ESG Regulations: United States

The United States has a fragmented ESG regulatory landscape, with federal-level climate disclosure rules, state-level mandates (particularly California), and voluntary frameworks widely adopted by companies. Unlike the EU's comprehensive approach, US regulation is evolving incrementally through SEC rulemaking, state legislation, and enforcement actions.

SEC Climate Disclosure Rule

Status: Final rule adopted March 2024, implementation delayed pending legal challenges

Applicability: All SEC-registered companies (domestic and foreign filers)

Key Requirements (phased implementation):

Governance & Strategy:

• Board oversight of climate-related risks
• Management's role in assessing and managing climate risks
• Climate-related risks and their actual or likely material impacts
• Climate-related targets or goals (if material)

GHG Emissions:

• Large Accelerated Filers: Scope 1 & 2 emissions (attested) from FY2026
• Accelerated Filers: Scope 1 & 2 emissions (attested) from FY2028
• Scope 3: Removed from final rule (was in proposed rule)

Attestation:

• Limited assurance initially, reasonable assurance after phase-in period

Financial Statement Impacts:

• Capitalized costs, expenditures expensed, charges, losses from severe weather events and transition activities (if ≥1% of line item)

Primary Source: SEC Climate Disclosure Rule

California Climate Disclosure Laws

California has enacted the most ambitious state-level climate disclosure requirements, affecting thousands of companies operating in the state.

SB 253: Climate Corporate Data Accountability Act

Effective: 2026 reporting (FY2025 data)

Applicability: Companies with >$1 billion annual revenue doing business in California (regardless of domicile)

Requirements:

• Disclose Scope 1, 2, and 3 GHG emissions annually
• Third-party assurance: limited assurance from 2026, reasonable assurance from 2030
• Report through emissions reporting organization designated by CARB (California Air Resources Board)

Estimated Impact: ~5,300 companies globally

Primary Source: SB 253 Full Text

SB 261: Greenhouse Gases: Climate-Related Financial Risk

Effective: 2026 reporting

Applicability: Companies with >$500 million annual revenue doing business in California

Requirements:

• Prepare biennial climate-related financial risk report aligned with TCFD recommendations
• Disclose climate-related financial risks and measures to reduce and adapt to those risks

Estimated Impact: ~10,000 companies globally

Primary Source: SB 261 Full Text

Other State-Level ESG Regulations

New York Climate Disclosure Act (proposed): Similar to California SB 253, requiring Scope 1/2/3 disclosure for companies >$1B revenue operating in NY

Illinois Climate Disclosure Act (proposed): TCFD-aligned disclosure for large companies

State Pension Fund Requirements: Several states (NY, CA, IL, CT) require state pension funds to consider ESG factors in investment decisions or disclose ESG integration

Federal Environmental Regulations with ESG Implications

EPA GHG Reporting Program

Applicability: Facilities emitting ≥25,000 metric tons CO₂e annually

Requirements:

• Annual GHG emissions reporting to EPA
• Covers direct emitters (power plants, refineries, manufacturing) and suppliers (fossil fuel/industrial gas suppliers)

Primary Source: EPA GHG Reporting Program

EPA Power Plant Carbon Standards

Clean Power Plan 2.0 (proposed 2023): GHG emission standards for existing fossil fuel power plants, requiring carbon capture or transition to cleaner fuels

Labor & Social Regulations

Conflict Minerals Rule (Dodd-Frank Section 1502)

Applicability: SEC-registered companies manufacturing products containing tin, tantalum, tungsten, gold (3TG)

Requirements:

• Conduct reasonable country of origin inquiry (RCOI)
• If minerals may originate from DRC or adjoining countries, conduct due diligence and file Form SD

Primary Source: SEC Conflict Minerals Rule

California Transparency in Supply Chains Act (SB 657)

Applicability: Retailers and manufacturers with >$100M annual worldwide revenue doing business in California

Requirements:

• Disclose efforts to eradicate slavery and human trafficking from supply chain
• Address verification, audits, certification, internal accountability, training

Primary Source: SB 657 Full Text

Uyghur Forced Labor Prevention Act (UFLPA)

Effective: June 2022

Applicability: All US importers

Requirements:

• Rebuttable presumption that goods from Xinjiang, China are made with forced labor (banned from import)
• Importers must demonstrate goods are not produced with forced labor

Primary Source: UFLPA

Governance & Anti-Corruption

Foreign Corrupt Practices Act (FCPA)

Applicability: US companies, foreign companies listed in US, and their officers/employees/agents

Prohibitions:

• Bribery of foreign officials to obtain or retain business
• Inadequate accounting controls (books and records provisions)

Enforcement: DOJ and SEC actively enforce, with penalties reaching billions of dollars

Primary Source: FCPA Resource Guide

Sarbanes-Oxley Act (SOX)

Applicability: All SEC-registered companies

Key Provisions:

• CEO/CFO certification of financial statements
• Internal controls over financial reporting (Section 404)
• Whistleblower protections
• Audit committee independence

Voluntary Frameworks Widely Adopted

While federal ESG disclosure is limited, many US companies voluntarily adopt international frameworks:

TCFD: Adopted by ~1,500 US companies (financial institutions, energy, utilities, manufacturing)

SASB: Developed in US, widely used for industry-specific ESG metrics

GRI: Used by ~1,000 US companies for sustainability reporting

CDP: ~2,000 US companies disclose through CDP (climate, water, forests)

Science Based Targets initiative (SBTi): ~1,200 US companies have committed to or set science-based targets

Investor Pressure & Proxy Voting

Shareholder Proposals: Investors increasingly file ESG-related shareholder proposals (climate risk disclosure, board diversity, human rights due diligence)

Proxy Advisory Firms: ISS and Glass Lewis incorporate ESG factors in voting recommendations

Asset Manager Commitments: Major US asset managers (BlackRock, Vanguard, State Street) have committed to net-zero portfolios and engage companies on climate

Political Landscape & ESG Backlash

Anti-ESG Legislation: Several Republican-led states have passed laws restricting state pension funds from considering ESG factors or boycotting financial institutions that "discriminate" against fossil fuel companies (Texas, Florida, West Virginia)

SEC Rule Challenges: SEC climate disclosure rule faces legal challenges from business groups and Republican state attorneys general

Polarization: ESG has become politically polarized, with Democrats generally supportive and Republicans critical of "woke capitalism"

Practical Implications for Companies

SEC-Registered Companies:

• Monitor SEC climate disclosure rule implementation (pending legal challenges)
• Prepare for Scope 1 & 2 emissions disclosure and attestation
• Enhance climate governance and risk management processes

Companies Operating in California:

• Assess applicability of SB 253 (>$1B revenue) and SB 261 (>$500M revenue)
• Implement Scope 3 emissions measurement (most challenging)
• Engage third-party assurance providers

Importers:

• Conduct supply chain due diligence for conflict minerals, forced labor (UFLPA)
• Implement traceability systems

All Companies:

• Consider voluntary adoption of TCFD, SASB, GRI to meet investor expectations
• Engage with shareholders on ESG topics
• Monitor evolving state-level regulations

From ESG Library

• ESG Reporting Made Simple (IFRS/SASB) — SASB implementation guidance for US companies
• ESG & GRI Reporting Made Simple — GRI reporting for US context

View all books →

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