ESG Legal Outlook 2026

 2025 was a year of recalibration with a focus on simplifying and streamlining sustainability requirements, and increased emphasis on business growth and competitiveness. This gave businesses a much-needed chance to catch their breath, as well as anxiety, in equal measure, as the process brought a high degree of legal uncertainty. 

Global focus on sustainability and the decarbonisation agenda continues notwithstanding the current economic and geopolitical headwinds. The pace and shape of the low carbon transition are not homogeneous, with different regions shifting at different speeds and in different directions. Policymakers and businesses focussed increasingly on energy security, affordability, and growth and competitiveness, engaging in a complex balancing act with sustainability considerations. 

As near-term climate and other sustainability ambitions and targets loom large, corporates and financial institutions are taking stock of continued relevance and deliverability against an ever more complex external landscape. The challenge is on to maintain ambitious and science-based decarbonisation and sustainability strategies, whilst adopting a more considered approach to what can be achieved, how and by whom as part of transition planning. 

We expect some careful repositioning in the coming year, as more businesses fine tune their approach and disclosures to hone in on those aspects of sustainability that are most important or impactful, and to find ways of creating value using sustainability data, including through novel uses of AI. The disclosure challenge is far from over as new regimes start to bite, notwithstanding last year’s simplification drive. 

Supply chain due diligence will start to move from policy aspiration to operational reality as companies are confronted with the practical complexities of engaging with their global value chains. 

And the stakes for getting ESG right have never been higher as litigation and regulatory scrutiny of whether companies walk the talk, and greenwashing allegations continue to intensify, keeping accountability firmly in the spotlight.

We expect transition plans to remain a focal point in 2026 thanks to a combination of corporate buy-in, regulatory expectations and investor pressure. We also expect businesses to continue to keep their climate commitments under review, turning a more pragmatic eye to what can be achieved and by when.

You would be forgiven for thinking that when the EU decided to scrap the CSDDD requirement to produce transition plans, that would be the end of the transition plan debate, particularly in the current climate.  Indeed, much has been said about whether the net zero transition is dead or stalled in light of the current geopolitical and economic situation across the globe, as well as a great deal of speculation as to whether businesses are rolling back their climate targets and other sustainability commitments. 

However, reported research and conversations with investors suggest that the momentum and appetite is still there – where it makes economic sense. Granted, the pace of transition may not yet be what is required to stay within the temperature goals of the Paris agreement – but it is progressing nonetheless. Similarly, because market conditions have not always developed as expected, some businesses are reviewing the achievability of their near-term climate targets, but are generally still holding on to their underlying ambitions and long-term decarbonisation and wider sustainability goals. 

Against that backdrop, planning for the transition remains key, as does transparency, given investor demand for transition plans to help them identify investment opportunities, support their capital allocation decisions and fulfil their own public commitments to fund the transition. Although mandatory transition planning remains elusive, disclosure standards can be a strong driver for companies to articulate more clearly how they expect to navigate the transition. 

In the EU, the CSRD will still require companies to disclose details of their transition plan, if they have one. And if they don’t have one, then they will need to disclose whether and, if so, when they plan to adopt one. Also, although the global sustainability disclosure standards developed by the IFRS do not require a transition plan, businesses will be required to disclose certain information about how they are preparing to transition to a lower carbon future.

Meanwhile, in the UK, following its 2025 consultation, we await the government's announcement on whether transition plans will become mandatory. And in 2026, the UK Transition Finance Council will be publishing transition finance guidelines to support capital allocation to credibly transitioning entities across different asset classes and jurisdictions.

Further reading

• Quick Guide: Key Sustainability Disclosure Regimes: Transition plans

• Transition Finance Council

• Transition planning materials

Although we expect the simplification of sustainability regulation to continue in 2026 in some quarters, this year will also bring with it a number of new sustainability initiatives, including in respect of disclosure regimes, sustainable finance, the circular economy and carbon pricing.

In recent years, the EU has been widely perceived to be the global leader in climate and sustainability policy and regulation – with its flagship Green Deal and sustainable finance regimes. Then the Omnibuses started arriving in 2025, sparking a debate about when simplification becomes deregulation. 

Hardly a month passed in 2025 without the Commission publishing proposals to simplify and cut red tape – creating considerable legal uncertainty around EU sustainability regimes and making end results increasingly difficult to predict. Significant changes affected the CSRD, CSDDD, Taxonomy, EUDR, and CBAM, amongst others. We are all entering 2026 under a haze of Omnibus exhaustion. Throughout its simplification blitz, the European Commission has emphasised that sustainability and decarbonisation must be properly positioned as enablers of economic growth and competitiveness – and that the Omnibus initiative is not intended to erode the EU's underlying sustainability agenda.

Indeed, whilst many have accused the EU of gutting the CSRD and CSDDD, the fact remains that although the scope of these Directives has narrowed, the substantive requirements to disclose sustainability information and conduct environmental and human rights due diligence remain significant and are still at the vanguard of sustainability regulation globally. 

We can expect to see this simplification trend continue well into 2026. In particular, the EU still needs to complete its Environmental Omnibus and finish reviewing the SFDR and CBAM (among others), and the UK has a long list of unfinished business to tackle including simplification of its environmental permitting and planning regimes. 

By contrast, regulators in certain Asian jurisdictions have maintained steady momentum developing sustainable finance and disclosure frameworks. Sustainable finance taxonomies continued to be refined across the region in 2025, and there was significant activity in developing carbon markets.

Further reading

• EU Omnibus Tracker: simplification of sustainability rules

• EU Omnibus: changes to CSRD and CSDD under Omnibus I reach the finish line

• Financial Regulation Outlook 2026 – Banking (see “Sustainable Finance” section on pp.10-11)

• Financial Regulation Outlook 2026 – Asset Management (see “Sustainable Finance” section on pp.15-16)

We expect to see the continued roll out and finessing of sustainability disclosure regimes across the globe in 2026 with interoperability issues becoming more pronounced. 

Although investors globally continue to emphasise the need for sustainability data to enable better capital allocation decisions, there is rising concern that the proliferation of disclosure regimes risks regulatory fragmentation and could make both reporting and usability difficult. 

The interoperability challenges are set to continue in 2026 as more than 30 jurisdictions deploy (or plan to roll out) the IFRS sustainability disclosure standards, often with local modifications. This includes a number of jurisdictions across Asia, with the first ISSB-based disclosures expected in Hong Kong SAR, and Singapore in 2026, as well as sustainability reporting in mainland China expected in the early part of the year. Businesses within the scope of European rules will have to navigate conceptually different disclosure frameworks such as the CSRD. 

In the UK, we await the government's announcement on next steps for the UK SRS (the UK's version of the IFRS sustainability disclosure standards), with further consultations on changes to the Companies Act and Listing Rules to bring these into effect. It remains unclear how different reporting under the UK SRS will be compared to what in-scope entities currently have to do under existing UK climate disclosure regimes. We must also see how the UK SRS will fit into the government's plans for a wider review of corporate reporting, which it plans to consult on in 2026.

In the US, whilst the federal government has stopped the implementation of the SEC’s climate-related disclosure regulations, certain states have maintained steady momentum. California continues to work towards implementing climate-related financial risk and GHG emissions disclosure rules, although the requirement to make certain disclosures that applied from January this year has been stayed (with a ruling expected relatively soon). New York is also advancing climate disclosure bills with key provisions planned to take effect in 2027. 

We are also expecting important updates to the SASB standards, GHG Protocol and a new SBTi net zero corporate standard, to add to an already crowded landscape.

Further reading 

• Quick Guides on sustainability disclosure regimes – this link includes guides to disclosure regimes in the EU, UK, Asia, California, the IFRS/ISSB standards and much more 

We expect supply chain due diligence requirements to remain a key issue in 2026 and for businesses to start preparing for the operational reality of engaging more actively with their global value chains. 

After a year of dramatic twists and turns, 2025 ended with the EU finally landing on its Omnibus changes to the CSDDD – raising scoping thresholds and pushing compliance deadlines back to 2029. However, this extended compliance timeline does not mean that businesses can afford to sit back. Even with these changes, the CSDDD still demands that in-scope companies undertake substantial work to build robust internal compliance systems and engage meaningfully across their value chains – a process requiring considerable time and resources. We also expect the extra-territorial implications of the CSDDD (and CSRD) to continue to be a source of friction, which could spill over into EU/US trade negotiations. 

But the CSDDD is only one piece of an increasingly complex puzzle. The EU's Deforestation Regulation and Forced Labour Regulation are also in play, whilst jurisdictions worldwide – from France and Germany to Canada, Australia and the US – have their own supply chain due diligence or reporting requirements. 

In the UK, the government announced a comprehensive review of its approach to responsible business conduct in 2025, responding to mounting concerns about the effectiveness of existing measures in tackling human rights abuses, labour exploitation and environmental damage in supply chains. The stakes were raised further in December 2025 when the Independent Anti-Slavery Commissioner published a report with sweeping recommendations (and draft legislation) including proposals for mandatory human rights due diligence, import bans on goods linked to forced labour, and reforms to the Modern Slavery Act. The critical question now is which, if any, of these recommendations the government will adopt, when will action follow, and whether the UK will ultimately align more closely with the EU's approach.

For multinationals managing intricate global supply chains, navigating this patchwork of obligations is a formidable challenge. Recognising this complexity, the UK, Canadian and Australian governments jointly released an optional template in 2025 to help businesses respond to the broadly aligned requirements across these three jurisdictions.

Further reading

• EU Omnibus: changes to CSRD and CSDD under Omnibus I reach the finish line

• EU CSDDD explained

• EU: changes to Deforestation Regulation reach the finish line

• EU Forced Labour Regulation

• International reporting template on modern slavery, forced labour and child labour

• Quick Guide: Key Sustainability Disclosure Regimes: UK Modern Slavery Act 2015: modern slavery statements

• UK: IASC report proposes new measures to strengthen human rights and forced labour framework

• Business & Human Rights materials

We expect the risks of ESG litigation and regulatory action, including greenwashing allegations, to remain key strategic issues going into 2026. Use of litigation as a tool for driving change in this area remains attractive to claimants in many jurisdictions.  

ESG litigation continues to intensify across key battlegrounds: challenges to government and corporate climate policy demanding greater ambition, opposition to projects deemed incompatible with climate goals, and claims seeking accountability for alleged environmental harms. Running in parallel, regulators worldwide are ramping up enforcement action against greenwashing.

Emboldened (in part) by landmark opinions from the International Court of Justice and the Inter-American Court of Human Rights, claimants are pushing hard to extend GHG emission reduction duties to corporates. Even where unsuccessful, these cases can have ripple effects in board rooms globally, and can inspire similar claims in other jurisdictions. 

Project-specific challenges to carbon-intensive projects are likely to remain high on the agenda for the coming year, following the European Court of Human Rights’ judgment in Greenpeace Nordic and Others v. Norway, which held (amongst other things) that environmental impact assessments for gas exploration and production projects must quantify expected downstream GHG emissions and authorities must test the project’s compatibility with their national and international climate commitments. These are points that have also been tested in the UK, with knock-on impacts to several project approvals throughout 2025.

2026 will see continued pressure to hold companies accountable for environmental harms across borders. In the long-running German case of Lliuya v RWE,  the court dismissed a Peruvian farmer's claim against a German energy producer for climate impacts in Peru. Yet the court's acknowledgement that, in principle, major GHG emitters can be sued for effects felt thousands of kilometres away marks a significant shift – even if this particular claim failed on grounds that the likelihood of damage being suffered by the claimant was too remote, serving to demonstrate the challenges that arise in cases of this type.  

In the US, cases brought by the cities of Washington D.C. and Honolulu against oil companies survived dismissal and are moving forward, whilst many others remain pending. However, at the same time, at the federal level, the Department of Justice has sued the Democrat-led states of New York and Vermont in an effort to invalidate state climate “superfund” laws intended to seek redress from energy producers for climate harms, and has also sued Hawaii and Michigan in an effort to enjoin (prevent) them from bringing climate liability litigation against oil companies. 

Parent companies remain squarely in the firing line for environmental harms allegedly caused anywhere in their global operations or value chains. Activist organisations are deploying increasingly sophisticated strategies, pursuing injunctive orders and compensation through courts (particularly in jurisdictions like the UK) and non-judicial mechanisms such as OECD National Contact Points. Claimants often invoke companies’ general duties of care (often claiming that they should be interpreted on the basis of soft law standards such as the UNGPs and the OECD Guidelines), as well as specific due diligence or other statutory liability regimes (as illustrated by the English High Court in the recent Fundão Dam case which applied Brazilian “polluter pays” law). Expect this trend to accelerate in 2026, notably with a UK case against Dyson group companies over Malaysian supply chain activities now proceeding after a jurisdictional challenge was rejected.

Greenwashing remains firmly in regulators' and litigants' crosshairs globally. Cases continue to test new 'green' claims whilst consumer, advertising and competition authorities crack down on misleading environmental statements, and financial regulators scrutinise sustainability claims made in respect of funds and financial products.

In the UK, the ASA has indicated it will continue prioritising its Climate Change and Environment project in 2026, proactively tracking down non-compliant advertising claims in relation to carbon neutrality, net zero, greener homes, fast fashion, transport and travel, energy, green disposal, and meat, dairy and plant-based food alternatives. Its AI tool now identifies misleading green claims online without having to wait for a tip-off or complaint. The CMA's greenwashing enforcement has so far targeted specific sectors like fashion and green heating, securing undertakings from some businesses. But the game has changed: armed with new powers under the Digital Markets, Competition and Consumers Act 2024 – including the ability to enforce consumer law directly (e.g. via fines of up to 10% of global turnover) without having to take businesses to court - the CMA may soon choose to take a far broader enforcement approach. The consumer body Which? found in July 2025 that greenwashing is widespread in the UK, with compliance with the CMA's Green Claims Code alarmingly low.

In the EU, multiple airlines committed to changing sustainability claims in 2025 following a complaint led by a network of consumer protection authorities. Regulatory and private enforcement remained intense across EU member states and is expected to accelerate in 2026 as the Directive on Empowering Consumers for the Green Transition takes effect in September. Claimants and regulators are already using the underlying consumer protection legislation (which the new Directive amends) to challenge corporate climate statements. Whether the new Directive will trigger a surge in claims remains to be seen. Meanwhile, the proposed Green Claims Directive, which would set minimum criteria for environmental claims and labelling schemes, seems to have ground to a halt (though not formally withdrawn).

In Asia, whilst regulatory enforcement lags behind other regions, pockets of activity are emerging (notably Singapore), alongside new regulatory guidance on greenwashing risk.

In the US, companies continue to face greenwashing actions from both state regulators and private litigants. State attorneys general (including in New York, California, and Washington D.C) have filed greenwashing suits pursuant to consumer protection and false advertising laws, which are likely to continue at pace into 2026, as well as class action suits by private litigants. States and litigants have also pursued an “anti-ESG” agenda, suing companies and financial institutions for their use of ESG considerations in investing, with some success. For example, in early 2025, a Texas federal judge ruled that American Airlines breached its fiduciary duty of loyalty by allowing the manager of its employees’ retirement plans to use proxy voting policies to further ESG objectives. Similarly, a multistate lawsuit brought by various Republican attorneys-general (in Texas v. BlackRock Inc.) alleges that asset managers’ climate policies have led them to illegally collude to use their investments in coal companies to constrain the supply of coal. In addition, proxy advisers are facing state and federal scrutiny related to their recommendations on ESG-related voting. 

Further reading 

• Global Trends in Climate Change Litigation 2025 Report: Graham Research Institute on Climate Change and the Environment

• EU Directive on Empowering Consumers for the Green Transition: summary and transposition tracker

• International Court of Justice Advisory Opinion finds States have binding legal obligations to address climate change

• European Court of Human Rights rules on climate procedural obligations in petroleum gas licensing

• English court finds BHP liable for Brazilian dam collapse

• France: Paris Judicial Court rules on greenwashing allegations against oil major

• Quick Guide: Key Sustainability Disclosure Regimes: UK SDR and anti-greenwashing rule

• UK ASA: Climate Change and Environment project 

• UK: Which? raises alarm over ‘greenwashing’ risks as it finds hundreds of products using vague and unsubstantiated environmental claims

• What can businesses in the UK expect from the CMA on greenwashing amidst new consumer protection provisions coming into effect

• Greenwashing materials

• ESG Disputes Bulletin 

• ESG Litigation and Risk Management 

• ASA – UK Advertising Standards Authority

• CBAM – EU Carbon Border Adjustment Mechanism 

• CMA – UK Competition and Markets Authority 

• CSDDD or CS3D – EU Corporate Sustainability Due Diligence Directive 

• CSRD – EU Corporate Sustainability Disclosure Directive

• EUDR – EU Deforestation Regulation 

• GHG – greenhouse gas emissions 

• ISSB – International Sustainability Standards Board - the International Financial Reporting Standards (IFRS) Foundation created the ISSB in 2021 to develop a global baseline of sustainability disclosure standards that meet the information needs of investors 

• Omnibus – EU initiative to simplify existing legislation (not just ESG legislation) and cut red tape to reduce the regulatory burden on business and boost competitiveness

• SBTi – Science Based Targets initiative 

• SEC – US Securities and Exchange Commission

• SFDR – EU Sustainable Finance Disclosure Regulation 

• TNFD - Taskforce on Nature-related Financial Disclosures

• UK SRS – UK Sustainability Reporting Standards, which will implement the ISSB standards with some modifications

• Financial Regulation Outlook 2026 – Banking (see “Sustainable Finance” section on pp.10-11)

• Financial Regulation Outlook 2026 – Asset Management (see “Sustainable Finance” section on pp.15-16)

• Disputes and Investigations in Europe 2026 (see ESG section on p.7)

• Employment & Incentives: What to expect in 2026

• Tech Legal Outlook 2026