California and EU’s Climate Disclosure Policies Face Major Setbacks

As we close out 2025, corporate leaders in the US should breathe a sigh of regulatory relief. On top of the deregulatory spree that many federal agencies are currently pursuing, American companies will be spared from much of the devastating cost burdens of mandatory climate disclosures. This comes one year after US businesses were desperately bracing for a climate disclosure triple threat imposed by the U.S. Securities and Exchange Commission (SEC), California, and the European Union (EU).

Commission (SEC), California, and the European Union (EU).
The California and the EU climate disclosure mandates suffered major setbacks this year in the face of mounting legal pushback and political pressures.
Two of California’s laws have been stayed in court, while the EU law’s scope of compliance has been drastically reduced by 92 percent. This represents an incredible turn of events from last December, when mandatory climate disclosures were on the rise among three major regulators and gaining steam.
The Ninth Circuit Court of Appeals imposed a stay on two of California’s onerous disclosure requirements. These laws were set to go into effect for public and private companies in the state beginning January 2026. The court’s stay will remain in effect while lawsuits brought by the US Chamber of Commerce are fully considered.

California has attempted to impose three mandatory climate disclosure laws, primarily targeting large firms that have more than $1 billion in annual revenue. One of the laws, “Climate Corporate Data Accountability Act,” would require 5,300 firms to annually report on their direct, indirect, and value-chain greenhouse gas (GHG) emissions. This would impose a massive paperwork burden and hike compliance costs for firms. The difficulty in achieving accuracy from GHG reporting has remained a continual concern for firms of all sizes. This is especially concerning when attempting to gather emissions data from third-party suppliers across one’s value chain.
The second law stayed by the Ninth Circuit is known as the “Climate-Related Financial Risk Act.” This law seeks biennial disclosures from roughly 10,000 companies of all perceived risks posed by climate change. Regulated firms would also be forced to pay a hefty fee to the California Area Resource Board (CARB) annually in order to manage and implement the disclosure statewide. CARB would establish a permanent state fund devoted to climate change mitigation.
At one end, the Risk Act shames fossil fuel companies for their carbon-intensive activities and at the other end it taxes them for a mandate with which it will already be very costly for them to comply. As my 2024 CEI report revealed, if all three laws go into effect, companies in California will collectively be forced to pay $3.6 billion in upfront implementation costs. This will be followed by annual fees and paperwork costs in the hundreds of millions.
The Chamber continues to argue that California’s laws violate a company’s First Amendment protections against compelled speech. This is due to the requirement that firms reveal their positions on the environmental severity of climate change, which is inherently a politically charged subject.
My most recent public comment goes beyond this concern by showcasing how California’s laws further the goals of a multi-state decarbonization alliance without congressional approval. This violates the Compact Clause of the Constitution, which prohibits multi-state alliances without congressional approval. California has also contributed to one of two regional decarbonization efforts in league with two Canadian provinces that violate the Treaty Clause of the Constitution.
With the EU, the European Commission has decided to absolve 92 percent of firms that were originally expected to comply with its climate disclosure mandate. This decision was made official on December 18th when the European Parliament adopted legislative amendments that drastically limit the reach of its Corporate Social Responsibility Directive (CRSD).
Under these revisions, only large firms with at least 1,000 employees and a net turnover (the total amount of money a firm receives that is beyond the sale of goods/services) of €450 million a year will be affected, absolving thousands of medium- to small-sized firms. For US firms and other non-EU entities, the law will extend to the parent companies doing business in Europe who meet the above thresholds. The revisions also extend to its companion law, the Corporate Social Due Diligence Directive.
In 2024, I estimated that the CSRD imposed a collective $8.1 billion cost of compliance on affected companies. This equated to $2.6 million annual cost per US firm. Such a mandate represented the most comprehensive and sweeping climate change law to date. The original CSRD required all companies generating at least €150 million in revenue on the EU market to file complex climate disclosures to the European nation they are operating in.
Firms located across multiple EU member states still need to fashion a single massive report detailing their climate risks, polluting actions, and mitigation strategies across each state or face a set of stringent civil monetary penalties, sanctions, or even jail time for executives.
The CSRD requires firms to report double materiality and a complicated set of 12 categories of disclosure covering the gamut of European Sustainability Reporting Standards (ESRS). Thankfully, the EU Parliament’s recent revisions reduced the number of data points required for compliance under the ESRS’s stringent standards. Additionally, the aggregate compliance costs have been slashed due to the law’s reduced reach.
Aside from these welcome changes in California and the EU, the fate of the SEC’s climate disclosure rule remains unclear. The mandate is being challenged before the Eighth Circuit Court of Appeals in the longstanding case of Iowa v. SEC. In September, the court issued an ultimatum for the SEC to either defend its rule in court or file internal actions to revise or rescind the rule completely. The agency’s leadership has already indicated that it does not intend to defend this controversial mandate any longer.
Only time will tell what becomes of these three coercive climate mandates. US companies should breathe a sigh of relief that they will be spared of the worst effects from the EU’s compliance reductions, while California’s laws have been stalled and may face legal jeopardy.