If you’re in the middle of figuring out ESG reporting for your company, you’re probably feeling a little dizzy. Just when it seemed like sustainability disclosures were getting stricter, the rules started shifting, again.
In Europe, companies have spent years preparing for tougher regulations, only to watch the EU suddenly scale back reporting requirements. Meanwhile, in the US, the long-awaited SEC climate disclosure rule has hit a wall, caught in legal and political battles.
So, what’s happening? And more importantly, what should companies do? Let’s break it down.
Europe: less reporting, but ESG isn’t going anywhere
For a while, it seemed like the EU was setting the gold standard for ESG reporting. The Corporate Sustainability Reporting Directive (CSRD) was supposed to bring thousands of companies into the sustainability reporting fold, requiring them to disclosure emissions, climate risks, and social impact.
That’s now changing. The European Commission recently proposed scaling back the scope of CSRD, raising the threshold so only companies with more than 1,000 employees and a turnover of at least €450 million have to comply. That means 80% of businesses that thought they’d need to report are off the hook.
At first glance, this might sound like a win for mid-sized companies that were struggling to keep up with ESG paperwork. Less bureaucracy, lower compliance costs, and fewer headaches.
Investors haven’t suddenly stopped caring about climate risk. Customers aren’t less concerned about sustainability. And major corporations still expect their suppliers to meet ESG standards, even if the regulations are shifting.
Plus, the EU isn’t exactly walking away from sustainability. The EU Taxonomy is still in place, defining what qualifies as a “sustainable activity”. The Carbon Border Adjustment Mechanism (CBAM) is still rolling out, meaning companies that export to Europe will need to track and report emissions starting this year, and pay a carbon levy by 2026.
So, while reporting requirements might be easing up, market expectations aren’t. Companies that keep up with ESG voluntarily will be the ones staying ahead of investors, customers, and regulators when the rules inevitably change again.
The US: ESG is more about politics than policy right now
If Europe is rethinking ESG reporting, the US is stuck in a tug-of-war over it. The SEC’s climate disclosure rule was supposed to be a game-changer. It was meant to standardize ESG reporting and force public companies to disclose their climate risks, emissions, and sustainability strategies. But just as companies were getting ready to comply, legal challenges threw everything into uncertainty.
Right now, the SEC has basically hit pause on enforcing its own rule. With lawsuits piling up, it’s not clear if, or when, it’ll take effect. This puts companies in an awkward position: Do they keep preparing, just in case? Or sit back and wait?
And let’s not forget the political divide on ESG in the US. Some states like California, are introducing their own climate disclosure laws, making sure ESG reporting moves forward even if the SEC’s rule stalls. Others, like Texas and Florida, are pushing anti-ESG policies, banning the use of sustainability metrics in investment decisions
For businesses operating across multiple states, this is a logistical nightmare. ESG isn’t just a regulatory issue anymore, it’s becoming a political and reputational balancing act.
But here’s the thing: even if the SEC rule never takes off, ESG isn’t going away. Investors, especially big ones like BlackRock and Vanguard, still expect transparency on climate risks. Companies that rely on global supply chains still have to deal with sustainability requirements in Europe and beyond. And customers? They’re still looking at which companies are taking action, and which aren’t.
Right now, companies are caught between changing regulations, investor expectations, and political noise. The easy thing to do would be to pause ESG efforts until the dust settles. But that’s also the riskiest move.
The reality is, regulations come and go, but the underlying risks and opportunities of ESG aren’t disappearing.
Take water risk, for example. While everyone’s focused on carbon, water scarcity is quickly becoming a major financial and operational issue. In the US, droughts in the West are making water access more uncertain, while in Europe, new regulations on water use and pollution are just starting to take shape. Unlike carbon, water regulations are still developing, which means companies that act now will be ahead of the curve when stricter rules arrive.
The companies that thrive in this shifting landscape will be the ones that stay agile. Those that recognize ESG aren’t just about checking a compliance box but about building resilience and staying competitive.
So, whether reporting is mandatory or not, the real question isn’t if companies should take action, it’s how fast they can adapt.