7 ESG trends to watch in 2026

For those involved in ESG, 2025 brought significant disruption, marked by political uncertainty, regulatory delays and rollbacks, pressures on energy security and cost, and geopolitical tensions. As businesses enter 2026, they face a fragmented and dynamic regulatory, legal and political landscape. Sustainability reporting obligations continue to demand focus, alongside a growing need to manage anti-ESG sidewinds, uncertain climate transition frameworks, tighter product and supply chain scrutiny, and growing ESG-related litigation risks. At the same time, rapid advances in industrial technology, AI and digital governance are creating new risks as well as opportunities. 

This blog explores seven key ESG trends that we expect will shape the global regulatory, litigation and corporate strategy landscape in 2026. 

1. Regulatory uncertainty and litigation risk continues

2025 was marked by political uncertainty, increasing geographical fragmentation and conflicts of norms, which contributed to a scaling back of ESG initiatives in many jurisdictions, and even active opposition. 

The EU is continuing to pursue ESG objectives, but is also well-progressed in adapting its ESG strategy to place a stronger focus on competitiveness and growth (e.g. by replacing the EU Green Deal with the Clean Industrial Deal, and simplifying disclosure and supply chain due diligence regulation through the EU sustainability Omnibus package). Other countries are taking a similarly measured but ESG-positive approach, with dozens making progress toward International Sustainability Standards Board (ISSB)-aligned sustainability reporting frameworks over the past year. 

Meanwhile, in the US, anti-ESG sentiment (at the federal level and in certain states) continues to gain momentum, with significant rollbacks of policies on climate, the environment, and diversity, equity and inclusion, threatening new enforcement measures aimed at curtailing the pursuit of ESG objectives. 

These divergent developments make it significantly challenging for businesses to navigate global sustainability regulations. 

Looking ahead, we expect the ESG landscape in 2026 to remain dynamic and split across jurisdictions and geographies. Pressure from certain investors, consumers, and civil society/NGOs for meaningful action on ESG issues will likely continue. Regulatory rollbacks may also continue, exacerbating regulatory inconsistency between some countries; though collaboration will continue between others, propelled by the quiet progress of initiatives like the ISSB. 

Against that context, climate disclosure obligations, requirements for supply chain due diligence, and the integration of climate and social risks into core business strategies, are expected to remain the key focus in 2026. 

2.  AI and ESG: widening the focus across the value chain

AI is now firmly on the ESG agenda, with attention expanding from AI’s environmental footprint to a wider examination of supply chains and human rights. As we reported following the recent UN Forum on Business and Human Rights, businesses face an increasing need to assess how their AI infrastructure and usage align with climate, environmental and human rights commitments.

The environmental pressures linked to AI are well understood, particularly around the very significant demand for resources associated with the accelerated roll-out and long-term operation of data centers and other AI infrastructure. Training and operating large models requires significant electricity and substantial volumes of water for cooling, and risks placing strain on net zero plans, national energy security, local infrastructure serving surrounding communities, and construction resources. As discussed in our Inside Infrastructure blog, continuous data center operations rely on stable, preferably low carbon baseload power which, in turn, can affect the balance of green energy supply for other users. Strategic oversight of ESG issues in a business’s decisions around siting, resource planning and year-round operability will be required from those at all levels of the AI value chain – from downstream users through to service providers and developers. 

AI also raises ESG-related questions in terms of impacts on people and human rights. While the debate has largely focused on downstream risks related to usage of AI to date, such as bias and discriminatory misuse, scrutiny is now expanding to the upstream value chain, i.e., the data workers who label, moderate and test training data, often in lower-cost or more vulnerable labor markets. AI will not be immune to the broader risks posed by the heightened focus on corporate human rights due diligence regulations affecting all sectors with global supply chain labor, such as the EU’s Corporate Sustainability Due Diligence Directive (CSDDD) and national equivalents or soft law commitments, like the UN Guiding Principles on Business and Human Rights. 

The embedding of human rights and environmental due diligence into strategy will continue to be an appropriate strategy in the AI space (as it is across all aspects of business) to lower litigation risk, build stronger relationships with regulators and stakeholders, and improve employee engagement and optimize reputational value.

3. ESG litigation continues to evolve

The ESG litigation landscape continues to evolve, with actions becoming more sophisticated in the way they are framed and more diversified in their targets (for example, company directors, investors, and professional advisers). Although the pace of new climate-related filings was reported to have slowed slightly in the past year, driven in part by an anti-ESG movement in the US, the recent commencement of new, high-profile cases suggests a resurgence in momentum, particularly in relation to strategic litigation, seeking to test the boundaries of current legal frameworks, or to achieve changes beyond the scope of the case itself.

At the same time, recent regulatory rollbacks like the EU sustainability Omnibus, may reignite NGO reliance on traditional litigation and quasi-litigation to influence corporate strategies on ESG issues. Certain NGOs are expected to ramp up actions on specific issues (such as climate transition planning, supply chain transparency, and product safety) in response to a softening of regulatory interventions in these areas. 

There were some recent important losses for claimants bringing climate change cases in Europe, most notably the Hague Court of Appeal's judgment in Milieudefensie v Shell at the end of 2024 and the Hamm Court of Appeal’s judgment in Lliuya v RWE in 2025.  Importantly though, these courts also left room for claimants to “improve” their claims to try to reach a more favorable outcome in future proceedings.  Indeed, towards the end of 2025, we saw claimants taking the courts’ direction and filing new claims adapted to fact patterns and legal arguments which may ultimately prove more successful. 

Meanwhile, recent landmark advisory opinions from bodies like the International Court of Justice (ICJ), the International Tribunal for the Law of the Sea, and the Inter-American Court of Human Rights  have addressed States’ obligations in relation to climate change. For the first time, the ICJ found that States have a legally binding obligation to protect the climate system from the harmful effects of greenhouse gas emissions and that a breach of this obligation is an internationally wrongful act, entailing State responsibility. Importantly, the ICJ also recognized that a clean, healthy and sustainable environment is a human right. Landmark opinions like this could encourage novel claims and influence future court proceedings. Indeed, the recent judgment in Bonaire is one of the first judicial decisions to expressly rely on the ICJ's advisory opinion. In this case, the Dutch State was ordered to comply with its international obligations on emissions reduction, and to adopt and implement a climate adaptation plan by 2030. These opinions could also drive new regulatory action as countries seek to ensure alignment with expanding interpretations of their ESG-related duties under international law. 

Looking ahead to 2026, we expect there will be more strategically-motivated litigation, as well as more expansive claims for compensation for alleged environmental and climate-related damage and challenges through other avenues such as OECD National Contact Points. Areas of focus are likely to include: 

• greenwashing (e.g. claims tied to product/services credentials, transition plans or in the context of changing corporate ESG goals, particularly in the US);
• alleged impacts of corporate behavior across value chains and third-party liability for actions of third-parties connected with business operations (including suppliers);
• continued framing of claims in the context of alleged human rights impacts, particularly linked to climate impacts;
• claims concerning serviced emissions and the targeting of so-called “enablers”; and

• claims against financial institutions and asset managers, including claims directed at the appropriateness of firms’ climate-related commitments and policies, their investment approaches and potentially, novel claims for contribution to climate-related impacts.

   

4. Divergent approaches to sustainability reporting and climate transition planning

Regulatory approaches to sustainability reporting have both diverged and converged over the past year, in different areas. 

The recently agreed EU sustainability Omnibus will reduce the number of companies required to report under the EU’s Corporate Sustainability Reporting Directive (CSRD) and includes measures intended to ease reporting obligations. Nonetheless, the CSRD will still be a significant expansion in sustainability reporting for many companies. 

Conversely, ISSB-aligned disclosure rules expanded worldwide, with dozens of countries progressing ISSB frameworks (see here) with several bringing them into force (see here), such as Singapore, Australia and Mexico. Although this represents an important step toward harmonization, tricky points of difference require navigation: for example, the UK’s proposals — UK Sustainability Reporting Standards S1 and S2 — include minor departures from the ISSB norm to tailor the framework to the UK context, including adjustments to transitional relief. 

While US SEC climate-related risk disclosure rules have been abandoned under the current Trump administration, California is advancing its own rules and other states may follow. 

This mix of regulatory convergence and divergence is expected to continue in 2026, making forward-looking planning an increasingly prudent approach to compliance.

On transition planning, one of the most significant drivers globally had been the mandatory duty in the CSDDD for companies to adopt and implement Paris-aligned plans. This duty had been due to start binding the largest companies from 2026, with more to follow. The deletion of this duty from the CSDDD by the EU’s sustainability Omnibus package is a significant change, and will likely influence the pace of regulation on climate transition plans beyond the EU. That said, many reporting regimes, including those based on the ISSB standards, still anticipate detailed disclosure of plans and targets where these exist. The UK government sought feedback in 2025 on how climate transition planning obligations should apply to corporates and regulated financial institutions, and we expect formal regulation to be introduced in 2026.

Beyond formal regulation, there has also been a change in voluntary standards, including a proposed tightening by the Science Based Targets initiative (SBTi) of its parameters and verification processes for science-based targets, including an expansion of the definition of “scope 3” to capture a broader scope of “serviced” emissions. As scrutiny of transition plans increases from both pro- and anti-ESG stakeholders, we expect to see more businesses undertake detailed reviews of their decisions around the setting and pursuit of climate targets.

Against this shifting landscape, it will be increasingly important for businesses to ensure that their climate transition arrangements include proactive governance to adapt to changing parameters, regular reviews of the scope and feasibility of targets, and appropriate transparency for stakeholders.

5. Level of environmental and product-related regulation remains high despite simplification trends 

In recent years, regulators worldwide — and especially in the EU — have sharpened and expanded measures targeting products: e.g. stricter Extended Producer Responsibility and tighter rules on packaging, eco-design, batteries, anti-deforestation and end-of-life management for vehicles. This expansion of regulation will continue in 2026 through the Ecodesign Regulation for Sustainable Products and the Packaging and Packaging Waste Regulation. Environmental and health risks associated with PFAS will also receive increasing attention as the general EU ban on PFAS progresses. 

However, we expect that 2026 will also be characterized by a pause to incorporate simplification measures, especially in the EU. The recently proposed EU environmental Omnibus package marks the first step in this direction, and simplification will also be guiding legal reviews in other areas such as the REACH chemicals framework and the Single Use Plastics Directive. 

Encompassing both expansion and simplification trends, 2026 is expected to see progress on legislation supporting a circular economy in the EU, including the refinement of Extended Producer Responsibility schemes (EPRs). A revision of the EU Emissions Trading System (ETS) is also on the horizon with a new proposal expected in summer 2026. With the EU Carbon Border Adjustment Mechanism (CBAM) — a unique tool for monitoring and pricing carbon emissions embedded in imported goods — going live in 2026, its practical realities and effectiveness will be tested. The UK is also proposing to implement its CBAM mechanism, which we expect to take effect from 2027. 

At the same time, the potential for greenwashing in relation to products is facing growing scrutiny from regulatory authorities and courts in regions including the EU, UK, and US. In general, regulators are trying to balance environmental and consumer protection and the fostering of industrial competitiveness. 

6. Simplification of European supply chain legislation

Since the launch of the Green Deal in 2019, the EU has steadily increased the regulation of ESG and human rights issues in supply chains, with the introduction of legislation such as the CSDDD, the EU Deforestation Regulation, and the EU Forced Labour Regulation, amongst others. However, this momentum was interrupted in 2025, as discussed above.

This trend to simplify and deregulate is also affecting national supply chain laws, such as the German Supply Chain Duty of Care Act, which is currently under review by the German Parliament. Meanwhile, initial legislative proposals concerning mandatory human rights and environmental due diligence have emerged in Asia and will be pursued in 2026. For example, the South Korean National Assembly is considering two draft bills that could introduce substantive obligations for large companies. 

Businesses with supply chains and operations in high-risk jurisdictions will face an increasing range of civil and criminal law-related risks (notwithstanding the simplification measures) as the scope of grounds for litigation and regulation permitting enforcement beyond a company’s domestic borders continues to grow — just at a slightly reduced pace. The risk of reputational harm also continues to grow as courts show an increasing willingness to scrutinize corporate actions abroad, especially when there are links to potential violations of international law and human rights. 

To navigate this changing landscape of supply chain laws and ensure they are prepared to manage risks, companies will increasingly need to monitor the scope of relevant supply chain laws as they emerge, and track these against their global value chain footprint in real time.

7. Sustainable finance regulation reforms with an increased focus on ESG ratings and climate resilience

The drive for simplification is also shaping the sustainable finance landscape, particularly in the EU — a trend that will be important for asset managers and investors to watch closely. The EU has recently unveiled its proposal for a revised Sustainable Finance Disclosure Regulation (SFDR) aimed at reducing costs of compliance, improving effectiveness, and simplifying and reducing the administrative and disclosure requirements. It will be subject to negotiations under the ordinary legislative procedure over the course of 2026. The SFDR proposal suggests removing entity-level Principal Adverse Impact (PAI) disclosures which is projected to lower annual costs by 25%. It also proposes revised product labels — the most controversial part of the current regime — which are more closely aligned with the UK’s proposed Sustainability Disclosure Regime which was the subject for formal consultation in 2025 and is expected to progress to law in 2026. 

The EU Taxonomy Regulation has also been simplified as part of the sustainability Omnibus with revised Delegated Acts setting, amongst other things, a revised materiality threshold. The new composition of the Platform on Sustainable Finance will be announced shortly, aimed at streamlining the technical screening criteria under the EU Taxonomy Regulation. In addition, the Commission also committed to table a revision of the Shareholder Rights Directive in the last quarter of 2026. 

The UK Government has been working to finalize legislation to regulate ESG ratings providers. Current proposals are to make the provision of ESG ratings a regulated activity under the Financial Services and Markets Act, requiring them to seek and hold FCA authorization from 29 June 2028. In parallel with the Government’s proposal, the FCA is in the process of developing its own rules-based regime. 

Notwithstanding the trend toward simplification, the continued expansion of sustainable finance regulation, and stakeholder scrutiny, means it remains imperative for regulated firms to actively manage compliance planning and oversight of claims and commitments around ESG factors, for accuracy and completeness.