As we move towards 2025, ESG (Environmental, Social, and Governance) issues continue to evolve, driven by new regulatory frameworks, increasing litigation, and heightened scrutiny from investors and stakeholders. For in-house counsel, staying ahead of these developments is critical, as 2025 promises to bring new challenges and opportunities. This article outlines the key ESG trends and regulatory updates that legal departments should be preparing for as we head into the new year.
1. Mandatory Climate-Related Disclosures
One of the most significant regulatory shifts in 2024 was the SEC's adoption of rules requiring enhanced climate-related disclosures. These rules mandate public companies to disclose material climate risks and how they impact business strategy, operations, and financial condition. Key disclosure elements include Scope 1 and Scope 2 greenhouse gas emissions, and potentially Scope 3 emissions if deemed material. Companies must also report climate-related targets, board oversight of climate risks, and processes for managing climate-related issues. The SEC's rules align with global efforts, such as the EU's Corporate Sustainability Reporting Directive (CSRD) and California's Climate Corporate Data Accountability Act (SB 253).
For in-house counsel, preparing for these disclosure requirements involves coordinating with internal departments such as finance, sustainability, and investor relations to ensure accurate data collection, risk assessment, and compliance. Additionally, global corporations will need to harmonize these disclosures across multiple jurisdictions, ensuring compliance with both U.S. and international regulations.
2. Environmental Justice
The focus on environmental justice (EJ) has intensified, with both the Biden administration and regulatory bodies prioritizing the protection of low-income communities and communities of color from environmental harm. In 2024, the White House issued several executive orders aimed at incorporating environmental justice considerations into federal agency decision-making, and this trend is expected to expand in 2025. Companies can expect increased scrutiny regarding the environmental impact of their operations, particularly in relation to marginalized communities.
In-house counsel should be prepared to address environmental justice issues by ensuring compliance with EJ-related regulations, engaging with communities, and incorporating EJ considerations into broader corporate governance and sustainability strategies.
3. Human Capital Management
Human capital remains a central focus for ESG compliance and disclosure. The SEC is expected to finalize additional human capital disclosure requirements in 2025, expanding on its 2020 rule. These new requirements will likely mandate disclosures on workforce metrics such as turnover, demographic data, compensation practices, and employee development efforts. In addition, investors and activists are paying increased attention to labor rights, pay equity, and corporate responses to workforce organizing.
In-house counsel will need to oversee the development of comprehensive human capital reporting systems, ensuring that data collection is robust and that disclosures reflect the company's commitment to diversity, equity, and inclusion (DEI) efforts.
4. Greenwashing and ESG-Related Enforcement
2024 saw a surge in greenwashing litigation and enforcement, a trend that will only intensify in 2025. Regulators like the Federal Trade Commission (FTC) are revising guidelines to crack down on deceptive environmental claims, while state laws, such as California's Voluntary Carbon Market Disclosures Act, have introduced new anti-greenwashing regulations. Companies that market their sustainability efforts must ensure that their claims are verifiable and transparent.
In-house legal teams should work closely with marketing, sustainability, and compliance departments to ensure that ESG claims are accurate and defensible. They should also be prepared for potential litigation and enforcement actions, implementing robust internal audit processes to verify ESG-related data and claims.
5. ESG-Related Shareholder Activism
Shareholder activism around ESG issues continues to rise. Proxy seasons in 2024 saw an increase in proposals focused on climate risks, social justice, and corporate political contributions. With the SEC's adoption of universal proxy rules, activists have greater leverage to propose board candidates and influence corporate governance.
In-house counsel should anticipate increased engagement from shareholders on ESG issues and should ensure the board is well-prepared to address these concerns. Legal teams must also be adept at navigating contested elections and proxy fights, with a focus on the company's long-term ESG strategy.
6. Human Rights in Supply Chains
The Uyghur Forced Labor Prevention Act (UFLPA) has intensified regulatory scrutiny on corporate supply chains, particularly concerning human rights violations. Companies are required to ensure that their supply chains are free from forced labor, and failure to comply can result in import bans and reputational damage. In 2024, U.S. Customs and Border Protection (CBP) continued to detain billions of dollars worth of goods under the UFLPA, and this trend is expected to grow in 2025.
In-house counsel must prioritize supply chain audits and due diligence processes to ensure compliance with forced labor regulations. Companies should also be prepared for increased reporting requirements, particularly if they do business in sectors deemed high-risk by regulatory authorities.
7. Emerging Technologies and ESG
Artificial intelligence (AI) and other emerging technologies are increasingly central to ESG considerations. Regulators are developing new rules to address the ethical implications of AI, including issues related to discrimination, bias, and data privacy. As AI becomes more integrated into corporate operations, companies must ensure that their use of these technologies aligns with ESG principles.
In-house legal teams should be prepared for heightened regulatory scrutiny around AI and ESG, particularly in relation to workforce management and sustainability reporting. Companies must also be proactive in managing the legal risks associated with AI deployment, including the potential for litigation and regulatory enforcement.
8. Cross-Border ESG Compliance
As global ESG regulations continue to expand, companies operating internationally must navigate an increasingly complex regulatory landscape. Jurisdictions like the EU, the UK, and Asia are leading the charge in developing comprehensive ESG frameworks, such as the ISSB standards, which will impact reporting requirements for companies with international operations.
In-house counsel must ensure that their companies are prepared to meet these diverse regulatory requirements, often involving multiple reporting frameworks and compliance regimes. Developing a coordinated global ESG strategy will be key to avoiding legal risks and ensuring consistency in ESG disclosures across different jurisdictions.
9. Increased Focus on ESG Litigation
As ESG regulations become more robust, the potential for litigation increases. Companies can expect to face lawsuits not only from regulators but also from private entities, including shareholders and consumers. These lawsuits may focus on a range of issues, from climate change-related financial risks to accusations of human rights violations in supply chains.
In-house counsel should be prepared for this growing litigation landscape by implementing strong ESG governance frameworks, ensuring accurate and transparent disclosures, and developing strategies for responding to potential legal challenges.
10. The Business of ESG
The demand for ESG services is growing, with companies increasingly relying on third-party experts for compliance, reporting, and verification. ESG rating agencies, consultancies, and legal teams are becoming essential players in helping companies meet their regulatory obligations. In 2025, this trend is expected to accelerate as more companies outsource their ESG compliance efforts to external experts.
In-house counsel should evaluate the role of external ESG consultants and ensure that their services align with the company's overall ESG strategy. Legal teams must also verify that third-party assessments are accurate and comply with evolving regulatory requirements.
Conclusion: Preparing for 2025 and Beyond
As we approach 2025, in-house legal teams must navigate an increasingly complex and dynamic ESG landscape. The regulatory focus on climate-related disclosures, environmental justice, and human capital management will require companies to adopt more integrated and strategic approaches to ESG compliance. For in-house counsel, this means staying informed of regulatory changes, managing litigation risks, and ensuring that the company's ESG efforts align with its long-term business goals. By taking a proactive approach to ESG governance, companies can not only meet their regulatory obligations but also enhance their reputation, investor confidence, and overall sustainability.
Sources:
- U.S. Securities and Exchange Commission, SEC Final Rule on Climate-Related Disclosures (2024)
- Federal Trade Commission, Green Guides for Environmental Marketing Claims (2024)
- California Legislative Information, SB 253 and SB 261 (2024)
- Deloitte, Heads Up: The SEC's Landmark Climate Disclosure Rule (2024)
- U.S. Customs and Border Protection, Uyghur Forced Labor Prevention Act Statistics (2024)
- U.S. Department of Homeland Security, Federal Acquisition Regulation Amendments on Forced Labor (2024)
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.