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ESG Reporting Developments in the United States

Jul 10, 2023 ESG Reporting Developments in the United States

Authored By Hannah Janknecht, Regulatory analyst, Compliance & Risks


In recent months, much attention has been paid to the rapid ESG developments in Europe, especially with the entry into force of the European Corporate Sustainability Reporting Directive in January, and the official publication of the Draft Sustainability Reporting Standards by the EU Commission in June.

While the new European regulations also apply to many US companies with subsidiaries or sub-branches in Europe, regulatory developments in the US itself are also gaining momentum.

ESG-based investment and ESG reporting in the US have so far mostly been based on voluntary initiatives. In 2022 and 2023 however, we saw a high number of ESG-related Bills introduced at the state level in addition to the draft rule proposed by the Securities and Exchange Commission on the disclosure of climate change-related risks.

Not all of these developments however are in favor of stricter regulation. Framed by some as ‘woke capitalism’, a number of Bills proposed in 2022 and 2023 try to prevent stricter reporting obligations and prohibit the consideration of ESG-related factors in investments.

SEC Proposal and State Bills on ESG Reporting

Several federal drafts and state Bills in the US would, if enacted, make certain aspects of ESG reporting mandatory in the US. Unlike in Europe, these proposals largely focus on the disclosure of climate-related risks as opposed to covering all environmental, social and governance in one instrument.

Draft Rule 87 FR 21334, proposed in March 2022, requires registrants to include information on climate change-related risks in their registration statements and periodic reports. According to the current proposal, registrants will have to disclose information on their governance of climate-related risks, the potential material impact for the company’s strategy, business model and outlook, the potential impact of climate-related events and the way in which this information has been included in financial estimates. After a phasing-in period, companies will also have to include information on their scope 1 and 2 as well as certain scope 3 greenhouse gas emissions in their statements. The US SEC recently announced that the rule will be finalized in October 2023 earliest, although it was originally expected to be finalized in April this year. 

A second Draft Rule 87 FR 36654, proposed in June 2022, concerns ESG disclosure obligations for investment advisors. If enacted, advisors will have to provide additional information regarding their ESG investment practices, making the available information more consistent and comparable for investors. 

Several Bills introduced in California and New York propose to further strengthen companies’ obligations to disclose on their greenhouse gas emissions and climate change-related risks. California Senate Bill 253, proposed in January 2023, goes beyond the SEC proposal in that it does not only apply to listed but also to private companies. In addition, the Bill requires companies to disclose all scope 3 greenhouse gas emissions and to provide verification of the disclosed information. California SB 261, also proposed in 2023, additionally entails the requirement to publish an annual climate-related financial risk report disclosing climate-related financial risk and measures adopted to reduce and adapt to climate-related financial risk. Similarly, New York Bill 4123 proposed in February 2023, concerns the disclosure of all scope 3 greenhouse gas emissions. 

Bills Proposing to Prohibit Mandatory ESG Reporting

At the same time, several Bills introduced at the federal level in 2023, largely aim to prevent the introduction of mandatory ESG disclosure requirements. HB 1018 (February 2023) proposes to prohibit provisions that would require an issuer to disclose information related to certain greenhouse gas emissions, while HB 3358 (May 2023) proposes to prohibit the introduction of such requirements for recipients of federal contracts. HB 3057 (May 2023) in addition specifically aims to prohibit reporting on Scope 3 greenhouse gas emissions under the securities law.

The Broader Context: Policy Statements, ESG Investments, and Antitrust Letters

The current proposals tackling the introduction of mandatory ESG reporting requirements do not stand alone, but they fit into the broader anti-ESG movement that is currently growing in the US. 

A policy statement, signed in March 2023 by the US states of Alabama, Alaska, Arkansas, Georgia, Idaho, Iowa, Mississippi, Missouri, Montana, Nebraska, New Hampshire, North Dakota, Oklahoma, South Dakota, Tennessee, Utah, West Virginia and Wyoming, vows to lead state-level efforts to protect “taxpayers from ESG influences across state systems” and to protect “citizens from ESG influences in the financial sector”. This would include: 

  • Blocking the use of ESG in investment decisions at state and local level, ensuring that only financial factors are considered to maximize the return on investment and eliminating consideration of ESG factors by state and local governments when issuing bonds.
  • Banning the financial sector from considering “Social Credit Scores” in banking and lending practices and stopping financial institutions from discriminating against customers for their religious, political, or social beliefs.

In this context, Bills addressing the consideration of ESG-factors in investments have been introduced in several US states. Some of these proposals, also known as ‘anti-boycott bills’, aim to prevent companies that are entering into a contract with the state from participating in investment boycotts especially of the fossil fuel and firearms industry. Other Bills, such as SB 2291 from North Dakota, enacted in March 2021, largely prohibit the state investment board from investing state funds for the purpose of social investment. 

In addition, fears over potential antitrust violations have led several companies, investors and insurers to pull out of alliances such as the United Nations Initiative ‘Race to Zero’, the ‘Net Zero Asset Manager’s Alliance’ or, most recently in April and May of this year, the ‘Net Zero Insurance Alliance’. The drop-out follows letters sent to 51 corporate law firms by attorney generals in several republican-led states, warning that the consideration of ESG-factors in investment decisions could violate antitrust laws and reminding them of their ‘duty to fully inform clients of the risks they incur by participating in climate cartels and other ill-advised ESG schemes’. 


In view of the upcoming 2024 presidential elections, it is to be expected that the already heated debate will continue to gain momentum. This will potentially lead to a further fragmentation of applicable ESG regulations within the US, as can already be seen in the numerous Bills proposed in many US states. Companies engaging in the US market are therefore advised to closely monitor the rapid regulatory developments both at the federal and state level.

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