Trans-Atlantic Divergence in ESG agendas

Geographical divergences

The US experienced a pronounced backlash against ESG during 2025, with widespread challenges to diversity, equity and inclusion measures, attempts to restrict sustainability reporting and investing, and state-level regulatory action against climate collaboration efforts. The divergence has had cross-border impacts, with the anti-ESG agenda influencing inter-state trade negotiations and casting doubt over how other jurisdictions choose to implement their own sustainability regulations.

This divergence is set to continue through 2026, as the US’ withdrawal from the Paris Agreement takes effect, while the other signatories maintain committed and grapple with their legally binding decarbonisation targets. 

While there has been some backtracking on this side of the Atlantic, we have not seen the same rejection of sustainability efforts as in the US. The ambition of the EU’s flagship sustainability regulations means that even simplified obligations set a higher bar than other jurisdictions, and much of the ESG-related legislation expected to come into force in the UK is also still on track.

We have seen criticism from the US administration of these continued sustainability regulatory efforts and attempts to deem them unlawful. These attempts have not been successful so far, but multinational companies will need to tread the line between complying with the law in certain jurisdictions while mitigating their exposure to risk in the US.

More legislative certainty ahead in 2026? 

Continued progress in the UK 

In 2026, we expect a greater degree of legislative certainty than was experienced during 2025. The global adoption of the International Sustainability Standards Board’s (ISSB) sustainability and climate standards, as well as requirements in respect of transition planning, should continue to progress. Following a series of mid-year consultations by the UK government, we have the clearest picture to date that the UK intends to incorporate the ISSB Standards into domestic law as the UK Sustainability Reporting Standards (SRS). We should also get a greater indication of whether and how the government wishes to mandate transition plan development, disclosures, and implementation during the coming year.

With the Home Office’s updated statutory guidance on Modern Slavery Act 2015 statements being published late in 2025’s reporting season, it is too early to say exactly what impact this will have on reporting practice. We anticipate more clarity in 2026 as we see statements starting to align with the updated recommendations.

Amid continued calls over the past 12 months for the UK to enhance its forced labour legislation, the government launched a review into the UK’s approach to responsible business conduct, with a remit to strengthen the existing reporting regime and to explore avenues for further legislative development. We should begin to see the outcomes of that review during the course of 2026, including whether the government seeks to introduce mandatory human rights due diligence, import bans, and/or a ”failure to prevent forced labour” duty. 

Calmer waters expected in Europe

In Europe, the past year saw significant and prolonged uncertainty surrounding the substance of the European Commission’s “omnibus” proposals, particularly with respect to the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CS3D), two of the EU’s flagship pieces of sustainability legislation. Negotiations finally concluded in December, meaning that 2026 should offer businesses much greater clarity and a more settled legislative environment within which to continue preparations for compliance.

The Deforestation Regulation (EUDR) was simplified towards the end of the year following proposals submitted by the Commission in October. The regime was also delayed for a second time, meaning that it will begin to apply at the end of 2026 for medium and large operators, and six months later for micro and small operators. 2026 should also see the publication of the Commission’s due diligence guidelines for the Forced Labour Regulation (FLR) and the EU Batteries Regulation (EUBR), which will clarify how the obligations under these regimes are intended to sit alongside those imposed by other EU regimes and international soft law standards.

Managing regulatory uncertainty

Behind the noise are concrete laws with which companies need to comply. In the UK and EU, companies will need to fulfil their obligations under the upcoming due diligence and preventative action regulations in the EU so that they are able to place their products on the market. Businesses must also continue making environmental and sustainability-related disclosures required by relevant legislation, otherwise they risk legal action for failure to do so.

Global companies will benefit from assessing which regimes might more immediately apply to their business and whether they might come into scope of those on the horizon. Taking stock will allow organisations to align and streamline their practices, preparing them for when regimes come into force and enabling flexibility if changes occur.

Ensuring that sustainability practices are built on the basis of legal requirements will set businesses up well as they move forward. As a helpful supplement to these obligations, companies should look to international frameworks, which underpin many of the legal requirements and serve as useful guidance for best practice and practical implementation. The companies with clarity on what is expected of them and align their practices accordingly will be better equipped to navigate the sustainability landscape. And while the uncertainty caused by last year’s divergence will likely remain, companies might cautiously hope that the gaps will not grow any wider.