2025 Environmental and Social Developments

2025 is off to a fast start with several changes in the legal landscape of the environmental and social (E&S) categories of ESG (Environmental, Social, and Governance). This alert highlights key E&S developments thus far in 2025, including executive actions, regulatory updates, state legislation, and proxy advisor and institutional investor guidance.

Environmental and Social Executive Orders

President Trump’s Executive Orders Target Diversity, Equity, and Inclusion (DEI)

President Donald J. Trump has signed a number of executive orders that target DEI, including an executive order titled, Ending Illegal Discrimination and Restoring Merit-Based Opportunity (the MBO Order). This executive order revoked a number of prior executive orders that promoted equal employment opportunities in the federal government, including Executive Order 11246, which was issued in 1965 by President Lyndon B. Johnson and which mandated nondiscrimination and equal opportunity employment in government contracting. The new administration also ordered the Office of Federal Contract Compliance Programs in the U.S. Department of Labor to immediately cease promoting diversity, stop holding federal contractors and subcontractors responsible for “affirmative action,” and no longer allow or encourage federal contractors and subcontractors to engage in workforce balancing based on race, color, sex, sexual preference, religion, or national origin.

The MBO Order includes several directives. The MBO Order states that every federal government contract or grant award will require the counterparty to certify that it does not operate any programs promoting DEI in violation of federal anti-discrimination laws. The MBO Order also directs the Director of the Office of Management and Budget (OMB) to terminate DEI mandates, programs, requirements, and activities. In addition, the MBO Order asks the Attorney General to prepare a report identifying, among other things, strategies to encourage the private sector to end “illegal DEI discrimination and preferences.”

Another executive order, Ending Radical and Wasteful Government DEI Programs and Preferencing (the DEI Order), instructs agency heads to terminate DEI positions and DEI-related performance requirements for federal employees, contractors, or grantees. The DEI Order further instructs federal agencies to provide the Director of OMB with a list of federal contractors who have provided DEI training or materials to agency employees.

While these executive orders express clear policy preferences, they leave open various questions about the relationship between companies’ DEI policies and programs, and existing law. Federal civil rights and anti-discrimination laws continue to govern compliance requirements for federal contracts and grants. Moreover, there is active litigation challenging these executive orders. Complaints were filed on February 3, 2025, February 17, 2025, and February 19, 2025, and certain provisions of the executive orders are subject to a preliminary injunction.

Thus far, companies have responded to the DEI-focused executive orders in a variety of ways. Some companies have reaffirmed their pre-existing commitments to initiatives while other companies have reduced, reversed, or eliminated their support or disclosure related to DEI initiatives.

President Trump’s Executive Orders Target Clean Energy and Climate Initiatives

As we outlined in our January 31, 2025, client alert, President Trump signed multiple executive orders announcing a shift in federal energy and environmental policy in favor of fossil fuels, nuclear, geothermal, and other technologies. This landscape is evolving rapidly as agencies attempt to implement the policies articulated in these executive orders, and as they face litigation challenging the power and methods used to implement these policies. For clients who are concerned about the pricing and availability of technologies and projects to assist companies in meeting clean energy and climate goals, our Energy and Climate Solutions practice group can provide support and information.

Climate Disclosure Rule Developments

Securities and Exchange Commission (SEC) Seeks Delay of Oral Argument for Climate Rules

As discussed in our March 6, 2024, client alert, the SEC previously adopted final enhanced and standardized climate-related disclosure rules requiring disclosure of climate-related information in registration statements and annual reports, by both domestic registrants and foreign private issuers (Climate Rules). The Climate Rules faced multiple immediate legal challenges, which were consolidated in the U.S. Court of Appeals for the Eighth Circuit (Eighth Circuit). In April 2024, the SEC stayed the Climate Rules while the litigation remained pending, but continued litigating in support of the Climate Rules.

On February 11, 2025, Acting Chairman of the SEC Mark Uyeda issued a statement directing the SEC’s staff to request that the Eighth Circuit delay scheduling oral arguments in the litigation involving the Climate Rules. In support of his direction to the SEC’s staff, Acting Chairman Uyeda states, among other things, that he questions the statutory authority of the SEC to adopt the Climate Rules, the need for the Climate Rules, and the cost-benefit analysis that the SEC engaged in before adopting the Climate Rules. The SEC’s staff subsequently submitted a letter to the Eighth Circuit noting the Acting Chairman’s directives, stating that the SEC’s staff would provide a status report no later than 45 days from the date of the letter, and requesting that the court not take action to schedule oral arguments prior to receiving the status report.

California Diversity Reporting Update

In June 2024, California Governor Gavin Newsom signed into law Senate Bill 164 (SB 164), amending Senate Bill 54, which requires venture capital companies to report certain diversity information. SB 164 will require venture capital companies with a nexus to California to file an annual report with the California Department of Financial Protection and Innovation (DFPI) providing i) demographic data about the founders of businesses in which venture capital companies made a venture capital investment during the prior calendar year, ii) the amount of money invested in such businesses, and iii) data regarding the venture capital companies’ diverse and non-diverse portfolio companies and founding teams. Reporting will begin in 2026 for 2025 information, and this data will be available on the DFPI’s website.

California Climate Laws Update

As previously discussed in our October 8, 2024, client alert, California Governor Newsom previously signed Senate Bill 219, the Greenhouse gases: climate corporate accountability: climate-related financial risk (SB 219) into law. SB 219 amends Senate Bill 253: the Climate Corporate Data Accountability Act (SB 253) and Senate Bill 261, Greenhouse gases: climate-related financial risk (SB 261), which were signed into law in October 2023. Also in October 2023, Governor Newsom signed AB 1305: Voluntary carbon market disclosures, into law. Under SB 219, the California Air Resources Board (CARB) is required to adopt implementing regulations for SB 253 and SB 261 by July 1, 2025.

On December 16, 2024, CARB announced that it was soliciting feedback to “help inform its work” on the implementation of SB 253 and SB 261, as amended by SB 219. CARB provided specific questions for commentators to consider including questions regarding the standardization of scopes 1, 2, and 3 GHG emissions, and the appropriate timeframe needed to gather data and draft the reports required by SB 253, SB 261, and SB 219. The comment period has been extended through March 21, 2025, and submissions will be publicly posted.

The U.S. Chamber of Commerce, the California Chamber of Commerce, and other business groups sued the State of California and CARB on January 31, 2024, alleging that SB 253 and SB 261 were unconstitutional on three separate grounds: that the laws i) violate the First Amendment by compelling speech; ii) violate the Supremacy Clause by regulating GHG emissions when the US Clean Air Act and federalism principles reserve that authority to the federal government; and iii) violate the limitations on extraterritorial regulation, such as the dormant commerce clause, because they impose significant burdens on interstate and foreign commerce. The plaintiffs were denied an early motion for summary judgment based solely on their first claim, that SB 253 and SB 261 facially violate the First Amendment.

New York Climate Disclosure Bills Update

In January 2025, New York state senators reintroduced the Climate Corporate Data Accountability Act (SB 3456) and the Climate-Related Financial Risk Act (SB 3697) to the State Senate’s Environmental Conservation Committee (the Committee). Both bills were originally introduced in October 2023, but neither bill progressed beyond the Committee at that time.

The New York bills largely mirror California’s climate disclosure laws discussed above, with certain exceptions such as staggered implementation timelines. SB 3456 would require companies with operations in New York and total revenues over $1 billion to annually disclose scope 1 and scope 2 GHG emissions for the prior fiscal year beginning in 2027. Scope 3 GHG emissions reporting for the prior fiscal year would begin in 2028. As proposed, SB 3426 exempts non-New York companies whose business in New York exclusively involves activities enumerated in Section 1301(b) of the New York Business Corporation Law, such as maintaining a bank account or engaging in litigation.

SB 3697 would require companies with total revenues over $500 million and that do business in New York to prepare annual reports disclosing their climate-related financial risks. These reporting requirements would commence in 2028 and be updated biennially. As currently proposed, SB 3697 directs companies to make these reports publicly accessible and linked on their websites.

EU Proposes a Significant Rollback of CSRD Reporting and Corporate Sustainability Due Diligence Obligations

On February 26, 2025, the European Commission (EC) proposed an Omnibus legislative package to amend the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). The package seeks to remove 80 percent of companies from the scope of the CSRD, simplify reporting requirements for those that remain subject to it, focus CSDDD obligations on direct business relationships rather than the entire value chain, while better aligning the CSRD with the CSDDD. Most of the proposed legislative amendments in the Omnibus legislative package must be approved by the European Council and the European Parliament (the Co-legislators).

Key Changes Introduced by the Omnibus Legislative Package:

CSRD:

• Limit reporting requirements to EU companies with more than 1,000 employees and either a turnover exceeding €50 million or a balance sheet total above €25 million.
• For non-EU companies, restrict reporting obligations to those with EU turnover exceeding €450 million (currently €150 million) and either:
  • an EU branch with net turnover of at least €50 million, or
  • an EU subsidiary that qualifies as a large undertaking (more than 250 employees and either a turnover above €50 million or a balance sheet total above €25 million).
• Eliminate the possibility of increasing assurance standards from limited to reasonable assurance.
• Reduce the number of data points required under the European Sustainability Reporting Standards (ESRS).

The EC also proposes to postpone reporting obligations by two years for companies currently in scope of the CSRD but that have not yet started reporting. This postponement aims to prevent companies from being required to report for financial years 2025 or 2026, only to be later relieved of this obligation if the substantive changes are approved by the Co-legislators. However, the proposed postponement still requires formal approval by the Co-legislators.

CSDDD:

• Limit due diligence obligations only to direct suppliers unless the company has plausible information that adverse impacts may arise further down the value chain.
• Remove the requirement for EU Member States to introduce civil liability and allow for representative actions.
• Increase the period between due diligence assessments from one to five years.
• Postpone the application of CSDDD diligence requirements covering the largest companies by one year, i.e., until July 26, 2028.

Key Takeaways:

Most of the proposed changes must be formally approved by the Co-legislators, but approval remains uncertain due to differing views among Member States and European Parliament members. Adding to the complexity, both the CSRD and CSDDD are directives requiring national implementation, and the current CSRD has already been adopted by 20 Member States.
To navigate the current uncertainty:

• Companies should continue complying with existing CSRD requirements while monitoring the legislative process.
• Those with fewer than 1,000 employees should closely follow developments regarding the proposed two-year postponement of reporting, as this is expected to advance separately from the broader CSRD amendments.
• Companies subject to the CSDDD may consider pausing compliance preparations related to indirect suppliers while tracking legislative progress.

Institutional Investor Environmental and Social Developments

Proxy Advisors and Institutional Investors Pull Back on Environmental and Social Guidelines

Since December 2024, several proxy advisors and institutional investors have rolled back their diversity and/or sustainability policies in their voting guidelines. These changes include the following:

• Institutional Shareholder Services (ISS): On February 11, 2025, ISS announced that it will no longer consider the gender, racial, or ethnic diversity of U.S. company directors when making vote recommendations with respect to the election or re-election of directors. ISS’s new policy approach will be applicable for shareholder meeting reports published on or after February 25, 2025. Additionally, on January 9, 2025, ISS published updated proxy voting guidelines and benchmark policy recommendations for meetings on or after February 1, 2025. The guidelines update the criteria for reviewing general environmental proposal and community impact assessments, now called natural capital-related and/or community impact assessment proposals, to keep “abreast of the recent focus seen in shareholder proposals on topics related to natural capital and/or community impact risk.” Additionally, ISS will now look to the “alignment of current disclosure of applicable policies, metrics, risk assessment report(s) and risk management procedures with relevant, broadly accepted reporting frameworks” rather than the “current disclosure of applicable policies and risk assessment report(s) and risk management procedures” when evaluating relevant proposals.
• Glass Lewis: On February 18, 2025, Glass, Lewis & Co. announced it was reviewing its diversity and DEI voting policies and would advise investors and companies of any modifications to its policies, guidelines and/or research approach pertaining to U.S. companies on March 3, 2025.
• BlackRock: In December 2024, BlackRock, Inc. (BlackRock) published its proxy voting guidelines that were effective as of January 2025. The updated guidelines soften prior board diversity and environmental oversight and disclosure requirements. Notably, BlackRock no longer requires companies to aspire to a set a target percentage of diverse board members. Rather, the updated guidelines noted that falling out of step with S&P 500 market norms could result, on a case-by-case basis, in a vote against members of a company’s nominating/governance committee. Additionally, rather than asking boards to consider the gender, race, and ethnicity of board members, the guidelines ask that companies disclose “how diversity, including professional and personal characteristics, is considered in board composition, given the company’s long-term strategy and business model.” Separately, with respect to environmental policies, BlackRock noted that, while a non-voting item, disclosure of “any material supranational standards adopted, the industry initiatives in which they participate, any peer group benchmarking undertaken, and any assurance processes” adopted in connection with evaluating material sustainability-related risks and opportunities is helpful when evaluating companies. BlackRock notes that it may support shareholder proposals related to sustainability if they assess that the board is not “acting in shareholders’ long-term financial interests.” Generally, the guidelines emphasized a focus on long-term business models and materiality when evaluating board oversight of climate-related risks.
• Vanguard: On January 31, 2025, Vanguard Group, Inc. (Vanguard) published its updated proxy voting guidelines, effective February 2025. Much like BlackRock, Vanguard softened its requirements regarding diversity and sustainability. Though Vanguard notes that “diversity of thought, background, and experience, as well as personal characteristics (such as age, gender, and/or race/ethnicity), meaningfully contribute to the ability of boards to serve as effective, engaged stewards of shareholders’ interests,” the guidelines regarding board composition emphasize cognitive diversity rather than diversity of age, gender, race, and ethnicity. Additionally, Vanguard softened its environmental and social oversight requirements for boards, focusing on materiality oversight and long-term shareholder returns. Vanguard noted that shareholders lack access to “sufficient information about specific business strategies to propose specific targets or environmental or social policies for a company.”
• Goldman Sachs: On February 11, 2025, several media outlets reported that Goldman Sachs Group, Inc. (Goldman) cancelled its policy pledging to take public only those companies with two diverse board members. A spokesperson for Goldman noted that legal developments related to board diversity requirements motivated the policy change.

SEC Guidance on Schedule 13D and Schedule 13G Beneficial Reporting Addresses Environmental and Social Matters

On February 11, 2025, the SEC’s Division of Corporation Finance (Corp Fin) updated its Compliance and Disclosure Interpretations (CDIs) relating to Regulation 13D-G beneficial ownership reporting by revising Question 103.11 and issuing new Question 103.12. In this guidance, the SEC staff noted that Schedule 13G eligibility depends on acquiring or holding securities without the purpose or effect of changing or influencing control of the company. The staff expressed views on circumstances that could impact Schedule 13G eligibility and specifically indicated that a Schedule 13G may be unavailable to a shareholder who recommends that a company undertake specific actions on a social, environmental, or political policy and, as a means of pressuring the company, explicitly or implicitly conditions its support of one or more of the company’s director nominees at the next election of directors on the company’s adoption of the recommendation.

Conclusion

E&S topics have always been complex and shifting areas of for companies, and we expect that government policies, laws, and regulations governing E&S topics will continue to change and evolve under the new administration.

Against the backdrop of a shift in federal energy and environmental policy in favor of fossil fuels, nuclear, geothermal, and other technologies, the SEC and European regulators appear to be stepping back in their support for climate disclosure regulations while certain states push forward with their own legislation. As a result, companies will need to pay close attention to varying requirements by jurisdiction, including challenges to these requirements, and prepare for upcoming compliance requirements accordingly.

On the social front, in the current political and regulatory environment, companies should continue to monitor the evolving landscape with respect to existing executive orders and challenges thereto. Additionally, companies should expect scrutiny of their DEI policies and programs. Companies should review any policy, process, or practice that requires knowledge of the racial or other protected characteristics of an individual in making any decision affecting that individual’s employment. Companies can take steps to promote equal employment opportunities and remain in compliance with the law, including:

• expanding the employee candidate pool by evaluating where the company sources job candidates and considering using more or different recruiters, using civil and professional organizations to source candidates, conducting on-campus recruiting in a broader geographic area, and reducing reliance on referrals from current employees, which tend to lead to more homogenous applicant pools;
• adopting blind hiring processes;
• increasing diversity in hiring committees;
• discontinuing the practice of reviewing social media pre-offer of employment;
• adopting a standard, objective promotions process (e.g., everyone is considered for promotion after three years in a position);
• consider implementing workplace flexibility and review leave policies to increase retention of underrepresented groups; and
• training leaders on how to identify hidden biases.

Under the new administration, several Executive Orders impact federal contractors, including many beyond the scope of this alert. Federal contractors seeking to understand the impacts of Executive Orders beyond the scope of this alert should reach out to our Government Contracts practice to get additional information regarding current and evolving requirements specific to them.