What Executives Need To Know About The State Of Sustainability Reporting In July 2025

Forbes

5 hours ago

ESG environment social governance investment business concept.
Sustainability has dominated the conversation in the corporate world over the past few years. Sustainability reporting; environmental, social, and governance reporting; and climate related-risk reporting were poised to be new standards alongside other financial reporting requirements. However, elections around the world shifted political leadership to the right, resulting in a"green backlash." The future of sustainability reporting is being reevaluated and debated. With so many moving pieces in jurisdictions around the world, it is difficult to know what to watch. Below are key developments that occurred leading up to June and to watch for in July.
U.S. Department of Labor
Under powers delegated to them under the Employee Retirement Income Security Act, the Department of Labor regulates what factors fund managers can consider when investing retirement funds. In 2020, under Trump, the DOL issued a rule that said investments should be made based on 'pecuniary factors' only. In 2022, under Biden, the DOL issued a new rule saying that investments can consider ESG as a tiebreaker. The 2022 rule allows for the consideration of ESG factors, if, and only if, they are going to make the investment more profitable.
The Trump Administration is seeking to reverse the 2022 rule. However, any action created through rulemaking can only be reversed through the same rulemaking process.On April 25, an attorney for the DOL gave notice to the Court of the department's intent to reverse the rule.
On May 28, the DOL filed an update, stating the "Department has determined that it will engage in a new rulemaking on the subject of the challenged rule. This rulemaking will appear on the Department's Spring Regulatory Agenda, and the Department intends to move through the rulemaking process as expeditiously as possible.'
The posting of regulatory agenda is the first step to the rulemaking process, providing official notice to the public that an agency intends on creating, editing, or rescinding a rule. The DOL will release the 2026 Spring Regulatory Agenda in July. Prepare for the new rule to be released in early 2026, with a comment period in the summer.
U.S. Securities and Exchange Commission
In March 2024, the U.S. Securities and Exchange Commission adopted the Climate-Related Disclosure Rule to require large publicly traded companies to disclose climate action, greenhouse gas emissions, and the financial impacts of severe weather events. The rule was immediately met with legal challenges and was delayed while the court heard the cases.
The lawsuits came from both sides. In February, acting SEC Chair Mark Uyeda began the process to permanently end the rule. At the time, he asked the court for a delay in the proceedings while the SEC takes action to rollback the Climate-Related Disclosure Rule. In March, the SEC officially voted to end their legal defense of the rule.
As with the DOL, the reversal of the Biden era rule must go through the rulemaking process. The SEC will also release their 2026 Spring Regulatory Agenda in July, expect the Climate-Related Disclosure Rule to be on the list. Prepare for the new rule to be released in early 2026, with a comment period in the summer.
On June 12, the SEC gave notice the are withdrawing a number of proposed rules that were still in the process of being drafted. Most notably, the 2022 'Enhanced Disclosures by Certain Investment Advisers and Investment Companies About Environmental, Social, and Governance Investment Practices.' As those rules were never enacted, the withdrawal is effective immediately.
State Level Sustainability Reporting
With the collapse of sustainability reporting at the national level, focus shifted to state level requirements. Sustainability activists held hope that what could not be obtained at the national level, could be accomplished in Democrat led states. Unlike Congress that meets year round, state legislatures typically meet for 60 days at the beginning of the year. Those legislative sessions mostly concluded in June, with no new notable climate reporting or sustainability reporting requirements adopted.
For now, California stands alone as the only state with a climate reporting requirement. In September 2023, California approved the Climate Accountability Package, a pair of bills aimed at creating sustainability reporting requirements. Senate Bill 253 required companies that do business in California and have an excess of $1 billion in revenue, defined as 'reporting entities', to submit an annual report for Scope 1 and Scope 2 starting in 2026, for FY 2025. Scope 3 reporting will begin in 2027, for FY 2026.
The responsibility of drafting specific regulations and implementing the reporting standards was delegated to the California Air Resources Board. CARB was initially given until January 1, 2025 to draft the rules and processes. That was delayed until July 1. CARB will not meet that deadline.
CARB is still in the informal pre-rulemaking stage and debating what standards will be used to determine what companies fall under the reporting requirements. They are working on the definitions of 'doing business in California', revenue, and corporate relationships between parent and subsidiary companies.
For now, if your company meets the revenue requirements in SB 253 or SB 261 and has over $735,000 in annual sales in California or $73,500 in property in California, keep a close eye on this process. CARB wants to release the rule by the end of the year. A fast-track approach still takes about three months, so I expect CARB will shift to the formal stage by September. Now is the time for interested parties to weigh in. Once the formal process begins, the template will be set and changes are hard to argue.
I question if the California standard will survive the 2026 legislative session. Governor Newsome questioned the viability of the initial proposal, but still signed it. With the SEC withdrawing reporting requirements, no other states following California's lead, and the European Union rolling back international standards, it is difficult to believe California will stand alone in imposing such a burdensome requirement.
EU Corporate Sustainability Reporting
The most vigorous debate on the future of sustainability reporting is unfolding in the European Union. The EU was the world leader in the establishment of sustainability reporting requirements. They are now rolling back those requirements.
As part of the European Green Deal, a trilogy of directives were passed to force businesses to address climate change and report GHG missions. However, the cost of these proposals on businesses and the broader impact on the EU economy became a theme during the 2024 elections. The shift to the right in EU politics embolden opponents to the European Green Deal directives. As a result, the Commission proposed a package of new directives to 'reduce the burden' on businesses.
The Omnibus Simplification Package was officially adopted by the Commission in February. The Commission proposal raised the thresholds for businesses to have to report under the Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive. The Council adopted their proposal on June 23. Now it is being debated in the Parliament.
The current CSRD uses a two out of three criteria test to determine if a company must report: 250 employees, €50 million in net turnover, and €25 million in assets. The Commission proposes raising the employee threshold. Stating 'to be subject to the reporting requirements an undertakings must have an average of more than 1000 employees during the financial year and either a net turnover above €50 million or a balance sheet total above €25 million.' The Council's proposal uses the 1000 employee threshold, but raises the annual turnover to €450 million. The Parliament is debating a proposal to raise the employee threshold to 3000.
The current CSDDD requires companies to execute due diligence in ensuring that companies along the value chain are in compliance with environmental and human rights requirements. The Commission did not propose changes to the scope, but the Council wants to raise the employee threshold to 5000 employees and an annual net turnover of €1.5 billion. The Parliament is debating a proposal to raise the employee threshold to 3000.
Sustainability advocates are fighting to save the directives, but it is a losing battle. Changes are coming to both the CSRD and the CSDDD, the debate is over the scope of those changes. The Commission proposal effectively removes 80% of businesses in the EU from having to report. It also eliminates nearly all non-EU based businesses.
Watch the Parliament. Members and the parties were required to submit amendments by June 27. Those will most likely be published the first week of July. The party leaders will meet on July 15 to discuss the proposals and begin official negotiations for the final bill. The Parliament is expected to adopt its final position on October 13. That will be debated in a trilogue negations between the Council, Commission, and Parliament in November and December. Final changes should be adopted in December or January.
In February 2024, the EU adopted the Directive on Empowering Consumers for the Green Transition, legislation that specifically targeted green and climate related claims. The Directive banned generic environmental claims 'without recognised excellent environmental performance which is relevant to the claim.'
In June 2024, the Council of the European Union announced its position on the Green Claims Directive. The Commission, Council, and Parliament were in the 'trilogue' negotiations on the final language. The directive appeared poised for passage, but momentum to rollback green initiatives caught the green directive.
In mid-June, members of Parliament from the EPP sent a letter to the environment Commissioner Jessika Roswall threatening to pull all support of the directive. On June 20, the Commission announced they were planning to withdraw the proposal, a procedural step that would terminate negotiations.
The political blowback was swift from moderate political parties, threatening the support of Commission President Ursula von der Leyen. For a presidency in a multi-party system, where leadership is based on coalitions rather than majority, the loss of support could be devastating. However, by June 24, the Commission was reversing course.
Keep an eye on this issue in July. Watch for the Commission to propose a reduced Green Claims Directive, most likely removing some SMEs from falling under the requirements. For now, negotiations on the anti-greenwashing legislation are stalled.