The climate policy landscape is experiencing significant shifts on both sides of the Atlantic. As Donald Trump executes his day-one executive order to withdraw from the Paris Agreement (set to take effect January 2026), the European Commission signals potential changes to its sustainability framework through a new "simplification" agenda. These parallel developments are creating both uncertainty and opportunity for global businesses.
Policy Shifts in Key Markets
In Europe, Commission President Ursula von der Leyen recently announced plans to streamline the EU's sustainable finance regulations under a single "omnibus" regulation. This initiative aims to combine the Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and sustainable taxonomy requirements under one framework. While positioned as a simplification measure, this move has prompted concern from investors, who warn against any weakening of the EU's sustainability standards.
Meanwhile, in the United States, state-level initiatives are gaining momentum despite federal uncertainty. California's Climate Corporate Data Accountability Act (SB 253) and Climate-Related Financial Risk Act (SB 261), adopted in late 2023, set new benchmarks for corporate climate disclosure. These laws require companies with over $1 billion in revenue to disclose their greenhouse gas emissions, while those with over $500 million must report climate-related financial risks.
New York is following California's lead, with similar bills (SB 3456 & SB 3697) recently reintroduced in the State Senate. The proposed legislation closely aligns with California's framework, potentially creating a coordinated approach to climate disclosure among major US economic centers.
These regulations emphasize the importance of primary data in emissions reporting. Companies must move beyond industry averages and secondary data sources to provide accurate, verifiable emissions data across their operations and supply chains. This represents a significant shift from previous approaches that relied heavily on estimates and industry benchmarks.
European Regulations: A Deeper Look
While the proposed Omnibus regulation signals potential changes in EU sustainability policy, it's important to understand the core regulations it aims to consolidate, as these continue to significantly impact US companies operating in European markets.
Key European legislation includes:
- Corporate Sustainability Due Diligence Directive (CSDDD): Requires companies to identify and mitigate adverse environmental impacts throughout their value chains. This affects US companies generating substantial revenue in the EU market.
- Corporate Sustainability Reporting Directive (CSRD): Mandates detailed sustainability reporting under the European Sustainability Reporting Standards (ESRS). US companies with EU subsidiaries or securities listed in EU regulated markets must comply.
- EU Taxonomy: Provides a classification system for sustainable economic activities, affecting how US companies' European operations are evaluated by investors and stakeholders.
Both US and EU regulations increasingly emphasize the use of primary data for emissions calculations and reporting. The CSRD's detailed requirements under ESRS demand granular, primary data collection across operations, while California's climate laws specifically reference the need for robust primary data in Scope 3 emissions calculations.
Emerging Compliance Challenges
The intersection of these regulations creates complex compliance requirements:
- Scope 3 Emissions: Both US state laws and EU regulations address value chain emissions reporting, though with different approaches. California's SB 253 mandates comprehensive Scope 3 reporting by 2027. The EU's CSRD takes a more nuanced approach, requiring companies to report on Scope 1, Scope 2, and materially relevant Scope 3 emissions categories, with companies determining which Scope 3 categories are significant for their business. The CSRD acknowledges practical challenges in value chain data collection by including a 3-year transition period during which companies must explain their data collection efforts, identify gaps, and outline plans for improvement, particularly recognizing challenges with SME suppliers and those in emerging markets.
- Assurance Requirements: California's legislation requires limited assurance for Scope 1 and 2 emissions starting 2027, progressing to reasonable assurance by 2031. CSRD similarly mandates external assurance of sustainability reporting.
- Double Materiality: EU regulations require companies to consider both financial materiality and environmental impact materiality, a concept that may influence future US regulations.
Strategic Implications for Business Leaders
Corporate leaders should consider several strategic approaches:
- Harmonized Compliance: Design reporting frameworks that satisfy both US and EU requirements efficiently. Many reporting elements overlap, allowing for streamlined processes.
- Data Infrastructure: Invest in robust data collection and management systems that prioritize primary data collection across global value chains. As regulations increasingly require verifiable, primary data rather than industry averages or estimates, companies need sophisticated systems capable of collecting, validating, and processing actual emissions data from diverse sources throughout their supply chains.
- Supply Chain Engagement: Develop stronger relationships with suppliers to ensure accurate emissions data collection and verification.
- Forward-Looking Strategy: Consider sustainability regulations as an opportunity for operational optimization rather than just a compliance burden.
The Path Forward
Recent developments reveal the complex dynamics shaping corporate sustainability. While six major US banks have withdrawn from the UN-sponsored Net Zero Banking Alliance ahead of Trump's inauguration, other indicators suggest the momentum for climate action continues to build. The US District Court's dismissal of challenges to California's climate laws demonstrates the growing legal foundation for climate-related disclosures. Meanwhile, the Science Based Targets initiative (SBTi) recently announced that over 10,000 businesses have now either set science-based targets or committed to do so - a 29% increase from the previous year. This growth in voluntary commitments demonstrates that climate action remains a market priority regardless of political shifts.
This market-driven momentum is further evidenced by significant private sector leadership. Michael Bloomberg's commitment to fund the UN climate change body after the US withdrawal highlights how private actors are stepping in to maintain climate action infrastructure. Meanwhile, over 200 investor groups managing €6.8 trillion in assets have recently urged against any weakening of EU sustainability regulations. This reinforces that comprehensive climate disclosures are becoming a market expectation, not just a regulatory requirement.
The physical impacts of climate change add urgency to these market dynamics. The devastating wildfires in Los Angeles and record-breaking global temperatures in 2024 serve as stark reminders of why businesses need robust climate action and reporting frameworks. These realities, combined with evolving regulatory landscapes on both sides of the Atlantic, suggest that while some actors may step back from formal climate commitments, comprehensive sustainability reporting and climate risk management are becoming essential elements of business strategy - driven not by politics but by market demands and physical risks.