A Quick Guide to ESG Regulations in 2026

In 2026, ESG regulations seem to be moving in two directions at once. Some frameworks are pulling back, with the U.S. SEC climate disclosure rule stalled and the EU’s Omnibus update significantly reducing the number of companies subject to mandatory reporting. At the same time, enforcement is tightening where rules do apply, with regulators raising the bar on data quality and scrutinizing sustainability claims more closely than ever. For businesses, the challenge is knowing exactly which obligations apply to them and preparing accordingly.

What Are ESG Regulations? 

ESG regulations are government-mandated rules that require companies to disclose and manage performance across three dimensions:

• Environmental: Carbon emissions, energy use, water consumption, waste management and biodiversity impact.
• Social: Labor practices, worker health and safety, human rights in the supply chain and community engagement.
• Governance: Business ethics, anti-corruption policies, board oversight and executive accountability.

These regulations exist mainly because voluntary commitments alone have proven insufficient to drive the transparency and progress that investors, regulators and consumers now demand. For businesses operating across multiple jurisdictions, ESG compliance carries direct consequences for market access, financing and public reputation. 

Real-World Consequences of ESG Non-Compliance

The consequences of falling short on ESG obligations aren’t theoretical. Regulatory enforcement, legal action and investor pressure are all producing real, documented outcomes for companies that fail to meet expectations.

Supply Chain Due Diligence: The LkSG Precedent

Germany’s Supply Chain Due Diligence Act (LkSG) was among the first laws to impose mandatory human rights and environmental due diligence on large companies. In 2024, the European Center for Constitutional and Human Rights (ECCHR) filed a lawsuit against Volkswagen, BMW and Mercedes-Benz, alleging the automakers had failed to adequately address forced labor risks in their supply chains. 

The consequences were immediate and tangible. Volkswagen withdrew physically from Xinjiang, where mining violations had been identified. Mercedes-Benz launched a formal internal investigation. BMW issued a public statement. No fines were imposed, but the reputational and legal costs were significant, and the case established a precedent for supply chain due diligence enforcement.

Forced Labor: A Global Crackdown

Forced labor scrutiny is no longer limited to regulatory filings. In 2024, Mondelez was named in a class action lawsuit alleging child labor and deforestation in its cocoa supply chains, directly contradicting sustainability claims on its own packaging. The lawsuit followed years of criticism from the Business and Human Rights Resource Centre for weak transparency under the UK Modern Slavery Act, where Mondelez had relied on a group-level statement rather than publishing a clear, standalone UK filing. 

The case illustrates a growing trend in modern slavery efforts. Companies that treat disclosure as merely a compliance checkbox rather than a genuine commitment are increasingly exposed to legal action, public scrutiny and reputational damage.

Investor Pressure: The Financial Stakes

Investors have always cared about financial risk. What’s changed is that ESG failures are now consistently producing the kind of financial consequences that move markets. For example, BP’s Deepwater Horizon oil spill resulted in $65 billion in fines and settlements, wiping out investor confidence that had taken decades to build.

Cases like BP’s have reshaped how institutional investors approach ESG risk. According to PwC’s Global Investor ESG Survey, 49% of investors say they would divest from companies not taking sufficient action on ESG issues. When nearly half of global investors are prepared to walk away from companies with poor ESG performance, it’s a clear indicator that these issues need to be accounted for.

ESG Regulations in the EU & the UK

The EU and UK remain the most aggressive regulators on sustainability disclosure. In 2026, several major frameworks are either entering new phases or taking effect for the first time, making it a consequential year for companies operating within European borders.

CSRD, CSDDD and the Omnibus Update: Who Reports Now? 

Two directives sit at the center of the EU’s sustainability framework. The Corporate Sustainability Reporting Directive (CSRD) dictates what companies must disclose about their sustainability performance. The Corporate Sustainability Due Diligence Directive (CSDDD) goes further, requiring companies to actively investigate and address social and environmental risks across their global supply chains.

The EU Omnibus package significantly narrowed the scope of both:

• CSRD: Only companies with more than 1,000 employees and net annual turnover exceeding €450 million are required to report, removing 85-90% of previously in-scope companies from immediate obligations. Listed SMEs are fully exempt.
• CSDDD: The directive now applies to EU companies with more than 5,000 employees and turnover exceeding €1.5 billion, with amended rules taking effect from July 2029.

For companies that remain in scope, the obligations are relatively demanding. CSRD requires double materiality reporting: companies must account for how sustainability risks affect their financial health and how their operations impact the environment and society. CSDDD requires a risk-based due diligence framework targeting areas where adverse impacts are most likely and most severe.

EUDR: Deforestation Deadlines Take Effect

The EU Deforestation Regulation (EUDR) targets commodities commonly linked to deforestation, including cattle, soy, palm oil, wood and cocoa. Large and medium companies must comply by Dec. 30, 2026, with small companies following by June 30, 2027. Companies selling these commodities on the EU market must demonstrate they have not contributed to deforestation or forest degradation, backed by verifiable due diligence documentation.

Forced Labor Regulations: Still Very Much Alive

Forced labor compliance is now a legal obligation in both the EU and the UK, with each taking distinct approaches to what companies must demonstrate about their supply chains.

• EU Forced Labour Regulation: Bans all products made with forced labor from the EU market regardless of sector, origin or company size. Fully applicable from December 2027. In March 2026, the European Commission concluded its public consultation on import ban enforcement guidelines, with final guidance expected in June 2026.
• UK Modern Slavery Act: Requires all commercial organizations operating in the UK with annual global turnover of £36 million or more to publish an annual Modern Slavery Statement, board-approved and signed by a director, outlining steps taken to prevent modern slavery in their operations and supply chains.

The Push for Buy European 

The European Commission’s proposed Industrial Accelerator Act, published in March 2026, introduces mandatory Union-origin and low-carbon quotas for public procurement in sectors including steel, cement, automotive and net-zero technologies. Suppliers from countries without trade agreements granting EU market access would be excluded from competing in these sectors entirely.

The legislation is not expected to be finalized before mid-to-late 2027, and material changes to the Commission’s proposal are liekly. For companies operating in affected industries, sustainability credentials and supply chain transparency are critical for maintaining eligibility in Europe.

ESG Regulations in the U.S.

The U.S. federal picture is undeniably fragmented. With the SEC climate rule effectively stalled, state-level mandates, particularly in California, are carrying the weight of climate disclosure obligations for companies operating in the country.

The SEC Climate Rule: Stalled at the Federal Level

The SEC climate disclosure rule was finalized in March 2024, requiring public companies to report material climate-related risks, Scope 1 and Scope 2 emissions, and in some cases, Scope 3 emissions. The rule was designed to bring U.S. corporate climate reporting in line with growing global expectations.

It never made it to implementation. Legal challenges from business groups and Republican-led states cited regulatory overreach and compliance costs, ultimately forcing the SEC to withdraw its legal defense of the rule by March 2025. With the current administration signaling a clear preference for deregulation, federal climate disclosure requirements have stalled indefinitely, leaving companies to navigate a growing patchwork of state and international obligations instead.

California Climate Laws: First Deadlines Arrive

California’s SB 253 and SB 261 are now the primary climate disclosure drivers for U.S.-based companies. Under SB 253, large enterprises doing business in California must report Scope 1 and Scope 2 emissions by Aug. 10, 2026, following finalization of regulations in February 2026. Scope 3 reporting follows in 2027.

SB 261, which governs climate-related financial risk disclosure, is currently under a temporary judicial stay from the Ninth Circuit. This means means a court has temporarily paused enforcement while legal challenges are heard, though the underlying legislation remains intact. Companies should remain publish-ready, as enforcement could resume at any time following a ruling.

Section 301 Investigations and Trade-Linked ESG Pressure

The U.S. has launched Section 301 investigations into structural manufacturing overcapacity across 17 countries and more than 20 sectors, from steel and chemicals to electronics and electric vehicles. Among the factors under examination are lax environmental protections and inadequate labor standards. 

While these are trade investigations rather than ESG regulations, the criteria being applied mean that companies with weak environmental and labor performance in their supply chains may face additional tariffs on top of existing compliance obligations. For procurement teams, it is an emerging dynamic worth watching closely.

ESG Regulations in Asia-Pacific Region

Asia-Pacific is an emerging force in mandatory ESG disclosure. Two of the region’s largest economies are moving quickly, and the implications for global supply chains are substantial.

China: Mandatory Disclosures Take Shape

China’s 2026 Preparation Guidance revision is now live, delivering the technical metrics required for mandatory corporate sustainability disclosures. Notably, China has adopted a double materiality approach, aligning more closely with the EU’s ESRS than with ISSB standards. For multinational enterprises with Chinese operations or suppliers, understanding how these disclosure requirements intersect with their existing reporting obligations is a necessity.

South Korea: A Phased Roadmap Emerges

South Korea has launched a government consultation on a phased roadmap for mandatory sustainability reporting, based on the Korean Sustainability Disclosure Standards. The standards are aligned with ISSB’s financial materiality framework, signaling a divergence from China’s double materiality approach. Together, the two developments indicate regional momentum toward mandatory disclosure that may significantly impact global trade.

Global ESG Reporting Standards in 2026

While regulations vary by jurisdiction, the move toward a single global baseline for ESG reporting is accelerating. The International Sustainability Standards Board (ISSB) standards, particularly IFRS S2 on climate-related disclosures, are increasingly the reference point for regulators worldwide.

The UK is aligning its Sustainability Reporting Standards (UK SRS) with ISSB, reinforcing the case for a common global framework. For companies still managing responses across multiple ESG standards, 2026 is an opportunity to consolidate into a unified strategy. 

ESG Compliance Priorities for 2026

Across every jurisdiction covered here, regulators are scrutinizing what gets reported, how it’s verified and whether public claims hold up to evidence. Three themes stand out this year.

• Greenwashing: The UK Financial Conduct Authority’s anti-greenwashing rule came into force in May 2024, requiring all FCA-authorized firms to ensure sustainability claims are clear and not misleading. In the EU, the Green Claims Directive, originally proposed in March 2023, is now on hold indefinitely. In its place, the Empowering Consumers for the Green Transition (ECGT) directive applies from September 2026, targeting misleading labels, generic environmental claims and unsubstantiated future performance claims. The intended effect is similar: companies can no longer make vague sustainability claims without evidence to back them up.
• Scope 3: Under CSRD’s double materiality framework, in-scope companies must report Scope 3 emissions where material. California’s SB 253 also mandates Scope 3 reporting starting 2027. Scope 3 typically accounts for 70-90% of a company’s total emissions footprint, which is why regulators are pushing hard here.
• Data quality: CSRD explicitly requires third-party assurance of sustainability disclosures, and ISSB standards are built around the same expectation. Auditable, independently verified data is now the baseline across multiple jurisdictions. For companies still relying on self-reported figures, that gap between what they claim and what they can prove is becoming a liability.

Summary: ESG Regulations Require Verified Data

In 2026, regardless of jurisdiction, the direction is the same. Companies have to back sustainability disclosures with data that holds up under independent scrutiny. Vague claims and self-reported figures are no longer sufficient.

EcoVadis rates supplier sustainability performance across environment, labor and human rights, ethics, and sustainable procurement, combining document review with analyst validation to produce scorecards procurement teams can trust. For companies managing ESG obligations across multiple regions, that depth of verified supplier data is what separates a defensible compliance position from a liability.