The Securities and Exchange Commission (SEC) rule on climate disclosures for investors still faces an uncertain future in the courts. Meanwhile, other jurisdictions are filling the void. On October 10, the California Air Resources Board (CARB) released draft reporting templates for corporate emissions disclosures required under state law. This week, the European Union (EU) voted to uphold rules on disclosure and due diligence. These two regions represent, respectively, the fourth- and second-largest economies in the world. They signal that, despite setbacks, regulators are moving forward with corporate climate disclosure requirements.
This blog post covers recent developments in corporate climate disclosures in the US and EU. It is the first in a series of two. The second will compared methodologies for scope 3 disclosures.
The SEC Abandons Enhancement and Standardization
Implementation of the SEC rule on the “Enhancement and Standardization of Climate-Related Disclosures for Investors,” adopted back in March 2024, has been stayed pending litigation. Following the change in Presidential administration, the SEC adopted an unusual strategy in the litigation. It decided not to defend the rule in court, but also not to move ahead with rescinding it and instead asked the court to continue the litigation and decide on the merits, as explained here. On September 12, the Eighth Circuit Court of Appeals ordered that the litigation be paused until the SEC either reconsiders the rule through a notice-and-comment rulemaking or renews its defense of the rule, and rejected the SEC’s petition that the court decide the case on the merits. The rule is therefore in legal limbo. Regardless of what happens in court, it is virtually certain that the Trump administration will not move ahead with requiring corporate climate disclosures, much to the detriment of investors.
The Trump administration seemingly isn’t content with simply blocking corporate disclosures here in the U.S. The SEC Chair has attempted to use his influence to also undermine European and international efforts to advance corporate climate disclosure rules. In an op-ed, he railed against the leading European rules on the subject, the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), stating that corporate “disclosure should not be driven by political fads or distorted objectives.” Further, in his address at the OECD Roundtable on Global Financial Markets in Paris, he targeted the international institutions in charge of coordinating standards on disclosure, the International Sustainability Standards Board (ISSB) and International Accounting Standards Board (IASB), warning them not to use standards “as a backdoor to achieve political or social agendas”.
The Chair’s statements reflect an acknowledgment that, even in the absence of action by the SEC, other jurisdictions will regulate and impact U.S. businesses. While the U.S. federal government stays on the sidelines, California and Europe lead the way on addressing climate risk, proving that climate disclosure is a global trend continuing with or without the SEC.
California Implements Its Corporate Climate Disclosure Laws
Climate change has particularly damaged California, with $16 billion in losses to the increased severity and frequency of natural disasters, more than 50,000 deaths and $400 billion losses due to wildfire smoke, extreme heat which lead to $7.7 billion in losses, and the withdrawal or increase in price of insurance policies for homeowners. It was these sorts of losses that provided the rationale for state legislative action to mandate climate risk disclosures.
California passed two laws on corporate climate disclosure that go beyond the SEC rule: (1) the Climate Corporate Data Accountability Act (SB 253) and (2) Climate-Related Financial Risk Act (SB 261). They require disclosures of greenhouse gas emissions (scope 1, 2, and 3) and financial risk related to climate change, as explained in this previous post on the Climate Law Blog.
Rather than burdening small businesses, the California requirements apply to enterprises with an annual revenue of more than $1 billion (for SB 253) or more than $500 million (for SB 261) that do business in California, thus also having extraterritorial effects. On September 24, CARB released a preliminary list of 4000 businesses that would be covered by either or both statutes. A few weeks later, on October 10, CARB issued draft reporting templates for covered entities to report their scope 1 and 2 greenhouse gas emissions. The first reports under SB 261 are due on January 1, 2026, while the deadline for the first reports under SB 253 is expected to be June 30, 2026. Both California laws are the subject of ongoing litigation but, for now at least, that has not altered the timeline for reporting. (For more information on the litigation, see this previous post on the Climate Law Blog).
Europe Amends Corporate Sustainability Reporting and Due Diligence through the Omnibus
The European Green Deal envisions corporate climate disclosure as essential for the climate transition. Two European Union laws are particularly significant. First, the CSRD, which was adopted in 2022, mandates reporting on a number of environment, social, and governance issues including greenhouse gas emissions. Second, the CS3D, adopted in 2024, seeks to identify, prevent, and eliminate potential adverse impacts on a number of human rights and environmental obligations, and requires the adoption and reporting of climate transition plans, where each company must explain how will align its business model and strategy with the Paris Agreement.
The first wave of reports under the CSRD is due this year, while the CS3D will apply from 2028. Both laws have extraterritorial effects and will apply to US businesses, both directly and through indirect effects on corporate governance. That is, in part, why the SEC Chair has weighed in on the European rules. Other U.S. officials have too. Earlier this month, it was reported that the Trump administration had told EU leaders that it viewed the CSRD and CS3D “a serious and unwarranted regulatory overreach,” and called for their repeal. A bill introduced in the Senate–the PROTECT USA Act–would, if enacted, forbid companies from complying with the CS3D. The EU-US trade deal from August 2025 also singled out the CS3D and CSRD as problematic for transatlantic trade and took aim, among others, at the climate transition obligations.
US businesses have also contributed to this campaign against the CS3D and CSRD. Reports allege that ExxonMobil was the single most active corporate actor lobbying against EU corporate climate laws and had special access to closed-door meetings with EU officials.
All of this pressure appears to have had an impact on some European politicians, along with Europe’s own concern about its competitiveness, and the misconception that sustainability and economic prosperity are incompatible. The CSRD and CS3D have recently faced serious political opposition and are currently being amended through the so-called “Omnibus”. Far-right groups requested the repeal of these laws, or at least the delay of implementation of the CSRD until 2030 and of the CS3D until 2040, as well as a reduction of 90% in the reporting data points.
European Rules Resist
On October 13, the legal affairs committee of the European Parliament reached a compromise on the Omnibus, with a broad coalition that included conservatives, social democrats, and liberals, who rejected the climate skeptics’ proposals of the far-right group.
Under the current compromise, the CSRD would be amended to only apply to businesses with at least 1,000 employees and over $522 million (€450 million) of annual turnover. This is estimated to reduce the number of covered companies by 90% compared to the original version of the CSRD, which covered: EU companies with over 250 employees and over $58 million (€50 million) net turnover; non-EU companies with over $175 million (€150 million) net turnover in the EU; and companies with securities listed in a EU regulated market. There is no doubt that the Omnibus version represents backsliding in the scope of corporate sustainability reporting, given that the EU Non-financial Reporting Directive, adopted in 2014, covered approximately 11,000 companies, while the amended CSRD would cover just 4,700 companies.
But, under the compromise, the CSRD would still require mandatory disclosure of greenhouse gas emissions, including scope 3 emissions. The amendments would simplify the number of data points required and clarify the meaning of key principles such as materiality. The CSRD also pretends to further align with international standards from the International Sustainability Standards Board (ISSB), particularly IFRS S1 and S2. This seeks further convergence of EU law with the other fourteen jurisdictions that aim to fully adopt ISSB standards, and recent notice in California that entities can use the ISSB to comply with SB 261, signaling the development of a nascent best practices framework.
The Omnibus would also change the CS3D. According to the current compromise, the CS3D would be amended to only apply to EU businesses with at least 5,000 employees and over $1,74 billion (€1,5 billion) of net worldwide annual turnover. For non-EU companies, the law would apply if they have over $1,74 billion (€1,5 billion) of net annual turnover in the EU.
The critical and consequential obligation for corporations to conduct due diligence on environmental and human rights impacts across their global value chain would be maintained in the amended CS3D. Due diligence requires actions beyond reporting, including the obligation to prevent, eliminate, and remediate impacts.
Climate transition plans would also remain a key feature of the EU laws, albeit with a softer stance. Both the CSRD and CS3D establish an obligation to adopt a climate transition plan to align corporate business models and strategy with the Paris Agreement. The Omnibus would remove requirements to implement transition plans; no longer mentions the 1.5ºC as a target for limiting global warming, impliedly requiring companies to aim for the 2ºC target instead; and lowers the compliance standard from best efforts to reasonable efforts. But, even with these revisions, transition plans have transformative potential for corporate governance.
Compliance with the CSRD and CS3D will be monitored through public enforcement with companies facing penalties up to 5% of the net worldwide turnover for violations. As for private enforcement, there is a provision for civil liability, but its harmonization at the EU level has been weakened, and therefore litigation for infringement of the CS3D will depend on the national tort law of each country.
Negotiations Continue and Europe Has 27 Potential Outcomes
While reaching the current compromise is a significant milestone, there is more work to do. The Omnibus legislative process will continue in coming months, with the final text expected to be agreed in December 2025, if there are no delays. Even an EU-level agreement on the final text will not resolve the uncertainties around corporate disclosures.
Once finalized, the EU requirements will need to be transposed in each of the 27 Member States of the EU, a process in which each country retains certain discretion in aiming for even more ambitious rules. Countries like Germany and France already have legislation on due diligence, which can lead to litigation if companies fail to adequately establish and monitor sustainability due diligence policies. The Omnibus contains a harmonization provision that aims to prevent that Member States introducing more stringent obligations than EU law, analogous to when US federal law preempts State law. The final text on the EU harmonization provision will be an essential point to watch during negotiations, but so far it leaves Member States discretion on key issues, notably civil liability, which could trigger a wave of corporate litigation.
Further, climate and human rights activists have signaled a willingness to challenge the Omnibus before EU courts for violating the Charter of Fundamental Rights and fundamental principles of EU law (see statements from ClientEarth and other legal experts). If those challenges are successful, the CSRD and CS3D would remain in place in their more expansive previous versions, and the amendments under the Omnibus would not take effect.
Transatlantic Disagreement Leaves a Patchwork of Regulations
Corporate climate disclosures are advancing despite many challenges. This is good news; a recent report from the Sabin Center highlights that mandatory, quantitative, and uniform disclosure rules tend to have a greater effect on reducing corporate greenhouse gas emissions than voluntary, qualitative, or open-ended disclosures. While the US federal government seems to be ignoring evidence-based policymaking, California and the EU are stepping up.
This is encouraging but far from the optimal outcome. For over a decade, regulators have sought international convergence on corporate climate disclosure. The US and EU are now drifting further apart. Insufficient ambition and a tendency to downplay climate risks threaten to deepen this divide, potentially resulting in a patchwork of different regulations. A transatlantic consensus is urgently needed to ensure a level playing field for both US and EU businesses.