Examining the legal hurdles and state-level climate leadership in the United States

The United States is currently sending contradictory signals on corporate sustainability.

At the federal level, there is a clear push to roll back regulations and reduce administrative burdens. However, this is being directly challenged by strong, state-led initiatives that are forging ahead with their own strict reporting requirements and climate policies. This dual-track system, forged over the past two months by landmark court rulings and new legislation, is creating a patchwork of rules for businesses.

Federal pushback and the impact on ESG reporting

At the federal level, the Trump administration is pushing a clear agenda of deregulation and pushback against what it considers burdensome ESG policies. The US Environmental Protection Agency (EPA) has proposed to end its key Greenhouse Gas Reporting Program (GHGRP), which requires mandatory GHG disclosures from thousands of carbon-intensive facilities. The EPA has justified this move by citing the program as ‘burdensome’ and arguing it has no material impact on the environment. This action, along with a significant revision of the US government’s annual global human rights report, signals a broader administrative effort to reduce transparency and move away from intervening in ESG matters.

In a parallel trend, Republican leaders are increasingly using legal challenges to target ESG-focused organisations. This was highlighted by the Florida Attorney General's investigation into the climate reporting organisations CDP and the Science Based Targets initiative (SBTi), alleging they are a "climate cartel" that coerces companies into disclosing proprietary data.

Court rulings and political agendas are shaping the SEC’s climate policy

The Securities and Exchange Commission (SEC) finds itself in a precarious legal position, which reflects the broader political pressures on its regulatory agenda. The US Court of Appeals for the Eighth Circuit has rejected the SEC's request to rule on the legality of its climate disclosure rules, instead putting the litigation on hold and placing the responsibility squarely on the SEC to decide the rules' fate. This ruling forces the SEC to take a definitive public position on the rules, as it can no longer simply defer to the court. 

Adding to this uncertainty, SEC Chair Paul Atkins has also threatened to review the SEC’s decision to allow foreign companies to use International Financial Reporting Standards (IFRS) without reconciling them to US accounting rules (US GAAP). The warning is directly tied to concerns that the IFRS Foundation's new role with the International Sustainability Standards Board (ISSB) could divert funding and focus from its traditional accounting standards-setter, the International Accounting Standards Board (IASB). Atkins’ remarks are part of a broader push by the Trump administration to move away from ESG policies, leaving a cloud of uncertainty over the future of federal climate disclosure requirements in the US.

California’s enduring leadership

Amid this federal uncertainty, California is holding firm to its role as a de facto national regulator on sustainability. A US District Judge has denied a motion from the US Chamber of Commerce to block California's climate disclosure laws (SB 253 and SB 261). This ruling, which found the plaintiffs have not shown a "likelihood of success on the merits," is a major development in US climate litigation, and a win for state-level regulation.

Following this legal victory, the California Air Resources Board (CARB) has released draft guidance documents for companies preparing to report under the new laws. The guidance provides key clarifications aimed at easing the reporting burden, confirming that companies can meet compliance using familiar frameworks like the TCFD and that the disclosure of Scope 3 emissions is not required in initial reports. The clear progress in California contrasts sharply with the federal pushback and highlights a growing ‘patchwork’ regulatory environment across the United States.

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