EU delays, U.S. shifts and Japan's new sustainability standards

The regulatory landscape for sustainability reporting is in a state of flux, creating both challenges and opportunities for businesses. This month, we're focusing on key developments across the EU, the US, and Japan.

EU Omnibus update

On the 3rd April, the European Parliament officially approved a 2-year delay in the application of major ESG regulations, specifically the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Consequently, large companies are now expected to begin reporting under CSRD starting in the financial year 2027, instead of 2025, and due diligence obligations for EU and non-EU groups will be phased in between 2028 and 2030, based on company size and revenue. Member States are required to implement these changes into their national law by December 2025. 

The European Commission is prioritising the simplification of these regulations. To this end, they tasked the European Financial Reporting Advisory Group (EFRAG) with revising ESRS Set 1, aiming to reduce mandatory data points, clarify materiality requirements, and enhance interoperability with global reporting frameworks. EFRAG is expected to submit a revised draft by October 31, 2025, incorporating feedback from first-time adopters. To facilitate a smooth transition, the transposition date for Member States is set for December 31, 2025, ensuring that Wave 2 companies are not prematurely brought into scope on January 1, 2026. 

SEC Climate disclosure update

The SEC has signalled a shift in its approach to its climate change reporting rules. Although the rules have not been officially canceled, the SEC is no longer actively defending them in court. This decision follows statements from SEC Acting Chairman Mark Uyeda, who opposed the original rule, describing it as “costly and unnecessarily intrusive”.  It also coincides with the resignation of former Chair Gary Gensler and the upcoming confirmation of Donald Trump's nominee for SEC Chair, Paul Atkins, who also opposes the rule.  

The climate disclosure rules, adopted in March 2024, would have required public companies to report on climate-related risks, plans to mitigate those risks, the financial impact of severe weather events, and, in some cases, greenhouse gas (GHG) emissions. These rules faced immediate legal challenges from various parties, including Republican state attorneys general and the US Chamber of Commerce. After initially pausing implementation in April of 2024, while vowing to "vigorously defend" the requirements, the SEC has now withdrawn its legal defence.

Mandatory GHG reporting proposed in New York

New York State's Department of Environmental Conservation (DEC) has proposed new regulations for mandatory greenhouse gas (GHG) emissions reporting from significant emitters, with reporting to begin in 2027 (based on 2026 data). While the proposal doesn't mandate emissions reductions or allowances, it is a step towards a planned cap-and-invest system. This system would require large emitters and fuel distributors in New York to pay more than USD 1 billion in order to purchase allowances for the emissions associated with their activities. Proceeds fro the program would be used to fund for emissions reduction initiatives and support vulnerable communities facing rising energy prices. 

The reporting would apply to various sectors, including electric power entities, owners and operators of electricity generation, stationary combustion, landfills, waste-to-energy, natural gas compressor stations, and other infrastructure facilities in the state that emit over 10,000 metric tons of CO2e annually, as well as fuel suppliers, waste haulers, fertiliser and agricultural lime suppliers, and anaerobic digesters and liquid storage of waste facilities that meet certain thresholds. A public consultation has been launched and will be open until July 1, 2025.

Nevertheless, a few days after these regulations were introduced, President Trump announced the signing of a new executive order, “Protecting American Energy from State Overreach,” aimed at shielding energy companies from a series of State laws setting fines for their contributions to greenhouse gas emissions; meaning that their future remains uncertain at this point.

Issuance of the Japanese sustainability standards

The Sustainability Standards Board of Japan (SSBJ) issued its inaugural sustainability disclosure standards on March 5, 2025. These standards are aligned with the International Sustainability Standards Board's (ISSB) Sustainability Disclosure Standards, incorporating all requirements of IFRS S1 and S2. The SSBJ Standards include an Application Standard, a General Standard, and a Climate Standard. Notably, the SSBJ standards include "jurisdiction-specific alternatives," which may lead to reporting that does not fully comply with ISSB Standards, and some additional requirements. 

The standards are currently in Japanese, with English overviews and comparison documents forthcoming. While application scope and timing are not defined, they are developed for companies listed on the Prime Market of the Tokyo Stock Exchange. The SSBJ will monitor ISSB developments and consider corresponding changes to ensure international comparability. These standards are significant as they encourage alignment with the ISSB in Asian markets and position Japan as a regional leader in sustainable finance.