ESG is an overarching term used to refer to the environmental, social, and governance aspects of an organization’s activities. ESG programs and frameworks enable organizations to gauge whether, and ensure that, their overall strategies support environmental sustainability, social principles such as equality, and good governance.
For more information about ESG principles, see How-to guide: Understanding environmental, social and governance (ESG).
In the United States, ESG efforts were initially prompted by investor and stakeholder demands, with regulatory activity fairly limited compared to the UK and EU. Then, the Biden administration and federal agencies stepped up their attention and action with respect to ESG matters, and state-level regulation began developing in very different ways. However, the social pendulum began swinging back in the opposite direction in 2024, and the re-election of President Trump is shifting matters further. How these forces will impact ESG initiatives remains to be seen.
This Quick view will assist organizations operating in the USA to understand the development of ESG regulations and how this might impact their operations.
1. Overview of ESG in the USA
The topics of environmental sustainability and of diversity and inclusion, especially on boards and in senior management, have featured prominently in recent ESG-related developments across the USA. However, there has also been considerable backlash against ESG developments, with ESG programs becoming embroiled in the USA’s wider culture wars. Politicized battles have emerged particularly at, but not limited to, the state level. This has created a fractured environment that can be difficult for organizations to navigate.
1.1 Environment
Pension funds in several states have explicitly included environmental sustainability considerations in their investment approaches. New York City’s Comptroller has been particularly outspoken on this issue, and adjusted pension investment portfolios with the goal of reaching net-zero emissions in its public pension funds by 2040 (see the Comptroller’s webpage: Confronting the Climate Crisis). States with similar approaches include California, Illinois, and Washington.
Taking a very different ideological approach, Texas prohibited their state pension funds from investing in funds that are divesting from natural gas and oil companies (Texas Government Code Chapter 809). Similar moves have been made in Florida, Kentucky, and Tennessee.
The topic has also prompted some debate at the federal level, with:
- the Department of Labor issuing the Final Rule on Prudence and Loyalty in Selecting Plan Investments and Exercising Shareholder Rights, which explicitly allows investors for private-sector employee benefit plans to weigh climate change and other ESG factors when making investment decisions. A federal judge ruled on February 14, 2025, that the Labor Department's regulation allowing fiduciaries to consider ESG factors as a tiebreaker does not violate the Employment Retirement Income Security Act of 1974 (see State of Utah v Vince Macone 2:23-cv-00016-Z). Judge Matthew Kacsmaryk of the Texas Northern District Court sided with the Biden administration, finding the agency's guidance valid. This decision came after Kacsmaryk's initial dismissal of the lawsuit, which had relied on the now-defunct Chevron doctrine, was appealed and sent back for re-evaluation.
- the US Congress’s passage of HJ Res 30 which aims to block the rule. President Biden vetoed the bill in March 2023, and the congressional effort to override the veto failed.
- the Trump Administration expected to actively try to eliminate the DOL’s regulation and to reduce or eliminate any federal regulations that may be regarded as promoting ESG.
1.2 Board diversity
Because Diversity, Equity, and Inclusion (DEI) is a social initiative closely aligned with ESG, board diversity is also an important topic about which organizations should be aware. Several states have imposed various requirements relating to board diversity. For example:
- Washington requires that boards of directors of public corporations consist of 25% individuals who self-identify as women (if not, organizations must provide certain explanations to their shareholders);
- New York requires corporations authorized to do business in the state to report the number of women directors on their board; and
- California’s efforts to require a minimum number of women on boards have been deemed unconstitutional, though the matter is still being litigated. An ‘Update’ posted on the webpage of the California Secretary of State states that:
‘Pursuant to the Final Judgment and Permanent Injunction (PDF) filed June 2, 2022 in the Superior Court of the State of California, County of Los Angeles, Case No. 20STCV37513 and the Final Judgment and Permanent Injunction (PDF) filed July 15, 2022 in the Superior Court of the State of California, County of Los Angeles, Case No. 19STCV27561, the Secretary of State is enjoined and prohibited from expending or causing any expenditure of the estate, funds, or other property of the State on California Corporations Code sections 301.3, 301.4, 2115.5 and 2115.6 (the ‘Diversity on Boards’ statutes). The Secretary of State's office is not currently collecting data related to Diversity on Boards, and the Publicly Traded Disclosure Statement has been revised to remove the four data fields which collected such data.’
The Board Diversity Rule introduced by the NASDAQ Stock Market — and the Security and Exchange Commission’s (SEC) decision to approve the rule as confirmed in its Statement on Nasdaq’s Diversity Proposals — sparked controversy by requiring certain listed companies to have at least two directors who are deemed ‘diverse’ in terms of gender, ethnicity, and LGBTQ+ status. Companies need to both disclose relevant data and explain any failures to comply.
The Rule (Nasdaq Rule 5605(f)) went into effect in December 2023. However, in 2024 the Fifth Circuit Court of Appeals ruled 9-8 that the Securities and Exchange Commission (SEC) lacked the authority to approve Nasdaq’s 2021 policy requiring companies listed on its stock exchanges to have at least one female and one minority/LGBTQ board member or explain their lack of diversity. The Court argued that the rule violated securities law, as it did not align with the SEC’s primary goals of protecting investors and preventing market manipulation. See Alliance for Fair Board Recruitment v Securities and Exchange Commission, No. 21-60626 (5th Cir Feb 19, 2024)
1.3 Diversity, Equity and Inclusion (DEI)
Because DEI is closely aligned with ESG, a brief examination of that initiative may provide insight into the future of ESG. Pushback against DEI policies appeared to gain traction in 2024 and may reflect a broader change in corporate attitudes toward DEI strategies. Per reports (eg, see Guardian article: Walmart to phase out DEI initiatives amid escalated attacks from conservatives), a number of large companies, including Walmart, Lowe’s, and Tractor Supply have scaled back diversity programs. Other firms, including John Deere and Harley-Davidson, have also pulled back on diversity initiatives.
1.4 Future developments
As mentioned in the Introduction above, the future of the ESG initiative is unclear, as societal forces have begun to push back more forcefully against it. Additionally, the Trump administration is expected to eliminate ESG regulations in general.
2. Role of the Board of Directors in ESG issues
Boards of directors are not legally obliged to take on specific duties with respect to ESG issues in the USA. However, investors, consumers, and other key stakeholders have become increasingly vocal in their demands for high-level attention to such matters.
2.1 Drivers for board involvement
Particularly with respect to environmental matters, the argument for the involvement of boards in ESG matters is based at least partly on economic factors. Proponents contend that focusing on the ‘E’ in ESG will, in the long term, ensure sustainable profitmaking (see, for example, Harvard Law School’s Business case for ESG). Other drivers for more board intervention, especially with respect to social issues, are generally based on growing public attention to the issues of inequality.
As a result, boards are increasingly assuming overall responsibility for ensuring that ESG considerations are incorporated into their organization’s overall long-term strategy, as well as into its day-to-day business operations. This generally involves overseeing the implementation of appropriate structures and processes to monitor, gauge, report, and address ESG-related risks and opportunities.
These structures and processes vary from company to company and are based on various factors, including industry, size, and board composition. As ESG experts Jurgita Ashley and Randi Val Morrison said in a post for the Harvard Law School Forum on Corporate Governance, ‘[t]here is no ‘one-size-fits-all’ approach for allocating ESG oversight responsibilities among the board and its committees, and delegation of responsibilities may change over time . . . The key for companies is to develop an oversight structure and associated accountability (eg, via committee charters or corporate governance guidelines), as well as internal processes and procedures, that are appropriate for the company.’ Some boards choose to make the full board responsible for overseeing ESG efforts, while others establish a board committee dedicated to ESG matters in general, or multiple committees based on specific expertise or area of responsibility. Some boards choose a combination of these options.
Regardless of which approach an organization embraces, it is advisable to ensure that all individual board and committee members, as well as the in-house lawyers who advise them, are knowledgeable about ESG matters. In a 2021 speech, the then SEC Commissioner Allison Herren Lee explicitly encouraged companies to enhance their boards’ ‘ESG competence’ by recruiting directors with ESG expertise, providing relevant training and education to board members, or engaging with external experts (the text of the speech is available on the SEC’s website).
In addition to deciding on appropriate structures and procedures, it is vital that boards have a process to document these structures and procedures by, among other things, updating relevant organization policies, guidelines and committee charters.
2.2 The role of the board in ESG reporting and disclosures
Shareholders, consumers and other stakeholders increasingly expect organizations to publicly report on their performance with respect to ESG programs, including by disclosing relevant challenges and risks. There is also increasing interest in specific information about the board’s role in an organization’s ESG efforts, including from regulators.
In the United States, that interest has, so far, focused on environmental matters. SEC Regulation S-K has long required public companies to disclose certain material information in public filings, including about their board leadership structure and its role in risk oversight (see section 407(h)). Pursuant to the SEC’s proposed rule on The Enhancement and Standardization of Climate-Related Disclosures for Investors in March 2022, this requirement would explicitly include disclosure of climate-related risks. Specifically, the disclosure would need to identify any board members or board committees responsible for overseeing climate-related risks and indicate whether any board members have expertise in climate-related risks, with a full description of the nature of the expertise.
The SEC officially announced on March 27, 2025, that it has voted to stop defending its climate-related disclosure rules. This decision, perhaps not unexpected, follows a request from SEC Acting Chairman Mark T. Uyeda on February 11, 2025, for a delay in oral arguments for appeals challenging the rules, allowing the Commission time to deliberate. With the SEC abandoning its defense and the rules already stayed pending judicial review, it is highly probable these climate disclosure rules will never take effect.
3. ESG frameworks
In the United States, there is no overarching framework to guide investors who seek ESG-related information. However, many organizations have voluntarily opted to adhere to standards and frameworks set by external bodies. In the United States, the disclosure standards developed by the Sustainability Accounting Standards Board (SASB) and the disclosure recommendations issued by the Task Force on Climate-Related Financial Disclosures (TCFD) have been particularly widely embraced.
The responsibility for monitoring and developing these respective standards/recommendations has recently shifted to the International Financial Reporting Standards (IFRS) Foundation and its International Sustainability Standards Board (ISSB). As further outlined below, the ISSB also issued its own disclosure standards in 2023.
3.1 SASB
The IFRS Foundation has had responsibility for the SASB Standards since August 2022. The standards identify, for specific sectors, the environmental, social, and governance issues most relevant to financial performance. These seek to help organisations disclose ‘financially-material sustainability information’ to investors.
The IFRS published an amended version of the SASB standards, developed via its ISSB, in December 2023. These are more globally relevant because they can be applied in different jurisdictions and when using various types of accounting principles.
3.2 TCFD
The TCFD focuses on climate-related topics. Its recommendations, made in June 2017, focus on fostering the disclosure of ‘decision-useful’ information with respect to four core elements: governance, strategy, risk management, and metrics and targets. The recommended disclosures relating to governance call for a description of the board’s oversight of climate-related risks and opportunities, as well as management’s role in assessing and managing climate-related risks and opportunities.
In its guidance for all sectors with respect to board oversight, the TCFD provides that this oversight should include:
- discussions of processes and the frequency by which the board or board committees are informed about climate-related issues;
- discussions regarding whether the board or committees consider climate-related issues when:
- reviewing and guiding strategy, major plans of action, risk management policies, annual budgets and business plans;
- setting the organization’s performance objectives and monitoring implementation and performance; and
- overseeing major capital expenditures, acquisitions and divestitures;
- discussions as to how the board monitors and oversees progress against goals and targets for addressing climate-related issues.
The recommendations provide that organizations should indicate, among other things, whether the organization has assigned climate-related responsibilities to management-level positions or committees and, if so, whether these report to the board or to a board committee
The TCFD was disbanded in late 2023, and the IFRS Foundation is now responsible for monitoring progress of companies’ climate-related disclosures. However, the TCFD recommendations remain relevant, as the IFRS’s new climate-related standard explicitly builds on these recommendations.
3.3 ISSB
The ISSB issued its first two IFRS®Sustainability Disclosure Standards in June 2023.
IFRS S1 General Requirements for Disclosure of Sustainability-related Financial Information sets out general requirements for the content and presentation of sustainability-related financial disclosures. IFRS S2 Climate-related Disclosures outlines specific rules regarding climate-related disclosures.
3.4 SEC efforts to standardize disclosure
In addition to those standards outlined above, several other standards for ESG disclosure are used in the United States. Examples include those developed by the Global Reporting Initiative and the Carbon Disclosure Project.
The SEC has noted that the lack of a ‘common disclosure framework tailored to ESG investing’ can be confusing for investors, and that funds may be exaggerating their consideration of ESG factors. In May 2022, the SEC proposed rule amendments to promote consistent, comparable, and reliable information for investors concerning how the prospective fund and its advisors incorporate ESG factors. The final version of the new rule was adopted on March 6, 2024.
As noted at 2.2 above, the SEC officially announced on March 27, 2025, that it has voted to stop defending its climate-related disclosure rules. With the SEC abandoning its defense and the rules already stayed pending judicial review, it's highly probable these climate disclosure rules will never take effect.
4. The differences between ESG, socially responsible investing (SRI) and impact investing
In addition to being informed on developments with respect to investing based on ESG frameworks, boards and legal advisors in the United States should be aware of two other related issues: SRI, and impact investing. Though these terms are often used interchangeably with ESG investing (and there is some overlap), there are several key differences to keep in mind.
4.1 ESG Investing
ESG investing involves considering the impact ESG risks and opportunities may have on an organization’s performance, with the goal of achieving the best possible financial returns. As noted, many believe – and some evidence supports the conclusion – that incorporating ESG considerations is compatible with, and may even be beneficial in terms of, achieving financial gains. A paper published by the Center for Sustainable Business at New York University’s Stern School of Business found a positive relationship between ESG and corporate financial performance. The authors of the paper concluded that ESG investing appears to provide downside protection, and that sustainability initiatives appear to drive better financial performance due to mediating factors such as improved risk management and more innovation. Managing for a low carbon future also improves financial performance.
4.2 SRI
By contrast, SRI involves screening organizations in terms of their roles in fostering or hindering factors such as environmental sustainability, diversity, and human rights protection. The priority is investing in organizations that reflect certain ethical values, even if this means compromising in terms of the financial gains achieved. This approach often involves declining to invest in select organizations, despite their potential for profitability – such as companies that produce tobacco or weapons or engage in fossil fuel extraction.
4.3 Impact investing
Impact investing refers to an investment strategy that focuses on investing in organizations that actively contribute to positive developments and change in a measurable way – while also generating financial returns. Examples include investing in renewable energy companies or businesses that provide educational services. It can also mean investing in organizations whose broader business may not specifically contribute to environmental or social progress, but that make it a point to find ways for at least part of their business to do so (see, for example, Impact Revolution’s article on Impact Business Models).
Additional resources
Related Lexology Pro content
How-to guides:
Understanding environmental, social and governance (ESG)
What general counsel (GC) need to know about environmental, social and governance (ESG)
How to consider and navigate the consequences of ESG risks
How to understand and implement the ‘G’ in environmental, social and governance (ESG)
Business and legal developments related to climate change (USA)
How to approach and implement an ESG strategy
Quick views:
Laws and regulations promoting green energy through incentives and disincentives (USA)
An overview of current ESG pressure points (Global)
Other:
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