandate in each jurisdiction

• Provide information sufficient to meet legal requirements without elaboration

• Minimize voluntary sustainability communications

• Focus resources on compliance, not strategic positioning

Strategic Advantage:

• Lower compliance costs

• Reduced risk of "greenhushing" criticisms

• Simplified reporting processes

Strategic Risk:

• Investor dissatisfaction and potential divestment

• Competitive disadvantage vs. peers providing robust disclosure

• Reputational damage from appearing non-transparent

• Difficulty attracting/retaining employees prioritizing sustainability

Leadership Positioning Approach:

• Provide comprehensive sustainability disclosure exceeding minimum requirements

• Adopt recognized voluntary frameworks (GRI, TCFD, ISSB) even when not mandatory

• Communicate sustainability strategy, progress, and challenges transparently

• Seek third-party assurance voluntarily to build credibility

Strategic Advantage:

• Enhanced investor confidence and potentially lower cost of capital

• Competitive differentiation and brand strengthening

• Improved stakeholder relationships

• Attraction/retention of sustainability-focused talent

• Reduced regulatory risk as disclosure practices exceed emerging requirements

Strategic Risk:

• Higher compliance and assurance costs

• Greater exposure to greenwashing claims if performance doesn't match commitments

• Competitive disclosure of strategic information

• Resource diversion from other business priorities

Most companies find middle ground, exceeding minimum requirements in strategic areas while meeting baseline compliance elsewhere. The optimal approach depends on industry, stakeholder expectations, competitive dynamics, and business strategy.

Avoiding Greenwashing: The Enforcement Landscape

As sustainability disclosure expands, so does scrutiny of misleading claims. Both regulators and private litigants increasingly challenge:

Unsubstantiated Claims: Statements about sustainability performance or commitments without supporting data or methodology disclosure

Selective Disclosure: Highlighting positive sustainability metrics while omitting material negative information

Misleading Aspirations: Setting ambitious targets without credible plans, resources, or accountability mechanisms

Misaligned Actions: Public sustainability commitments contradicted by lobbying, political contributions, or business strategy

Scope 3 Misrepresentation: Claiming carbon neutrality or net zero through purchased offsets while not addressing operational emissions

The SEC's Division of Enforcement, state attorneys general, and NGOs are bringing actions for ESG-related misrepresentation. Companies should:

• Ensure all sustainability claims are substantiated with data and methodology

• Avoid aspirational language disconnected from concrete actions

• Disclose limitations, uncertainties, and challenges alongside achievements

• Maintain consistency between public statements and internal business strategy

• Subject voluntary sustainability communications to same rigor as regulated disclosures

The Technology Enablement Opportunity

Comprehensive sustainability disclosure at the scale and granularity regulations demand requires technology transformation. Leading companies leverage:

ESG Data Management Platforms: Centralized systems for collecting, validating, calculating, and reporting sustainability metrics across multiple frameworks

AI-Powered Data Analysis: Machine learning tools analyzing large datasets to identify emissions sources, predict future impacts, and recommend optimization strategies

Blockchain for Supply Chain Transparency: Distributed ledger systems enabling verifiable tracking of products, materials, and associated emissions throughout complex supply chains

Continuous Monitoring Systems: Real-time sustainability metric tracking enabling monthly or even daily performance visibility rather than annual snapshot reporting

Automated Assurance Tools: Technology-enabled audit procedures increasing assurance efficiency and effectiveness while reducing costs

Technology investment transforms compliance obligations into strategic capabilities, enabling companies to use sustainability data for operational optimization, strategic planning, and stakeholder engagement—not just reporting.

JHS USA's Approach: Advisory-First ESG Services

At JHS USA, we recognize that ESG compliance in 2025 requires more than checkbox reporting. Our approach integrates technology-enabled solutions with strategic advisory to help clients transform regulatory obligations into competitive advantage.

Multi-Jurisdiction Compliance Strategy: We help clients navigate the fragmented landscape by designing flexible compliance architectures accommodating current and anticipated requirements across all relevant jurisdictions.

AI-Native Data Solutions: Our technology platform leverages AI and automation for emissions calculation, climate risk assessment, and materiality analysis—providing efficiency and accuracy traditional consultants can't match.

Financial Materiality Analysis: We bring deep financial expertise to sustainability reporting, ensuring disclosures meet securities law standards while addressing stakeholder expectations.

Assurance Readiness: Our audit heritage enables us to design controls, documentation, and processes supporting third-party assurance requirements—avoiding costly remediation when assurance becomes mandatory.

Strategic Integration: We help clients align sustainability disclosure with business strategy, using external reporting as mechanism for driving internal accountability and value creation.

The regulatory landscape's fragmentation isn't obstacle—it's opportunity for companies willing to lead rather than follow. Those building robust, transparent sustainability reporting today position themselves for competitive advantage regardless of how regulations evolve.

About the Author

Suresh Iyer turns financial uncertainty into strategic clarity. With 25 years spanning Big Four audit leadership, corporate finance, and fractional CFO work, he guides publicly traded companies and high-growth startups through IPOs, complex transactions, and transformational growth—bringing technical precision and forward-thinking strategy to organizations that refuse to settle for reactive reporting.

JHS USA provides comprehensive ESG advisory services combining regulatory expertise, technology-enabled solutions, and strategic guidance. We help companies navigate California climate laws, EU CSRD requirements, and emerging international frameworks while transforming compliance obligations into stakeholder value. Contact us to discuss your ESG disclosure strategy and implementation roadmap.

This report is for informational purposes only and does not constitute legal, regulatory, or compliance advice. Companies should consult qualified advisors regarding specific disclosure obligations.

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