"ESG, which stands for “environmental, social, and governance,” refers to metrics often used by analysts to evaluate and vet the non-financial sustainability impact and social consciousness of companies. These metrics can impact a company’s risk profile and public perception—and, ultimately, the bottom line.

“ESG disclosures” are specific metrics used by organizations to report on their ESG performance and initiatives. ESG disclosures are generally broken into three categories:

  1. Environmental: focuses on climate risks, emissions, energy efficiency, use of natural resources, pollution, and biodiversity
  2. Social: focuses on human capital; labor regulations; diversity, equity, and inclusion (“ DEI”); safety; human rights; and community engagement
  3. Governance: focuses on board diversity, corruption and bribery, corporate ethics and compliance, compensation policies, and risk tolerance

The terms ESG disclosure, sustainability report, and corporate social responsibility report are often used interchangeably.

Overview of the ESG Disclosure Regimes in the US

Federal Government

ESG disclosure in the United States (“US”) remains largely voluntary, except for the state of California’s requirements, discussed below. Governmental agencies and shareholder activists, however, continue to advocate for mandatory ESG disclosure. On March 6, 2024, the US Securities and Exchange Commission (“SEC”) adopted climate-related disclosure rules, two years after publishing the proposed rules.[1] Shortly thereafter, on April 4, 2024, the SEC stayed its climate disclosure rules following a flurry of lawsuits by many stakeholders challenging both the rules and the SEC’s authority to issue the rules.[2] A total of forty-three states (twenty-five against and eighteen advocating for the SEC rules as intervenors), as well as interest groups and trade associations, have since filed their petitions for review across different appellate courts, which are now consolidated in a multidistrict litigation in the U.S. Court of Appeals for the Eighth Circuit, dubbed Iowa v. Securities & Exchange Commission.[3] Many opponents to the SEC’s ESG disclosure rules argue that following the Loper Bright decision[4] by the US Supreme Court, which overturned the long-standing Chevron deference doctrine,[5] the SEC lacks authority under federal securities laws to require corporate reporting of greenhouse gas emissions and other climate disclosures. This case remains in litigation and the rules are stayed. In any event, many experts believe that the Trump administration will abandon the rules.[6]

State of California

In 2023, the state of California enacted Senate Bill 253 (“SB 253”) (“Climate Corporate Data Accountability Act”) and Senate Bill 261 (“SB 261”) (“Greenhouse Gases: Climate‐Related Financial Risk”) as part of the Climate Accountability Package. These laws are applicable to both public and private US companies “doing business” in California.[7]

Senate Bill 219 (“SB 219”) was proposed and signed into law on September 27, 2024, amending the Climate Accountability Package by granting the California Air Resources Board (“CARB”) time and discretion to adopt implementing regulations and clarify answers to key implementation questions. While SB 219 extended CARB’s implementation date from January 1, 2025, to July 1, 2025, it does not offer an extension of the date of first reportable data under SB 253 for Scope 1 and Scope 2 emissions, which remains January 1, 2025.[8] This means that US entities required to report under SB 253 may still have to collect Scopes 1 and 2 data for the first half of 2025 and include this in their first report to CARB, due by January 1, 2026.

On December 5, 2024, CARB issued an enforcement notice indicating its intent to exercise “discretion” in enforcing SB 253 during the first 2026 reporting cycle to allow companies additional time to implement data collection necessary to comply with the reporting requirements.

Shortly thereafter, on December 16, 2024, CARB issued a feedback solicitation inviting public comments on the implementation of SB 253 and SB 261, due by February 14, 2025..."

This article was originally published in Business Law Today.