Outlook 2026: From stalled federal climate rules to heightened scrutiny of fiduciary duties, the US is driving a recalibration of ESG regulation.
Forward Law Review asked leading ESG practitioners to look ahead to 2026. In the first part of a two-part feature on regulatory developments and climate-risk reporting, the contributors assess how political shifts, litigation and regulatory uncertainty will define the US regulatory agenda in 2026 – and why sustainability remains a live issue for corporates despite the rollback.
Here are their predictions.
Susan Mac Cormac, partner and co-chair of sustainability & corporate responsibility at Morrison & Foerster, San Francisco; and Rachel Davidson Raycraft, associate:
In 2026, the ESG landscape will very likely present a split screen of progress and regress depending on jurisdiction and issue area. In many regards, advancements in the ESG arena are undeniable. During this past year, renewable energy produced more electricity than coal for the first time in history; internationally, more and more jurisdictions (particularly across Asia) adopted the ISSB general sustainability (S1) and climate (S2) reporting standards; and government and corporate understanding of sustainability continued to evolve. Illustrative of the increasing appetite for more robust and nuanced sustainability standards at the global level are the ISSB’s active efforts to integrate human capital standards into its reporting framework, on top of a unanimously approved standard setting initiative on nature.
On the other hand, we will likely see further efforts to rollback certain pillars within the ESG agenda, largely led by the United States. The ripple effect of the Trump administration’s policy shift on ESG will manifest in the form of further executive actions and litigation brought by state officials and private actors seeking to water down existing workplace inclusion and climate-related initiatives, as well as potentially weakened regulatory efforts abroad – akin to what occurred with the EU’s Sustainability Omnibus legislative package.
Even within this tale of two worlds, important nuances will emerge throughout 2026. For example, while the US may continue to reverse previous policies advancing equity, inclusion, and climate protections, we do not foresee the same with regard to policies related to responsible tech, cyber security, and privacy. Moreover, even as US regulation has grown less favourable toward sustainability initiatives, there is no indication that corporate efforts in this arena have slowed their roll. In the US and abroad, ESG will likely be the subject of a tug-of-war throughout 2026 – very much a pawn in a geopolitical and cultural game of chess, yet net progressing all the while.
Alex Farmer, partner and leader of the sustainability practice group at Kirkland & Ellis, Washington DC; and Mackenzie Drutowski, partner in Washington DC:
Scrutiny of Fiduciary Duty Alignment
Certain US regulators will continue to scrutinize and further regulate fiduciary duties and alignment of ESG with financial value. For example, President Trump recently issued an executive order calling on the Department of Labor (DOL) and Securities and Exchange Commission (SEC) to enhance transparency around proxy advisors’ ESG practices and to strengthen fiduciary standards. Additionally, the DOL plans to issue new rulemaking addressing the consideration of ESG factors by fiduciaries and the SEC’s 2026 exam priorities include a focus on investment advisors’ adherence to fiduciary obligations including “various factors associated with their investment advice” and “best execution with the goal of maximizing value for their clients.”
Reconsideration and Advancement of Sustainability Regulations
The regulatory environment for sustainability is expected to remain dynamic and complex, shaped by ongoing political polarisation and shifting priorities. In 2025, there were notable rollbacks, such as the SEC’s withdrawal of national climate rules, the stalling and potential overturn of California’s Climate-Related Financial Risk Act (SB 261) and the EU’s Omnibus legislation significantly narrowing the scope of the Corporate Sustainability Reporting Directive (CSRD). Looking ahead to 2026, some regulators are likely to pursue more durable sustainability regulations. For example, additional US states may introduce more targeted emissions and climate risk reporting requirements.
In the EU, regulators are already working to revise the Sustainable Finance Disclosure Regulation (SFDR) in response to market feedback, with further iterations expected before SFDR 2.0 is finalised. Given the rapid pace of regulatory change and the divergent priorities among regulators, companies will need to remain vigilant and adaptable. Active monitoring of new developments in sustainability regulations and enforcement will be essential for organisations to efficiently position themselves for shifting compliance obligations and to thread the needle in meeting the expectations of regulators with significantly divergent views on corporate sustainability, including alignment with fiduciary duties.
Lance Dial, partner at K&L Gates, Boston, and Julie Rizzo, partner in Raleigh:
In the United States, climate-related reporting efforts have stalled at the federal level and have encountered legal challenges at the state level. At the federal level, the Securities and Exchange Commission (SEC) adopted climate-related disclosure rules which required public companies to report material climate risks and, for some, greenhouse gas emissions. These rules were immediately challenged in court, and the SEC stayed their implementation. The SEC voted to not defend the rules in litigation, and the Eighth Circuit has held the litigation in abeyance pending the SEC’s reconsideration (and preproposal) of the rules or resuming defence of the existing rules.
At the state level, California enacted two climate-related disclosure regulations, SB 253 and SB 261, requiring large companies doing business in the state to report greenhouse gas emissions (Scope 1, 2, and later Scope 3) and climate-related financial risks. Similar to the federal rules, the California laws have been challenged in court, and the Ninth Circuit court has issued a stay on the implementation of SB 261 (the climate-related financial risk reporting law, which was intended to go into effect on January 1, 2026). Significant developments are expected in early 2026.