ESG compliance – Current state, global trends, and outlook 2026

[co-author: Alessandro Borello]

This publication examines the latest developments in ESG compliance, focusing on the current state, global trends, and the outlook for 2026. It discusses the recent slowdown in new EU ESG regulations, such as the revision and streamlining of the Corporate Sustainability Reporting Directive (“CSRD”) and the finalization of the Corporate Sustainability Due Diligence Directive (“CSDDD”), which aims to reduce administrative burdens while enhancing transparency and accountability in corporate sustainability and supply chain management.

However, there is a notable increase in criminal investigations, litigation, and enforcement actions related to ESG compliance across several jurisdictions. Companies now face heightened scrutiny from regulators and prosecutors, with a growing risk of penalties and reputational damage for failing to meet evolving ESG standards.

Europe

European Union

Supply Chain Due Diligence

In 2025, the pace of new EU ESG regulations slowed significantly. In light of political headwinds and a deteriorating economic situation, the EU decided to “cut red tape” by revising a broad range of ESG legislation through the so-called Omnibus I package, which focused on corporate sustainability reporting and due diligence. During this process, the framework for supply chain due diligence in the EU was finalized. It now consists of the following components and application dates:

Without going into detail, the CSDDD stipulates overarching due diligence requirements for the value chain, i.e., an entity’s own business activities, Tier 1 and Tier N suppliers (upstream) and limited downstream activities.

The cornerstone of CSDDD requirements is the obligation to implement an appropriate and risk-based ESG risk management system. This ESG risk management system must, among other things, combine a risk analysis with responsibilities, policies and processes for preventive and remedial measures in case of adverse impacts and/or violations of human rights or the environment along the value chain as well as a grievance mechanism. In case of non-compliance with the obligation of means (other than an obligation of result), competent authorities can order specific measures or impose fines.

The EUBR applies a comparable approach with a limited scope to batteries.

In contrast, the EUDR and the EUFLR apply a product-focused approach. Both regulations impose a prohibition on importing or supplying certain goods to the EU market or exporting them from it, if those products:

• In the case of the EUDR: (i) are not deforestation-free, (ii) were not produced in accordance with relevant legislation, and (iii) are not covered by a due diligence statement; or
• In the case of the EUFLR: were made in whole or in part with forced labor at any stage of their extraction, harvest, production or manufacture, including the working or processing related to a product at any stage of its supply chain.

While the EUDR contains a detailed due diligence program – which is similar to the CSDDD due diligence – the EUFLR does not prescribe specific steps.

Ultimately, despite the different approaches taken in the separate legislation, there are significant overlaps and similarities between the respective due diligence requirements, as they all require increased supply chain transparency and stakeholder engagement up to Tier N suppliers (for example, via multi-stakeholder dialogues).

It will take time to implement each of the regimes effectively and in harmony, as the requirements of each piece of legislation are broad and implementation in the deeper supply chain is likely to be burdensome. For companies, 2026 will be the year of operationalization of the finalized framework for supply chain due diligence to address the requirements arising from the above.

Environmental Crimes

Although the EU is keen to cut red tape at the regulatory level, there are still additional environmental requirements and criminal enforcement risks arising from the Environmental Crime Directive(“ECD”). Hence, the ECD somewhat counterbalances the effect of Omnibus I for environmental, but not social aspects of ESG compliance.

The ECD must be transposed by EU member states into national law by 21 May 2026 and will apply from that date. It contains a broad range of criminal offences, such as illegal timber trafficking (violation of the EUDR), illegal extraction of groundwater or surface water if it (likely) causes significant harm to the environment, serious violations of the REACH Regulation or the implementation of projects subject to an environmental impact assessment without the required permit, provided that they cause or are likely to cause significant damage to the environment, such as the impairment of water quality.

Companies should be aware that conduct will be considered unlawful even if committed under a lawfully issued permit if it clearly violates the relevant substantive legal requirements. This is likely to have significant practical implications: companies can no longer rely solely on the existence of a permit or public authorities tolerating activities if they do not comply with legal requirements.

To avoid significant penalties, including imprisonment and significant fines of up to 5% of the total worldwide turnover of the entity or person, comprehensive and appropriate environmental risk management should be implemented in the overarching ESG risk management framework described above.

Sustainability Reporting

Sustainability Reporting and Disclosure

Corporate sustainability reporting: As part of the Omnibus I simplification package, changes have been made to the scope and requirements of the Corporate Sustainability Reporting Directive (“CSRD”), which sets out sustainability reporting and disclosure requirements for entities or groups resident or operating within the EU that meet the threshold requirements. The CSRD specifies that in-scope entities report under European Sustainability Reporting Standards (“ESRS”) on environmental, social and employee matters, human rights, anti-corruption and bribery matters, with additional standards covering water, ecosystems, biodiversity and other matters.

The first wave of entities falling under this regime reported in 2025, but additional entities were due to report in further waves. However, Omnibus I has amended a number of key terms, including thresholds for applicability, subject to final publication in the Official Journal. The revised key thresholds for CSRD are set out below – these will significantly reduce the number of entities in scope and also provide additional flexibility for parent undertakings that meet the definition of “financial holding undertaking” to choose whether they report consolidated sustainability information. Further information is available here and here.

Sustainable product disclosure: On 20 November 2025, the European Commission published proposals to amend the Sustainable Finance Disclosure Regulation (“SFDR”), which applies to financial market participants such as asset managers. The key elements of the proposal include removal of entity-level disclosures, a significant reduction in product-level disclosures and the introduction of a product categorization system (Sustainable, Transition and ESG Basics) and the deletion of the definition of “sustainable investment” under the SFDR. The proposed SFDR will not become law until negotiated by the co-legislators and implemented in law. Read more here on these much anticipated changes.

Carbon Border Adjustment Mechanism (“CBAM”)

Since 1 January 2026, EU importers of iron, steel, cement, aluminium, fertilizers, electricity and hydrogen have been required to pay a carbon price equivalent to what would apply if these goods were produced within the EU under the EU Emissions Trading System (“ETS”).

During the transitional phase, which lasted until the end of 2025, CBAM imposed only reporting obligations on importers. CBAM has now entered its definitive phase, marking the start of a new era of substantive compliance for EU importers of CBAM goods. Key obligations include:

• Authorized CBAM declarant status: Importers must obtain the status of an authorized CBAM declarant to release CBAM goods for free circulation in the EU.
• Annual CBAM declarations: Importers are required to submit annual CBAM declarations detailing the embedded CO₂ emissions in all CBAM goods imported during the previous calendar year.
• Payment of the carbon price: Importers must purchase and surrender CBAM certificates corresponding to the embedded emissions in their imported goods. The price of these certificates will be based on the average price of EU ETS allowances. If a carbon price has already been paid in a third country for the embedded emissions, importers may be eligible for a reduction in the number of CBAM certificates required to be surrendered.

The CBAM's exemptions are narrowly defined and apply in the following instances:

• Countries linked to the EU ETS: Imports from Iceland, Norway, Liechtenstein, Switzerland and select territories (Büsingen, Heligoland, Livigno, Ceuta, and Melilla) are exempt from CBAM obligations.
• De minimis exemption: Imports of up to 50 tons of CBAM goods per year are exempt from CBAM obligations (this exemption does not apply to electricity and hydrogen).

CBAM remains in its formative phase, with the regulatory framework continuing to evolve rapidly. The European Commission is not only closely monitoring the mechanism’s rollout but is also actively shaping its future through ongoing rulemaking and guidance. A major milestone was reached at the end of December 2025, when the Commission unveiled a package of implementing and delegated acts designed to make CBAM operational as of 1 January 2026. This comprehensive suite of measures covers various regulatory aspects, such as emissions calculation rules, customs and data exchange procedures, default values, CBAM certificate pricing, verification principles, authorization of declarants and the CBAM registry.

On the same date, the Commission also introduced a proposal to amend the CBAM Regulation, with the aim of expanding its scope to downstream products and introducing anti-circumvention measures. This proposal will need to proceed through the ordinary legislative procedure before it can be adopted.

In light of this dynamic and evolving regulatory environment, it is imperative for importers and their supply chain partners to closely monitor legislative developments and establish robust systems for data collection and compliance to ensure uninterrupted access to the EU market.

Germany – Simplifications Implemented, but Enforcement Continues

Since 2023, Germany has set mandatory supply chain due diligence standards with its Supply Chain Due Diligence Act (Lieferkettensorgfaltspflichtengesetz; “LkSG”). The LkSG has been actively enforced by the competent authority Federal Office for Economic Affairs and Export Control (Bundesamt für Wirtschaft und Ausfuhrkontrolle; “BAFA”).

However, calls to cut red tape have also led to changes to the LkSG. The German government has promised to reduce the bureaucratic burden and to strengthen the risk-based approach.

To do so, it has introduced a draft bill aiming to abolish the reporting obligation under the LkSG and reduce the number of administrative fines. It is expected that the draft bill will be adopted by the German Parliament in early 2026, taking effect shortly thereafter.

Despite these envisaged changes, the LkSG remains in force, and BAFA continues to enforce the law with shifted priorities. BAFA no longer enforces the reporting obligation and has scaled back routine reviews. However, BAFA is still mandated to investigate and sanction companies where credible indications of severe human rights violations such as forced or child labor exist. BAFA’s enforcement actions underscore the enduring relevance of the LkSG’s core principles. This means that there is no "due diligence-free time", particularly for companies that still need to meet the revised CSDDD application thresholds.

In the medium term, Germany will shift toward EU-level harmonization with CSDDD requirements. While the LkSG has significant overlaps with the CSDDD requirements, this will bring two major changes:

• The number of companies that are obliged to comply will be significantly reduced. In particular, SMEs will no longer be subject to the future legal framework.
• Under the current LkSG, due diligence obligations follow a staggered approach with a focus on the own business area and Tier 1 suppliers. This focus will change given the value chain-approach of the CSDDD. In concrete terms, this means that companies will be required to engage with their entire supply chain, including indirect Tier N suppliers, from the outset to address human rights issues. Currently, this is only required if there is substantiated knowledge of potential violations at indirect suppliers.

France

France remains a leader in ESG enforcement in Europe, driven by its pioneering Duty of Vigilance Law. This legislation has become a cornerstone of corporate accountability and a powerful litigation tool. NGOs are increasingly using it to challenge vigilance plans that they argue fail to address systemic risks.

While early cases focused on climate and deforestation, recent actions have expanded to human rights concerns in conflict zones and high-risk jurisdictions. Courts now expect vigilance plans to be detailed, operational and embedded in governance frameworks, with clear risk mapping, escalation mechanisms and measurable mitigation actions. Failure to meet these standards can result in injunctions, reputational harm and high-stakes litigation. Recent proceedings illustrate this trend, with claims alleging breaches of vigilance obligations due to insufficient identification and mitigation of human rights risks linked to activities in conflict areas. These cases highlight the growing expectation that companies integrate geopolitical and conflict-related risks into their ESG strategies.

Looking ahead, France will need to transpose the Omnibus I package adopted at EU level, which revises key ESG legislation, including the CSDDD. While the precise impact remains uncertain, the Duty of Vigilance Law may be adjusted to align with the new EU framework. Companies should monitor these developments closely, as they could reshape compliance expectations in the medium term.

Alongside human rights litigation, environmental claims are gaining prominence, particularly those targeting misleading sustainability communications. French courts have recently ruled that public statements on carbon neutrality and energy transition can amount to greenwashing if they misrepresent a company’s actual trajectory and investment strategy. Sanctions have included the removal of misleading statements, publication of judicial decisions and financial penalties. These rulings underscore the heightened scrutiny of corporate communications and the need for transparency and accuracy in ESG-related messaging.

Taken together, these developments confirm that France is setting a high bar for ESG compliance. For companies operating in France, 2026 will be a pivotal year to strengthen vigilance plans, ensure robust risk mapping, and embed ESG considerations into governance structures. The combination of civil and criminal actions, reputational risks and regulatory scrutiny means that ESG compliance is no longer optional, but a strategic imperative.

Italy

Unlike several other Member States, Italy has not yet adopted a dedicated supply chain due diligence statute. Nevertheless, in recent years, Italian authorities have significantly intensified enforcement by relying on existing legal frameworks, producing effects that in practice closely align with several core objectives of the CSDDD.

These enforcement efforts are primarily driven by investigations into alleged labor exploitation, unlawful subcontracting arrangements, and related tax and social security violations occurring within supply chains. To date, enforcement has focused in particular on sectors such as logistics and fashion.

Public Prosecutors rely on a combination of on-site inspections, asset seizures, and - most notably - judicial administration measures. Judicial administration is increasingly deployed as a corrective and preventive instrument rather than a purely punitive one. In most cases, companies placed under judicial administration are required to restructure their internal governance, strengthen compliance controls, and actively carry out due diligence across their supply chains. As a result, this mechanism effectively transforms corporate structures into tools for self-assessment, remediation, and ongoing compliance.

In parallel, Italy is moving toward softer, ex ante compliance mechanisms through the development of voluntary supply chain certification and monitoring schemes. These initiatives are emerging both through cooperation agreements among enforcement authorities, trade associations, and social partners, and through targeted legislative proposals. Their objective is to promote compliance with labor, tax, and social security obligations and to mitigate enforcement risks in sectors subject to heightened scrutiny.

Overall, while Italy still lacks a standalone supply-chain due diligence statute, companies operating in or sourcing from Italy are facing an increasingly assertive enforcement landscape. The cumulative use of investigative powers and judicial administration measures means that, in practice, there is already no “due-diligence-free” space in Italy for companies exposed to supply-chain risks, irrespective of their size or turnover, within a regulatory environment that is expected to evolve further and may be recalibrated once Italy implements the EU Omnibus I package.

United Kingdom

Over the last couple of years, a number of sustainability and net zero transition initiatives have been underway in the United Kingdom. For example, we have seen the Financial Conduct Authority’s (“FCA”) Sustainability Disclosure Requirements come into force (requiring disclosure of specified information for sustainability-related funds and including an anti-greenwashing rule which requires FCA-authorized firms to ensure that claims made about the sustainability characteristics of a product or service are fair, clear and not misleading). In addition, large and listed corporate entities, and FCA authorized entities have been required to produce TCFD-aligned reporting. In December 2025, the FCA launched a consultation on the proposed regulation of ESG rating providers to ensure that ESG ratings for financial products are more transparent, reliable and comparable.

Product companies have also been in flux as regulations reshape operations from sourcing and design to marketing. There are growing calls to strengthen modern slavery laws and introduce new civil and criminal liabilities.

At the end of 2025, the UK Prudential Regulation Authority (“PRA”) published updated supervisory expectations for banks and insurers on enhancing approaches to management of climate-related risks. The PRA made it clear that the majority of banks and insurers were not doing enough to evaluate and mitigate their climate-related risks. Crucially boards need to understand climate risks and the models used to calculate them as well, ensuring that it is incorporated into their firms’ business strategy.

We expect 2026 to bring developments on a number of these fronts. In January 2026, the FCA is scheduled to publish a consultation on requirements for transition plans and the implementation of the International Sustainability Standards Board (“ISSB”) Standards for sustainability reporting (although the UK Department for Business and Trade does not expect to publish final UK Sustainability Reporting Standards (“UK SRS”) until February 2026). There have been many developments in transition finance in 2025 and we expect to see the work of the Transition Finance Council build upon in 2026, with initiatives to innovate and grow transition activities and finance in the UK. Read more here for what happened last year.

In respect to human rights and modern slavery, the UK had been one of the first jurisdictions to impose duties on corporates (albeit in the form of reporting requirements under the Modern Slavery Act). Despite pressure from NGOs and some MPs, recent governments have done little to expand the obligations on corporates in respect to human rights, especially in the supply chain.

However, in December 2025, the UK Anti-Slavery Commissioner published a report calling for reforms and notably the creation of an offence of failing to prevent serious human rights harms. This is not a new suggestion and had been previously considered by the Law Commission, but it is a significant development because it would create a material compliance burden on UK Corporates. The ‘failure to prevent’ model has already been used for bribery, tax and fraud and has driven real change in corporate culture and compliance in those areas so we would anticipate a similar trend in terms of business and human rights. The report proposes a range of penalties and liabilities for non-compliance including regulatory fines (up to 5% turnover), civil liability including the possibility of exemplary damages, and criminal liability with unlimited fines. Although there is no indication yet that the UK government will introduce new laws, calls to strengthen the UK’s existing modern framework are growing.

UK regulators have already been active in relation to greenwashing and we expect this to continue. The Advertising Standards Authority has banned a number of adverts across several industries for being misleading, and the Competition and Markets Authority has on-going investigations particularly focused on the retail sector. Although we have not yet seen any publicized enforcement action by the FCA under its anti-greenwashing rule, this may just be a matter of time and the FCA has a range of supervisory powers that it can deploy before resorting to enforcement. That said, this does not mean that the FCA has not been active in this area. Aside from enforcement, it can take a range of other different actions via the use of its supervisory powers to prevent or address greenwashing, and while these may not be publicized in specific cases, the FCA has released data demonstrating that it is using its supervisory powers more, and reserving enforcement action for those cases which it believes will drive “impactful deterrence” across the UK financial services industry.

On the litigation side, businesses have faced claims in relation to alleged product incompliance with ESG standards and related misrepresentations, poor employment practices, and bribery and corruption, and directors too have faced litigation in respect of their management of ESG risks. Some claims have been brought in England against English companies in relation to alleged acts or omissions of their subsidiaries, which despite jurisdiction and other challenges, the English courts have generally been prepared to hear. We expect to see more of these types of claims.

Expansion of ESG reporting obligations means that there are now more market-facing statements made by companies that could be challenged by purchasers and investors. That, combined with increased investor scrutiny and the development of a sophisticated litigation funding market, which in turn is fueling group claims in the English courts, could pave the way for mass greenwashing claims. Further, in the longer term we expect to see claimants seeking to establish corporate liability for historic carbon emissions and obtain damages to cover climate impact and adaption costs, if hurdles such as causation and attribution of responsibility can be surmounted. We expect ESG to remain a focus of both regulatory action and litigation in 2026.

United States

ESG has been a controversial topic in the U.S. in recent years, and we expect that to intensify in 2026, with state and federal government actors and private litigants sparring over the legitimacy of ESG as a concept and accusing enterprises of being either too committed or insufficiently committed to ESG principles, especially with respect to the climate and hot-button social issues like race and gender identity. This, combined with continued demands for corporations to address social and environmental problems, means that companies doing business in the U.S. will find themselves continuing to walk tightropes in the ESG arena.

On the one hand, certain U.S. states, most notably California, have enacted and are pursuing aggressive climate disclosure laws and other ESG regulations. Those laws have been the subject of litigation challenges, and some of California’s laws are currently subject to court injunctions, about which litigation is continuing.

Other states and private litigants have gone the opposite direction, imposing regulations or bringing claims against companies based on their commitments to ESG or DEI principles. As an example of this trend, in late 2025, a federal court in Texas ruled after a bench trial that American Airlines violated its fiduciary duties to retirement plan participants under the Employee Retirement Income Security Act by investing retirement funds with asset managers that used ESG criteria in making investment decisions. Similarly, state attorneys general, congressional committees, and federal government actors recently have taken or have indicated that they intend to take actions to investigate and/or bring claims against actors they perceive as improperly pursuing social or climate goals under the ESG moniker. Such potential claims run a wide gamut, ranging from breach of fiduciary duty, fraud, consumer protection, and even antitrust claims. Meanwhile, greenwashing claims continue to increase in prevalence, driven by both private litigants, state attorneys general, and government agencies.

We expect to see significant litigation activity along all of these fronts in 2026, underscoring the importance of companies continuing to take a careful and balanced approach to ESG commitments and to communications about such commitments.

México

Mexico has made steady progress in recent years in consolidating an institutional framework for ESG and sustainable finance, combining financial market regulation, corporate reporting standards and environmental policy instruments. Rather than advancing through a single comprehensive ESG statute, Mexico’s approach has been incremental and multi-layered, relying on the interaction between financial regulation, disclosure obligations, and fiscal and environmental enforcement tools.

A cornerstone of this framework is the Mexican Sustainable Taxonomy. The taxonomy establishes technical screening criteria to identify economic activities that make a substantial contribution to environmental and social objectives, incorporates “do no significant harm” principles and minimum social safeguards, and is intended to serve as a common reference for financial institutions, issuers and regulators. Although non-binding, it has become a key tool for structuring sustainable finance products and assessing alignment in capital markets.

This conceptual layer has been complemented by binding reporting standards. In 2025, the Sustainability Information Standards (NIS) entered into force as a complement to the Mexican Financial Reporting Standards (NIF). The NIS introduce standardized ESG disclosure requirements that are financially material to an entity’s performance and position, embedding sustainability considerations more formally into corporate reporting.

In parallel, in 2025 the National Banking and Securities Commission (CNBV) incorporated sustainability and climate-related disclosure obligations into its regulatory framework for listed issuers mark a shift toward more active supervisory oversight of ESG information in Mexican capital markets.

At the sovereign level, Mexico reinforced this architecture in 2026 through an updated Sovereign Sustainable Finance Reference Framework, which governs the issuance of green, social and sustainability bonds. The framework defines eligible expenditures, project selection processes and post-issuance reporting commitments, and explicitly references the Mexican Sustainable Taxonomy, strengthening coherence between public finance instruments and national sustainability criteria.

Beyond disclosure and sustainable finance, one of the most significant, and often underestimated ESG drivers in Mexico, has been the expansion of state-level environmental taxes. Over the past decade, a large majority of Mexican states have enacted environmental taxes targeting activities such as atmospheric emissions, wastewater discharges, waste generation, and the extraction or exploitation of construction and mining materials.

In practice, companies increasingly seek to reduce their effective tax burden by implementing mitigation or compensation measures, such as emissions reductions, operational efficiency improvements, or carbon offset and compensation schemes.

Looking ahead, Mexico’s ESG framework is expected to continue evolving through enforcement, disclosure and fiscal mechanisms rather than through sweeping legislative reform. Companies operating in Mexico should expect increased scrutiny of ESG disclosures, greater convergence between sustainability reporting and financial reporting, and continued reliance on environmental taxes as a practical enforcement and behavioral tool.

Asia

China

China continues to move rapidly toward a more structured and enforceable ESG compliance framework. In 2025, Chinese regulators translated high‑level policy goals into operational rules that will shape corporate reporting, carbon management and environmental oversight in 2026.

At the governance level, 2025 marked a significant shift following the amended Company Law of the People's Republic of China (“PRC Company Law”), which took effect on 1 July 2024 and represents the most substantial overhaul of China’s corporate governance regime in decades. The amendments strengthen board accountability, enhance shareholder protections and expressly embed ESG‑related responsibilities into companies’ legal duties. These changes have prompted companies to update governance documents, revisit fiduciary obligations and reinforce internal oversight structures. In parallel, the China Securities Regulatory Commission refined its Code of Corporate Governance for Listed Companies in late 2025 to align with the amended PRC Company Law, placing greater emphasis on disclosure quality, related‑party oversight and sustainability competence at the board level. China’s long‑running anti‑corruption campaign also remains highly intensive, with authorities sustaining strong enforcement pressure in sectors involving significant state assets and public resources, including finance, energy, healthcare and construction. Enforcement activity remained elevated throughout 2025, with a historic 64 high‑ranking officials investigated, alongside hundreds of thousands of lower-level cases. This continued intensity reflects the government’s enduring focus on transparency, ethical conduct and accountability as core elements of national governance. It also reinforces expectations that companies strengthen internal controls and embed anti‑corruption safeguards within their ESG governance frameworks, particularly where risks linked to improper business practices may arise in supply chain interactions, related‑party transactions and public‑resource procurement.

In recent years, China made notable progress in establishing a unified sustainability disclosure system. The Ministry of Finance (“MOF”) issued the Corporate Sustainability Disclosure Standards (Basic Standards, Trial) in December 2024 and followed with the Application Guide in September 2025, which provides detailed instructions for applying the new reporting framework. On 25 December 2025, the MOF also issued the Sustainability Disclosure Standards for Business Enterprises No. 1 – Climate (Trial), which set out a structured approach to climate‑related governance, strategy and metrics. In parallel, the Shanghai, Shenzhen and Beijing stock exchanges began implementing their mandatory sustainability reporting guidelines, and 2025 serves as the first full reporting year for issuers falling within scope. These companies are preparing to publish their 2025 sustainability reports by the 30 April 2026 deadline. Together, these developments signal a transition from narrative ESG communication to a more disciplined reporting regime that requires consistency, internal controls and audit‑readiness.

Carbon regulation has also intensified. In March 2025, the Ministry of Ecology and Environment (“MEE”), with approval from the State Council, issued the work plan to expand the National Carbon Emissions Trading System (“ETS”) to the steel, cement and aluminum sectors, bringing approximately 1,500 enterprises into scope and imposing monthly emissions reporting obligations. The MEE issued the allocation plan for these sectors in November 2025, setting the timeline for quota settlement and subsequent adjustments in 2026. Momentum increased further in August 2025 when the CPC Central Committee and the State Council issued the Opinions on Advancing Green and Low-Carbon Transition and Strengthening the National Carbon Market, which outline the next phase of ETS expansion. Preparatory work has already begun for additional sectors, including chemicals, petrochemicals, civil aviation, and paper, and regulators aim to achieve full coverage of major industrial emitters by 2027.

Alongside these developments, China has strengthened its environmental governance framework. The Provisional Regulations on Accountability for Local Party and Government Leaders, issued in July 2025, connect environmental outcomes to cadre evaluations and promote more consistent enforcement nationwide. The Ecological Environment Monitoring Regulation, which took effect on 1 January 2026, introduces continuous, digitized monitoring requirements and heightens legal responsibility for data falsification.

China’s financial regulators have also moved to unify green‑finance standards. To improve consistency in the market, the People’s Bank of China, the National Financial Regulatory Administration and the China Securities Regulatory Commission issued the Green Finance Endorsed Project Catalogue (2025 Edition), which took effect on 1 October 2025 and now serves as the unified national taxonomy for green financial products. Its implementation has prompted banks and companies to reassess existing green‑labelled assets against the tighter definitions, leading to the removal of projects that no longer qualify. The consolidated taxonomy improves supervisory alignment, reduces greenwashing risks and expands eligible categories to include industrial decarbonization, recycling and energy‑transition projects.

Policy signals from 2025 reflect that China is moving toward a more structured and enforceable ESG framework in 2026, with clearer expectations on data quality, accountability and economic impact. Against this backdrop, businesses in China may find it increasingly important to strengthen investigation protocols, data governance and coordination across functions to ensure that ESG issues arising from disclosures, carbon reporting, supply chain practices or environmental monitoring are managed in line with evolving regulatory expectations. As China’s reporting and enforcement systems mature, proactive monitoring, solid documentation and integrated ESG risk assessments will be essential.

Singapore

As Singapore continues to strengthen its position as a leading financial hub in Asia, it is increasingly prioritizing ESG considerations and regulations as part of its broader strategy for sustainable and long‑term growth. What began as a largely voluntary regime is now transforming into a comprehensive, rules-based framework, characterized by mandatory disclosures and stronger enforcement by regulators.

In recent years, the Singapore government continued efforts to establish a reliable sustainable finance market by partnering with stakeholders to emphasize transition finance and implement initiatives to bolster confidence in the sustainable finance market, while at the same time acknowledging the need to ensure that ESG requirements take into account the uncertain global economic landscape and the varying levels of resources and readiness companies have in developing their ESG compliance capabilities. For instance:

• in 2025, the Competition and Consumer Commission of Singapore released new guidelines to help tackle greenwashing, founded on five core principles that companies should follow in making environmental claims: (1) truth and accuracy; (2) clarity and comprehensibility; (3) meaningfulness; (4) inclusion of material information; and (5) evidence-based support;
• the Accounting and Corporate Regulatory Authority and Singapore Exchange Regulation introduced regulations for climate-related disclosures (“CRD”) for listed issuers and large non-listed companies in 2024, and in August 2025, the timeline for the phased implementation of such CRD requirements was extended. The belief is that with these updated extended requirements, companies will be better able to balance compliance costs with developing their climate reporting capabilities, which are required for the longer term to maintain their place in global supply chains; and
• Singapore increased its carbon tax rate in 2024, from S$5 per ton of taxable emissions to S$25 per ton of taxable emissions. This carbon tax rate is set to rise again – to S$45 per ton from 1 January 2026 and, based on statements from the Singapore government, is likely to rise to between S$50 to S$80 per ton by 2030 to support net-zero goals.

See our article on the most significant recent trends and developments on sustainable finance law in Singapore at https://www.hoganlovells.com/en/publications/lexology-sustainable-finance-law-singapore-chapter.

Globally, ESG, supply chain due diligence and human rights risks will continue to be an important consideration for legal and compliance functions in 2026 due to the heightened risks of two closely interlinked major trends: increased environmental and human rights litigation (including greenwashing) and supply chain due diligence requirements. In the EU, due to the ECD, the risk of enforcement is also heightened.

However, divergent ESG legislation often applies to global entities and/or have an extraterritorial reach, such as import bans based on instances of forced labor. Fragmented disclosure regimes and politicized ESG signals add an extra level of complexity to ensure business opportunities. As a proper risk mitigant, the CSDDD’s risk-based overarching Tier N approach is well suited to serve as holistic supply chain due diligence framework as a basis to combine EU and global requirements.

Companies should move from policy to process: mapping salient risks, embedding risk based policies and processes, strengthening grievance mechanisms, and increasing supply chain transparency and traceability. Implementation must be global by design.

This multi-jurisdictional approach with mature governance and risk management to balance all the different trends offers the opportunity for compliance and business resilience. This requires clear committee mandates, defined accountability, and robust controls. In 2026, governance structures should ensure credible oversight of salient risks and cross-jurisdictional coherence integrating disclosure, risk management and mitigation measures in a way that addresses not only regulatory expectations, but also the growing financial exposure to drive resilience.

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