Post-election corporate sustainability outlook: Here today, here tomorrow

Historically, US corporate sustainability efforts were almost entirely voluntary as there was very little sustainability regulatory pressure. Corporations made strategic business decisions to build sustainability programs and to disclose sustainability reports. The motivation for this corporate attention to sustainability was driven by various factors, including corporations’ increased focus on long-term sustainability drivers for success (e.g., natural resource availability, social license to operate), direct pressures from stakeholders to minimize negative impacts on society and planet (e.g., community groups, advocacy nonprofits, employees) and increasing growth opportunities through sustainability-oriented products and services.

Recently, several sustainability and climate-oriented executive orders and commitments were made by the Biden Administration at the US federal level that have supported voluntary corporate action, including an enormous amount of economic sustainability incentives embedded in the Inflation Reduction Act.² However, other government regulators outside of the US federal government have been even more aggressive in establishing corporate sustainability regulations. As the world has become more interconnected, European and state regulatory agencies have passed laws requiring corporations to document and mitigate negative corporate environmental and social impacts where they happen — regardless of where a corporation is headquartered.

These motivating factors and public expectations on corporate sustainability are likely to continue according to the Pew Research Center.¹ For example, two-thirds of boards believe that enterprises can only be resilient if they are environmentally sustainable, according to an EY Center for Board Matters survey of 500 global board directors from organizations with $1 billion revenue.

The most significant corporate sustainability regulations are originating from US states and foreign governments.

The European Union’s Corporate Sustainability Reporting Directive (CSRD) has been the main catalyst of corporate sustainability disclosures over the past year. The CSRD, which covers a suite of environmental, social and governance topics, has sustainability disclosure requirements that will capture thousands of large foreign and US companies doing business in Europe, beginning with their European operations starting in 2025 and their global operations in 2028 onwards.³ Moreover, 65% of global investors recently surveyed⁴ said that CSRD standards are well suited to support long-term investment decision-making. Many US corporations are also preparing to comply with the EU Green Deal more broadly in the coming years — including the Carbon Border Adjustment Mechanism, the EU Taxonomy, and the Corporate Sustainability Due Diligence Directive.

Another major emerging global standard — with an increasing number of countries such as Brazil, Japan, Australia and Canada moving toward mandatory adoption — is the International Sustainability Standards Board’s disclosure requirements. Once adopted, US companies operating in those countries may also have sustainability reporting requirements to some degree.

Several US state and city governments are also driving sustainability and climate action and disclosure. For example, the 2023 California climate disclosure legislation requires companies that operate in the state above certain financial thresholds to disclose both greenhouse gas and climate risk information by 2026. In addition, 24 US states, as well as the District of Columbia and Puerto Rico, have 100% clean energy goals, and most US states and many major cities now also have climate action plans.⁵

Potential actions by the incoming administration are expected to vacate or repeal some US regulations and executive orders, such as the Securities and Exchange Commission (SEC) climate rule. Furthermore, there is pending litigation that could delay or modify the California climate disclosure bill, a leading sustainability disclosure initiative at the US state level.⁶ Given the scale and range of new sustainability regulations coming from other global jurisdictions, however, many corporations are expected to continue to focus on understanding and preparing for this evolving patchwork of disclosure requirements.