Welcome to our Governance & Sustainability Roundup — Our regular briefing that gives a quick overview on what has recently happened in the world of governance and sustainability that may be of interest to your company, your executive team, or your boards. This is a fast-evolving space and we hope to share brief highlights with you on a regular basis.
Key Developments You Should Know
California Climate Laws: On January 9, 2026, the U.S. Court of Appeals for the Ninth Circuit heard oral argument in the challenge to SB 253 (Climate Corporate Data Accountability Act) and SB 261 (Climate-Related Financial Risk Act). This follows on the heels of the Ninth Circuit’s partial injunction blocking enforcement of SB 261, which had a compliance deadline of January 1, 2026. The Ninth Circuit has indicated it will issue a decision in due course, although provided no further insight into the timing of the same.
Counsel for the U.S. Chamber of Commerce — plaintiffs here, alongside other business groups — argued that both SB 253 and SB 261 violate the First Amendment, with the reporting requirements of the laws constituting compelled speech. Additionally, plaintiffs argued that California had failed to narrowly tailor the laws to meet a compelling state interest. Counsel for the California Air Resources Board (“CARB”), defending the laws, asserted that SB 253 and SB 261 regulated the disclosure of commercial speech and were, therefore, subject to a less stringent standard of review. Moreover, CARB argued that the reporting requirements were limited to factual, uncontroversial disclosures containing information useful in assisting investors in their decision-making and to further help standardize such disclosures across the board.
While waiting for the Ninth Circuit’s decision, companies that are subject to the laws may, if they choose to do so, voluntarily publish their SB 261-aligned reports — the docket on CARB’s website is open and publicly accessible. However, given the partial injunction, companies may wish to adopt a “wait and see” approach pending the Ninth Circuit’s decision.
For further information on the law, please see our various V&E Insights:
United States’ Withdrawal from the United Nations Framework Convention on Climate Change: President Donald Trump signed a Presidential Memorandum on January 7, 2026 (the “Memorandum”), directing the withdrawal of the United States from over 60 international organizations on the basis that such organizations “no longer serve American interests.” More specifically, the Memorandum orders all Executive Departments and Agencies to cease participating in, and funding, 31 United Nations entities and 35 non-United Nations organizations. This includes the United Nations Framework Convention on Climate Change (“UNFCCC”), the treaty underpinning international efforts to combat global warming. The United States’ is the first nation to leave the UNFCCC, with the exit expected to take up to a year.
Although the withdrawal is unlikely to directly impact U.S.-based companies, it does have the potential to change priorities of domestic and global financial markets. Thus, impacts may be felt indirectly by companies based on restrictions or limited access to capital.
European Union’s Carbon Border Adjustment Mechanism in Full Effect as of the New Year: Following a transitional three-year reporting-only phase, on January 1, 2026, the Carbon Border Adjustment Mechanism’s (“CBAM”) financial obligations took effect. CBAM requires businesses to account for the carbon footprint of their goods entering the European Union (“EU”). Importers of steel, iron, aluminum, cement, fertilizers, hydrogen, and electricity will now be required to purchase certificates to cover the carbon cost of their EU imports. Such certificates will be based on the prevailing price of emissions allowances under the EU Emissions Trading System. CBAM certificates for 2026 must be purchased and surrendered by September 30, 2027.
The CBAM will impact U.S. exporters of the above — particularly steel and iron (high emissions-intensity) and aluminum and cement (critical materials) — increasing the costs of business, to include expenses related to technology in order to ensure compliance.
Public Comment Open for Potential Regulation S-K Amendments: Chairman Paul Atkins published a statement on January 13, 2026, that Securities and Exchange Commission (“SEC”) staff will begin accepting public comment on how the SEC can amend Regulation S-K to focus on the disclosure of material information and eliminate requirements compelling the disclosure of immaterial information. The statement notes that staff are looking beyond compensation disclosures, for which the SEC previously had solicited comments and held a roundtable discussion. The SEC has requested all comments to be submitted by April 13, 2026. The SEC is still in the early stages of reviewing potential changes to Regulation S-K, and it may be some time before a concept release or proposed rule is issued.
Executive Order Increases Oversight of Proxy Advisory Industry: On December 11, 2025, President Trump issued an Executive Order (“Protecting American Investors from Foreign-Owned and Politically-Motivated Proxy Advisors”) (the “Executive Order”), directing both the SEC and the Department of Labor to increase oversight of the proxy advisory industry, including prominent proxy advisors ISS and Glass Lewis. The Executive Order directs the SEC to review and revise rules governing proxy advisors, including potential changes to shareholder proposals under Rule 14a-8, and to enforce anti-fraud provisions against misstatements or omissions in voting recommendations. The SEC may also impose new registration and disclosure requirements, focusing on methodology, conflicts of interest, and the use of environmental, social and governance (“ESG”) or diversity, equity, and inclusion (“DEI”) factors in voting advice. Although the full implications of the Executive Order remain to be understood, there is a high likelihood that corporate issuers will be affected as a result of the changes.
J.P. Morgan to Use AI for Proxy Advisory Analysis: J.P. Morgan is the first known major institutional investor to announce that it plans to end the use of proxy advisor recommendations in its proxy voting analysis, instead opting for AI tools to aggregate and analyze data for public companies. The announcement underscores the concerns by certain stakeholders that institutional investors and fund managers have become increasingly reliant on proxy advisor voting recommendations and these parties’ advisory recommendations have undue influence on the outcome of non-pecuniary matters in corporate America, as well as the need for public companies to assess how their disclosures are drafted in light of a growing reliance on AI tools to gather data.
ISS Proxy Voting Guidelines for 2026 Benchmark Policy: ISS has issued proxy voting guidelines for its 2026 Benchmark Policy, which apply to shareholder meetings that take place after February 1, 2026. The new policy takes a stronger stance against the use of multi-class capital structures with unequal voting rights and reduces its previous presumption of support for environmental and social (“E&S”) shareholder proposals. ISS will now consider E&S proposals on a case-by-case basis, generally maintaining support for E&S proposals that focus on the financial, physical, or regulatory risks that E&S issues pose to investments and operations, or that merely continue the entity’s ongoing E&S efforts. ISS attributes this change to the evolving regulatory landscape and changing shareholder sentiment on shareholder proposals focused on climate change, greenhouse gas emissions, diversity, equality of opportunity matters, and human rights related matters. Corporate issuers should review the 2026 Benchmark Policy for impacts on proposals at their upcoming annual shareholder meetings, including the potential for any negative recommendations.
