US ESG Trends: Tackling Fragmentation, Backlash & Energy Security

Environmental, Social, and Governance (ESG) developments in 2025 have been marked by a growing backlash and an increased fragmentation in legal regulations, having major implications for investors, businesses and policymakers. The federal government’s reluctance to endorse climate and sustainability measures has led to a complex mix of conflicting mandates, enforcement policies and political scrutiny due to assertive initiatives at the state level, both for and against ESG.

As a result, litigation risks have significantly increased, with greenwashing class actions and novel tort theories leading to state investigations and claims. This has deepened the uncertainty surrounding advertising, disclosure, and fiduciary practices. In this complex and dynamic environment, businesses’ ability to adapt strategically and have reliable legal preparedness has become crucial to maintain a competitive edge. Below are some of the key legal developments in this area over the past year and their implications.

Energy security prioritization

From the beginning of his new term, the president issued a far-reaching executive order (Unleashing American Energy) that directed agencies to re-evaluate, halt, and update energy-related actions perceived as barriers to a reliable domestic energy supply. This was particularly aimed at oil, natural gas, coal, hydropower, biofuels, critical mineral, and nuclear energy resources. The order also instructed the acceleration of permitting under the National Environmental Policy Act, the revision of regulatory analyses, and the reallocation of program resources.

Further executive orders on climate and energy issues came in April. The Protecting American Energy from State Overreach executive order identified certain states as having “burdensome and ideologically motivated ‘climate change’ or energy policies that threaten American energy dominance and our economic and national security”. This included New York’s Climate Superfund Act and California’s Cap-and-Trade Program. The order also directed the attorney general to pinpoint “State laws purporting to address ‘climate change’ or involving ‘environmental, social, and governance’ initiatives, ‘environmental justice,’ carbon or ‘greenhouse gas’ emissions, and funds to collect carbon penalties or carbon taxes”, and take necessary steps to halt the enforcement of these laws.

The “Beautiful Clean Coal” executive order reinforced this stance. The order required the Environmental Protection Agency (EPA) and the Departments of Transportation, Interior, Energy, Labor, and Treasury to identify any guidance, regulations, programs, or policies that “seek to transition the [U.S.] away from coal production and electricity generation.” Moreover, it required the agencies to (i) repeal policies or regulations that discourage coal production and coal-fired electricity generation, (ii) promote coal exports, and (iii) explore potential uses for coal in steel production and the operation of AI data centers.

Federal ESG programs take a step back

In March 2025, the EPA decided to end grant agreements worth USD20 billion that had been awarded to eight NGOs through the Inflation Reduction Act’s Greenhouse Gas Reduction Fund. After going to court, the U.S. Court of Appeals for the District of Columbia Circuit sided with the EPA in September, ruling that federal officials have a wide discretion to cancel funds that have been allocated by Congress.

At the same time, many Biden- and Obama-era environmental regulations and mandates have been repealed or modified.

In September, the EPA proposed changes to the Greenhouse Gas Reporting Program (GHGRP) that would exempt most source categories (i.e., required reporting industries under the GHGRP), including the distribution segment of the petroleum and natural gas systems source category. The proposal also included a suspension of other program obligations until 2034. If finalized, the proposal would lift reporting obligations for most large facilities, as well as for fuel and industrial gas suppliers and CO2 injection sites.

The Securities and Exchange Commission (SEC) decided in March to end its legal defense of the Climate Disclosure Rule, describing the rule as “costly and unnecessarily intrusive”. In a document submitted to the U.S. Court of Appeals for the Eighth Circuit, the SEC stated that its lawyers will not “advance” arguments the agency had previously made in support of the 2024 rule. Then, on September 12, 2025, the court issued an order putting in abeyance petitions for review of the SEC’s climate disclosure rules. The court indicated that the order will stay in place until the SEC decides to rescind or modify the Climate Disclosure Rule through ordinary rulemaking, or renews its defense of the rule in the litigation (which seems unlikely).

The Unleashing American Energy executive order also specifically tackled several key electric vehicle policies, mandates, and funding mechanisms. One of these was a previous Biden executive order that set the goal for 50% of new light-duty vehicle sales to be zero-emission by 2030. This effectively removed the federal government’s policy goal for electric vehicle adoption and also proposed ending, “where appropriate”, state emissions waivers granted by the EPA permitting stricter standards.

“The ESG landscape at the state level continues to be highly fragmented, with an increasing number of actions from both anti-ESG … and pro-ESG states”

Diverse U.S. ESG landscape

State-level ESG landscape continues to be highly fragmented, with an ever-increasing number of actions from both anti-ESG states and pro-ESG states. This includes policy letters from groups of states on both sides of the issue, legal investigations, and statutory initiatives.

While California has been a front-runner among the states implementing their own climate reporting and disclosure laws, a recent decision by the U.S. Court of Appeals for the Ninth Circuit temporarily halted California law SB 261. This law would have required companies with more than USD500 million in annual revenue doing business in California to disclose financial risks from climate change starting in January 2026. The Ninth Circuit’s ruling prevents California from enforcing SB 261 while the claimants pursue their litigation aiming to permanently stop the two laws. A written decision from the Ninth Circuit is awaited in the coming months that will decide whether the law will be permanently blocked or allowed to move forward.

In August, a coalition of 23 state Attorneys General sent a letter to the Science Based Targets initiative (SBTi), challenging SBTi’s “Financial Institutions and Net-Zero Standard” and demanding information about the organization and its members. The letter expressed concerns about potential violations of antitrust and consumer protection laws.

The Texas Attorney General announced in September his office’s investigation into two proxy advisory firms for allegedly issuing voting recommendations that “advance radical political agendas rather than sound financial principles”, potentially misleading institutional investors and public companies. The announcement gave instances that included “aggressive climate activist policies”.

In an effort to counter the wave of “anti-ESG” actions, Democratic state officials from 17 states sent letters to at least 18 major asset managers urging them to actively consider long-term risks such as climate change, supply chains, and corporate governance in investment decisions, and to reject Republican pressure to abandon ESG considerations in their investing decisions. The officials argue that “fiduciary duty calls for active oversight, responsible governance, and the full exercise of ownership rights”, warning that the GOP’s anti-ESG stance puts American retirement money at risk.

Growth in litigation

Greenwashing litigation has also continued to expand in the U.S., especially consumer class actions challenging marketing and labeling. Watchdogs report well over 150 U.S. greenwashing class actions tracked through early 2025, with California and New York being the most active venues.

While private greenwashing suits may be proliferating, many complaints end up being pared back or dismissed when the challenged statements are aspirational, generalized, or “puffery”, or when the defendant “shows its working” with transparent methodologies and qualifications. On the other hand, a meaningful number of claims survive motions to dismiss—particularly when plaintiffs challenge concrete, product-specific claims (for example, using terms like “recyclable”, “reef safe”, “humane”, or “sustainable”) on labels or websites and can show demonstrable inaccuracies or a plausible theory of reasonable consumer deception. Securities class actions premised on ESG statements have generally proceeded at a slower pace and with mixed results, with several losses at the pleadings stage and occasional settlements (which are often tied to other claims such as breach of fiduciary duty, rather than being pure “greenwashing” actions).

Private litigants may also seek to link oil and gas businesses to personal losses under novel legal theories. A claim filed against major oil companies in a Washington county court in May claimed to be the first-ever climate change wrongful death lawsuit. The complaint alleged that the defendants’ deceptive conduct delayed measures to mitigate and adapt to climate change and was the proximate cause of the plaintiff’s mother’s death in an extreme heat event. Similarly, in November, a proposed class action was filed in Washington federal court by two Washington homeowners against six major oil companies. The plaintiffs argued that because the defendant companies had not taken responsibility for climate change, homeowners had suffered rising insurance costs from weather-related disasters.

The plaintiffs alleged that the companies violated (i) the federal Racketeer Influenced and Corrupt Organizations Act (RICO) and (ii) various state laws, to conceal the industry’s impact on the environment. They asked the court to certify a class of “all persons who purchased homeowner insurance at any time after 2017” in connection with the RICO claims.

Expectations over the short, medium, and long term

In the short term (6–12 months), one of the key challenges emerging this year is that regulatory certainty and consistency are increasingly in short supply in the ESG arena. Most businesses should therefore focus on mapping legal exposure across federal and state rules. Double-check that your external messaging is aligned with financially material, reliability-relevant risks and opportunities, and establish a litigation-aware review of your claims and marketing.

In the medium term (12–18 months), create or refine your reporting architecture so that it is capable of serving multiple jurisdictions and managing emerging assurance expectations. Consider embedding energy security into your existing climate transition plans. Prepare for potential regulatory inquiries and enforcement by reviewing your escalation protocols.

Over the long term (18 months–5 years), continue to actively manage climate-related risks, balancing current sustainability practices with tangible business and financial impacts and your overall approach to enterprise risk. Related considerations include pressure from shareholders, investors, customers, clients and other stakeholders, scrutiny from regulators, disclosure and governance requirements from non-U.S. regimes, and reputational risks. These risks obviously cannot and should not be ignored. Rather, the key will be to ensure that you are managing them prudently, consistent with your wider obligations to protect the integrity of your business, your obligations to your stakeholders, and your obligations under applicable law.

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Sustainability Outlook

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