Sustainability and environmental, social, and governance (ESG) reporting and disclosures have entered a new era. What was once a largely voluntary exercise, led by stakeholder and investor interest, is being transformed into a complex and fragmented web of changing legal obligations, regulatory scrutiny, and reputational risks.
Many companies are feeling pressure to report or disclose their sustainability initiatives in a way that is consistent, transparent, and aligned with both emerging regulatory frameworks and evolving stakeholder expectations. As the 2025 sustainability reporting season gets underway, particularly for frameworks like CDP, businesses need a well-defined strategy and careful consideration of their reporting and disclosure obligations to avoid future pitfalls.
What companies need to know about CDP reporting in 2025
CDP, formerly known as the Carbon Disclosure Project, remains one of the most widely used frameworks for ESG reporting, focusing on climate, water, and forest risk management. The 2025 CDP Disclosure Cycle, which is now open, presents an opportunity for companies to demonstrate environmental leadership by reporting how they are managing environmental governance, identifying and managing environmental risks, and continuously improving environmental performance. CDP uses detailed and comprehensive questionnaires to obtain both qualitative and quantitative responses on issues ranging from greenhouse gas (GHG) emissions to details on a company’s biodiversity policy.
While the 2025 CDP questionnaire, scoring, and methodology remain largely consistent with prior years, new legal and risk considerations are emerging. This shift is driven by evolving global, national, and state-level regulations that now intersect with nearly all CDP topics. Key areas such as climate action and GHG emissions reporting are particularly impacted, as they align with mandatory reporting and disclosure requirements taking effect for many companies in 2026.
Regulators and stakeholders are increasingly scrutinizing CDP responses, evaluating not only the data itself but also the systems and governance behind it. With studies showing a correlation between high CDP scores and improved financial performance by companies,[1] investors are paying close attention, too. As a result, companies should ensure their disclosures accurately reflect operational realities and are supported by sound internal controls. A misalignment in CDP reporting and operational realities may expose organizations to allegations of greenwashing and can even lead to increased regulatory or litigation risks in other contexts.
Companies may need to reassess data collection, management, and reporting processes to ensure that CDP submissions in 2025 do not inadvertently create challenges or inconsistencies ahead of required reporting and disclosures in 2026.
Shifting US legal landscape for sustainability reporting
In the United States, the legal foundation for ESG reporting remains unsettled. While the US Securities and Exchange Commission (SEC) finalized climate disclosure rules (Climate Rules) in March 2024, ongoing litigation in the Eighth Circuit[2] and a subsequent shift in SEC’s position have created significant uncertainty. Shortly after finalizing the rules, the SEC voluntarily stayed them, citing pending legal challenges. In March 2025, SEC notified the Eighth Circuit Court of Appeals that it was withdrawing its defense of the Climate Rules. The Eighth Circuit Court of Appeals then stayed the case. In responding to a court order, the SEC filed a status report on July 23, 2025, advising that it “does not intend to review or reconsider the [Climate] Rules” and requesting that “the Court proceed with the litigation and decide the case.”
Since the case has been fully briefed, the Eighth Circuit Court of Appeals could lift the stay and issue a ruling on the validity of the Climate Rules at any time. In doing so, the Court could order SEC to replace, rescind, or modify the Climate Rules, or even initiate a new rulemaking process. In the meantime, SEC’s 2010 guidance on climate-related matters remains in effect. Sustainability and ESG reporting therefore continues to be governed by the principle of materiality, meaning companies should assess whether climate or ESG-related information is material to investors when making disclosures.
Amid federal uncertainty, several states have moved ahead with regulating certain types of ESG reporting and disclosures. California, for instance, has enacted two landmark climate disclosure laws (Senate Bills 253 and 261), which impose mandatory greenhouse gas (GHG) emission reporting and climate-related risk disclosures obligations on large business entities “doing business” in the state, starting in 2026. These laws have broad extraterritorial reach and apply to companies that meet specific revenue thresholds, regardless of whether they are headquartered in California. Read more about California’s climate disclosure and reporting requirements here. Other states, such as New York, are now advancing similar legislation.[3]
Preparing for Europe’s sustainability rules and due diligence requirements
For companies doing business in Europe, regulatory developments on sustainability reporting and due diligence remain central to preparing for 2025 and 2026 reporting cycles. On June 23, 2025, European Union (EU) member state representatives agreed on the European Council’s negotiating mandate on proposed changes to the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD, or CS3D) requirements. These proposed revisions are part of the European Commission’s broader Omnibus I simplification package, designed to reduce regulatory burdens and provide greater legal certainty.
Key elements of the Council’s position include raising applicability thresholds, streamlining due diligence requirements, and postponing key compliance deadlines. For example, the CS3D would apply only to companies with at least 5,000 employees and €1.5 billion in net turnover, with due diligence obligations focused on direct (tier 1) business partners using a risk-based approach. Climate transition plan requirements would be narrowed and delayed until 2031. Under the CSRD, the employee threshold would increase to 1,000, and a €450 million turnover threshold would be introduced, helping to reduce compliance burdens on SMEs and large multinationals alike.
While these proposals could ease compliance for many US-based companies with EU operations, uncertainty remains. The European Parliament has not yet finalized its negotiating position, and trilogue negotiations are expected to begin in fall 2025. Companies should monitor these developments closely to ensure future alignment with the final EU framework. In the meantime, maintaining alignment with established voluntary standards, such as Task Force on Climate-related Financial Disclosures (TCFD), Sustainability Accounting Standards Board (SASB), and the International Financial Reporting Standards (IFRS) Sustainability Disclosure Standards, can help US companies, (especially financial institutions), demonstrate robust governance to investors, consumers and regulators on both sides of the Atlantic.
Managing compliance, greenwashing, and brand risk
Recent enforcement and litigation trends underscore the importance of aligning ESG reporting and disclosures with actual practices. High-profile actions, such as attorney general and class action challenges to net zero and carbon-neutral claims highlight increasing scrutiny of ambitious climate commitments that may lack credible, measurable plans. In the US, SEC’s ESG-related enforcement action against Vale S.A. further reinforced that potentially misleading statements, even in voluntary ESG disclosures, can result in significant financial penalties and reputational damage. Furthermore, while the European Commission announced its intention to withdrawal the proposal for a Directive on Green Claims (the Green Claims Directive Proposal), withdrawal of the proposal will not affect the existing EU anti-greenwashing consumer protection framework. Greenwashing investigations and litigation also continue to be brought against companies using consumer protections under the Unfair Commercial Practices Directive.[4]
At the same time, private litigation has intensified, with one report from RepRisk in October 2024 showing that US-related high-risk cases of greenwashing rose by 30%. NGOs, class action attorneys, and state attorneys general are actively targeting greenwashing claims under consumer protection laws, including lawsuits focused on environmental contaminants, supply chain integrity, and the reasonableness of relying on third-party audits. Companies have even come under pressure over social responsibility statements and goals, particularly where public commitments are perceived as inconsistent or rolled back.
These developments signal that both voluntary and mandatory ESG-related disclosures can face heightened legal and reputational scrutiny. Companies should therefore ensure that public statements, whether in sustainability reports, websites, ESG Framework reporting, or investor materials, are accurate, verifiable, and supported by internal governance and compliance systems. Taking a more risk-aware, documentation-focused approach to 2025 reporting can also help to prepare for future mandatory requirements, mitigate potential exposure, and maintain stakeholder trust.
Final thoughts and takeaways
As companies enter the 2025 sustainability reporting cycle, companies can use sustainability reporting strategies, which are legally informed and risk aware, to navigate rapidly shifting regulatory expectations, intensifying stakeholder scrutiny, and trends in voluntary disclosures being treated as legally consequential. To stay ahead, companies can embed sustainability and ESG reporting into core governance and compliance functions, ensuring these efforts are not siloed as marketing or communications exercises.
Companies with operations across multiple jurisdictions should stay alert, evaluate their regulatory exposure, and prepare for overlapping and potentially conflicting sustainability reporting and due diligence obligations. Companies can also take proactive steps, such as aligning disclosures with operational reality, strengthening internal review processes, and clarifying language as needed to be prepared for possible changes in the future. These proactive measures will also help companies meet evolving expectations, mitigate legal and reputational risk, and demonstrate credible, long-term sustainability leadership.
Now is the perfect time to ensure that your sustainability strategy prepares you for upcoming regulatory requirements that may apply to your business and operations. Contact us to explore how we can assist your business with responding confidently and effectively to these developments.
For more information, please contact your Nixon Peabody attorney or the authors of this article.
- Atagan Çetin, Aysun. (2023) “The Effect of CDP Score on Firm Performance.”
[back to reference ] - Iowa et al. v. SEC, No. 24-1522 (8th Cir. filed Mar. 12, 2024).
[back to reference ] - The New York Climate-Related Financial Disclosure Act, proposed in two bills, Senate Bill S3456 and Senate Bill S3697-A, aim to enhance climate-related financial risk disclosure by businesses operating in New York.
[back to reference ] - Directive 2005/29/EC
[back to reference ]