Issues for Boards 2026: Governing sustainability risk in a complex world

Recent regulatory recalibration around sustainability obligations has created some space for reflection, but it has not reduced sustainability risk. Extreme weather events, energy insecurity, artificial intelligence, climate litigation and greenwashing enforcement continue to intensify. 

This article explores how Boards are responding by moving beyond a “minimum compliance” mind-set, and what effective governance oversight looks like in practice.

The recalibration and simplification of certain sustainability obligations over the past year have given businesses some breathing room and a chance to reflect. 

For most major businesses the challenge is now well understood – material sustainability risks are material business risks. 

This means Boards must engage with sustainability from a strategic and financial perspective, asking not just “are we compliant?” but “are we exposed, and are we prepared?”

More studies are predicting that the world remains off track from the 1.5°C warming limit set out in the Paris Agreement and some are saying this limit may even be breached before 2030. As a result, governments, policymakers and businesses are shifting focus towards climate adaptation alongside mitigation and improving resilience in operations and economies. In parallel, they are balancing energy security, affordability, growth and competitiveness needs - as well as emerging resource constraints associated with AI, and differing regional approaches to the transition. Taken together, these factors present a markedly more complex external landscape than in previous years.

From a regulatory perspective, the concept of a truly global sustainability reporting framework implemented consistently across jurisdictions remains elusive, and although there have been attempts to roll back regimes in some countries, in others they continue to proliferate. As a result, businesses continue to face the challenge of meeting multiple reporting obligations while presenting a coherent and credible picture of the business as a whole.

It can be challenging to know how to position the business when the prevailing public narrative is around target-dropping and pulling back on climate disclosures, but this public narrative can be misleading. On the whole, businesses’ GHG emissions reduction and other climate-related commitments remain in place, are disclosed in some shape or form, remain science-based and continue to be scrutinised by stakeholders. Boards should not assume that a quieter public debate signals reduced scrutiny or ambition.

Climate litigation remains a live and intensifying risk. Particularly as frustration grows with perceived policy inaction, businesses are experiencing demands for their own climate strategies to demonstrate greater ambition, opposition to projects alleged to be incompatible with climate goals, and claims seeking accountability for alleged environmental harms. Parent company exposure for social and environmental harm in overseas jurisdictions continues to be tested in the courts, and a landmark finding in the UK High Court at the end of 2025 has sharpened focus on subsidiary governance and the management of environmental and social risks in jurisdictions with robust environmental regimes.

In parallel, regulators worldwide are ramping up enforcement action against greenwashing, focussing increasingly on the perceived substance of corporate climate strategies, and businesses are increasingly deploying greenwashing claims strategically against competitors. Companies which are finding it increasingly difficult to meet their climate goals are questioning whether they can continue to maintain them without unintentionally giving stakeholders a false impression of how challenging achieving them will be.

The core duty to act in the best interests of their company requires directors to engage with sustainability matters rather than ignore them. The challenge is not whether to engage, but how to do so in a way that is credible, defensible, and aligned with long term business strategy.

Boards must balance the expectation to maintain ambitious, science-based decarbonisation and sustainability strategies with a disciplined assessment as to what can be achieved, how, and by whom as part of robust transition planning. As understanding of the science develops, greater caution around ambition should not be treated as a “green light” to step back from governance responsibility.

In response, more businesses are undertaking structured reviews of their climate and sustainability strategies to find this balance. 

The priority areas that boards should be focusing on in these reviews include:

• Stress-testing of near-term targets before they mature. 2030 and other near-term target dates are approaching rapidly. Now is the time to assess existing ambitions and consider carefully how they are communicated in the lead-up to deadlines.
• Holistic mapping of financially material sustainability risks. Boards should ensure the business is adequately mapping and monitoring sustainability risks – including climate, nature, supply chain, and human rights – and understanding how they interconnect with each other and with financial statements, rather than treating them in silos.
• Ensuring sustainability disclosures remain accurate, consistent, and defensible. Misalignment between public commitments and actual strategy creates legal and reputational exposure – and can be costly if not appropriately managed.
• Building adaptive capacity across the organisation. Building informed, adaptive and resilient strategies is increasingly important as regulatory and physical risks intensify. This often means engaging sustainability experts where needed, upskilling and training on key risk areas, and maintaining effective links across legal, finance, risk and sustainability teams.

As the proverb goes, the best time to plant a tree was 20 years ago; the second-best time is now. While this holds true for many business challenges, it is particularly relevant in the sustainability context. 

Boards that return to these issues regularly – with rigour, consistency, and strategic clarity – will be far better placed than those that wait for the next wave of regulatory, litigation or stakeholder pressures to force their hand.

• UK Sustainability Reporting Standards (SRS): Final versions of the UK’s SRS have been published and the UK Government will soon consult on how to incorporate related reporting obligations into the Companies Act 2006. The Financial Conduct Authority is also consulting on changes to UK Listing Rules to reflect the UK SRS and aims to bring new rules into force from 1 January 2027.
• Transition plans for UK companies: The UK Government is yet to publish its response to its climate transition plan consultation so it remains unclear at this stage if transition plans will become mandatory in the UK, and (if so) for which entities and when. We are waiting for the Government to announce its next steps on this.
• Proliferation of US state-level climate reporting regulations: New legislation has been enacted in New York and California introducing comprehensive GHG reporting obligations for certain US companies with operations in these states. Climate reporting rules are also being considered in New Jersey and Illinois.
• Implementation of new EU anti-greenwashing regulations: These will apply from September 2027 and introduce new restrictions on the sustainability claims that companies operating in the EU can make, including prohibition of generic environmental claims without substantiation.
• Revised EU sustainability reporting standards: The Commission must revise existing European Sustainability Reporting Standards by 18 September 2026. Companies caught by the Corporate Sustainability Reporting Directive (CSRD) (which still includes many large companies post the Omnibus revisions) will need to familiarise themselves with the new standards ahead of reporting next year.

• English High Court rules in claimants’ favour in Brazilian dam liability judgment
• Quick Guides on climate disclosures rules in the UK under the Companies Act 2006 and Listing Rules
• Quick Guide on transition plans for UK companies
• Quick Guides on climate disclosure rules in New York and California
• Implementation tracker of new EU anti-greenwashing regulations
• Quick Guide on revised EU sustainability reporting standards under the CSRD
• How to find our ESG materials