US Companies Face Pressure Around Global ESG Disclosure Mandates

The global outlook for ESG is at a crossroads. The re-election of Donald Trump and Republican sweep of Congress signal that significant retrenchment lies ahead. At the same time, the EU is moving ahead with efforts to legally compel the largest corporations—including multinationals that operate in Europe—to report and act on environmental, social, and governance impacts across their value chains.

These conflicting trends present a regulatory dilemma for companies operating across jurisdictions, who potentially face conflicting regulatory requirements and disparate political views about the utility and efficacy of ESG.

Nonetheless, many considerations and principles that underlie ESG will remain critical to corporate management, with respect not only to risk assessment and compliance but also to value creation and protection. Companies will continue to vigilantly monitor legal environmental and social developments and will have no option but to adhere where regulations apply.

Key stakeholders such as shareholders, investors, customers, and employees will continue to exert pressure to conduct business in a way that makes money and also reflects their respective values.

While the regulatory and political dilemma may exist, the principles that have brought ESG into the mainstream over the past few years will continue to have fundamental importance. Watchdogs will vigilantly look for any case of greenwashing, eager to challenge companies on claims that can’t be backed up by action.

Companies will face increasing scrutiny of what they do and what they say as they address the impact of environmental and social issues on their business. Against this politicized and increasingly litigious backdrop, it may seem tempting to retreat not only from public mission statements, but also from higher-profile, attention-grabbing initiatives.

Faced with a difficult environment, many US companies already have announced steps in that direction, especially with respect to diversity, equity, and inclusion measures.

However, global disclosure and compliance systems will continue to require companies to publicly articulate their strategies and to make progress toward sustainability and social goals. In particular, companies will continue to face legal obligations to disclose their greenhouse gas emissions, net zero transition plans, and detailed information about their sustainability impacts in the coming years.

For example, while the Securities and Exchange Commission’s climate disclosure rule likely is dead after the election, comparable disclosure rules will begin to take effect globally in 2025. The EU’s Corporate Sustainability Reporting Directive requires each EU member state to enact domestic law requiring companies above a certain size to report on a range of ESG criteria, including climate change mitigation efforts.

The CSRD applies to multinational companies with operations in the EU, generating a new wave of ESG disclosures for US companies that meet its thresholds. California’s new disclosure statutes are poised to require companies doing business in California to disclose their greenhouse gas emissions and climate-related financial risk as soon as 2026. And US securities law will continue to require disclosure of matters material to investors.

In addition, the EU has finalized the Corporate Sustainability Due Diligence Directive to compel its largest companies to implement sweeping human rights and environmental due diligence practices. This legislation, too, will apply to US multinationals, a development acknowledged by lawmakers.

The EU has several directives that require companies to focus and report on topics relating to diversity, including board diversity, pay transparency, and human capital. Faced with this array of mandatory disclosure regimes, multinational companies will not have the option to be silent.

An inevitable consequence of these mandatory disclosures will be a massive increase in the quantity of information that companies make available to the public. Mandatory disclosure is intended to provide information to investors and consumers, and to force the disclosing companies to take action to improve on their metrics. At the same time, this information also will be a goldmine for those looking to expose discrepancies in sustainability-related claims.

In the US and globally, nongovernmental organizations and plaintiffs’ lawyers are more than willing to impose scrutiny and press litigation to further their respective missions. And governmental enforcers who are more skeptical of ESG measures will be all too ready to expose those that appear unfounded or misleading.

Complete withdrawal from public disclosures is likely not an option, so companies may be better served by taking stock. In addition, companies can scrutinize their own public positions, and embrace those that are consistent with their missions and have a sound basis.

Companies may need to thread a needle, anticipating that critics on one side will claim that their decarbonization measures or diversity initiatives are inadequate, while critics on the other side will challenge perceived fossil fuel boycotts and reverse discrimination.

But the silver lining of the increased scrutiny, especially scrutiny from multiple directions, may be that companies move away from gauzy statements, and focus on substantial measures they can commit to.

This article does not necessarily reflect the opinion of Bloomberg Industry Group, Inc., the publisher of Bloomberg Law and Bloomberg Tax, or its owners.

Author Information

Michelle Williams and Steve Nickelsburg are partners at Clifford Chance and members of its Global and Americas ESG boards and global business and human rights risk team.

Nicolas Friedlich is an associate at Clifford Chance and a member of the Americas ESG group and the global business and human rights practice.

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