Simpson Thacher Sustainability And ESG: Regulatory Update – February 2026

Practice News:

• OnFebruary 9, we published an alert regarding the District Court decision overturning Texas Senate Bill 13 (discussed further below).

Americas

Texas District Court Finds Anti-ESG Law Unconstitutional

On February 4, the U.S. District Court for the Western District of TexasdeclaredTexas' anti-ESG lawSenate Bill 13unconstitutional due to its overbreadth and impermissible vagueness. The law requires that state government entities (i) divest from named financial companies that are determined to "boycott" fossil fuel-based energy companies and (ii) secure a certification from contractual counterparties that they will not so "boycott" during the life of a contract. The court entered an injunction staying the law's implementation and enforcement, noting that the statute's vague terms fail to provide a reasonable opportunity to know what actual conduct is prohibited. For more information, see ourAlertanalyzing the court's decision.

EPA Officially Revokes Endangerment Finding

On February 12, President Trump and the Environmental Protection Agency (EPA)announcedthe repeal of the endangerment finding, a legal determination in place since 2009 and reaffirmed in 2016 that served as the foundation for regulating greenhouse gas ("GHG") emissions from mobile sources. The repeal follows President Trump'sEO 14154(Unleashing American Energy) calling for recommendations on the legality and applicability of the Endangerment Finding, and the EPA's July 2025announcementof its plan to revoke the finding. Absent this finding, the EPA lacks statutory authority under Section 202(a) of the Clean Air Act to prescribe standards for six GHG emissions, including carbon dioxide, methane, nitrous oxide, hydrofluorocarbons, perfluorocarbons and sulfur hexafluoride.

House Passes Protecting Prudent Investment of Retirement Savings Act

On January 15, the U.S. House of Representativespassedthe Protecting Prudent Investment of Retirement Savings Act, which seeks to amend the Employee Retirement Income Security Act of 1974 ("ERISA") to limit retirement fund managers' ability to consider non-pecuniary environmental, social and governance factors in their investment decisions, a topic of Department of Labor rulemaking during both the Biden and first Trump administrations. The Act provides that fiduciaries may not "sacrifice investment return or take on additional investment risk to promote non-pecuniary benefits or goals." The Act now moves to the Senate.

Fourth Circuit Vacates Preliminary Injunction Pausing Anti-DEI Directives

On February 6, the U.S. Court of Appeals for the Fourth Circuitvacateda preliminary injunction against several provisions of two anti-diversity, equity and inclusion ("DEI") executive orders ("EO"),EO 14151(Ending Radical and Wasteful Government DEI Programs and Preferencing) andEO 14173(Ending Illegal Discrimination and Restoring Merit-Based Opportunity). The plaintiffs in the lawsuit argued that the EOs, which seek to eliminate DEI practices, are unconstitutionally vague in violation of the Fifth Amendment's Due Process Clause, and would chill speech in violation of the First Amendment. In reaching its holding, the court reasoned that President Trump has vast authority to determine his policy priorities and instruct agencies to make funding decisions based on those policies, such as instructing agencies to terminate funding for DEI- or equity-related projects to the maximum extent allowed by law.

District Court Enjoins Trump Administration's Offshore Wind Stop-Work Order

On February 2, the U.S. District Court for the District of Columbiagranteda preliminary injunction in favor of a large offshore wind developer that sued the Trump administration following itsstop-work orderissued by the Department of the Interior in December 2025. The order applied to five large-scale offshore wind developers with projects under construction in the U.S., each of whom has sued the Trump administration and received a similar preliminary injunction, allowing operations to resume while the underlying litigation proceeds. The impacted developers allege similar claims, notably that the stop-work order, which cited national security risks, violates the Administrative Procedure Act and Fifth Amendment's Due Process Clause.

U.S. Formally Exits From Paris Climate Agreement

On January 27, the U.S. officially exited the Paris Agreement, one year following President Trump'sEO 14162(Putting America First in International Environmental Agreements) which called for the U.S.'s withdrawal from any agreement, pact, accord or commitment made under the UN Framework Convention on Climate Change. This marks the second time the U.S. has withdrawn from the Paris Agreement (the first withdrawal occurred during President Trump's first term), which requires all signatory countries to undertake ambitious efforts to combat climate change by strengthening its efforts to limit its GHG emissions.

Texas and Florida State Officials Issue Anti-DEI Notices

On January 19, the Attorneys General ofFloridaandTexasissued opinion letters criticizing race- and sex-based DEI initiatives and declaring them unconstitutional under the U.S. and state constitutions. Florida Attorney General James Uthmeier's letter relied heavily on the Supreme Court's holding inStudents for Fair Admissions v. Harvardand reaffirmed Florida's refusal to enforce or protect statutes that call for race-based decision making. Texas Attorney General Ken Paxton's 74-page letter reaffirms that Texas law does not permit discrimination in the "name of equity." The letter addresses discriminatory employee resource groups, supplier diversity policies and hiring and promotion processes.

FTC Targets Law Firms Pursuing DEI Certification

On January 30, the Federal Trade Commission Chairman Andrew Ferguson sentlettersto 42 law firms warning them that their pursuit of Diversity Lab's Mansfield Certification violates antitrust laws. The Diversity Lab's Mansfield certification is a structured certificationprocessdesigned to ensure all talent at participating law firms and legal departments have a fair and equal opportunity to advance into leadership. Chairman Ferguson referred to the program's monthly knowledge-sharing calls between other firms seeking the certification as competitor meetings that can unlawfully harm competition for labor. The letter warns the law firms of potential liability under laws that the FTC enforces or other liabilities under U.S. civil rights laws.

Mexico Enacts Circular Economy Law

On January 19, the Mexican governmentenactedthe General Law on Circular Economy (Ley General de Economía Circular), establishing a framework to extend the useful life of products, minimize waste, and promote the recovery of materials. A core element of the framework is Extended Producer Responsibility (EPR), requiring producers and importers to assume responsibility for their products' environmental impact throughout their life cycle, including registering Circular Management Plans with federal authorities. The law requires companies to incorporate circular design principles and meet progressively established circularity targets. Implementing regulations are to be issued within 180 calendar days of the law's entry into force on January 20, 2026.

Information provided by contributing law firm: Cuatrecasas

EU/U.K.

FCA Launches Consultation on Replacing TCFD-aligned Rules With U.K. SRS Reporting Requirements for Listed Companies

On January 30, the U.K. Financial Conduct Authority (FCA)launcheda consultation on replacing the current TCFD-based rules for listed companies' climate disclosures with proportionate rules aligned to the U.K. Sustainability Reporting Standards (SRS) to (i) align reporting with international standards; (ii) ensure that investors can access clear, consistent and robust information about sustainability risks and opportunities; and (iii) support overseas companies to be more transparent about their sustainability reporting. The consultation is open for feedback until March 20, 2026.

CMA Publishes Guidance on Environmental Green Claims in Supply Chains

On January 22, the U.K. Competition & Markets Authority (CMA)publishedguidance on environmental green claims across the supply chain, which should be read alongside the CMA'sGreen Claims Code. The guidance notes that businesses across the supply chain should take steps to ensure that any environmental claims they make are accurate and not misleading, including the requirement that such claims be verified and backed up by evidence. It also includes several examples illustrating scenarios in which consumer protection law may be breached, and steps that businesses should take to mitigate such risks.

ESMA Publishes Thematic Note on Sustainability-Related Claims in ESG Strategies

On January 14, the European Securities and Markets Authority (ESMA)publishedits second thematic note on sustainability claims, focusing on ESG strategies. The thematic note reemphasizes the importance of ensuring that financial market participants are responsible for ensuring that sustainability-related information is communicated in a manner that is "fair, clear, and not misleading." In addition, ESMA highlights that in line with its work on greenwashing, the thematic note sets out four principles that should be followed when discussing the ESG integration and ESG exclusions that form part of the financial market participant's ESG strategy: that the claims be (i) accurate, (ii) accessible, (iii) substantiated, and (iv) up to date.

Dutch Court Issues Landmark Human Rights Ruling

On January 28, the District Court of The Hague held that the Dutch State violated the human rights of Bonaire's residents by failing to protect them from escalating climate risks. The Courtorderedthe Dutch State to adopt binding, science-based GHG emission-reduction targets and to develop a timely and effective adaptation plan to safeguard the island's vulnerable communities and environment. The judgment frames insufficient climate action as a human rights issue and signals a broader shift that governments can no longer postpone adaptation planning for highly exposed communities.

Information provided by contributing law firm: Loyens & Loeff N.V.

Poland Expands Greenwashing Enforcement

On January 21, the Polish Office of Competition and Consumer Protection authority (UOKiK)announcedtheir expansion of greenwashing enforcement to the textiles sector, launching proceedings against clothing companies targeting vague "eco/sustainable" labels on synthetic products, geographically limited "recyclable" claims, and unsubstantiated "zero waste" or "net-zero" commitments lacking scope or scale clarification, with potential fines of up to 10% of a company's annual turnover per violation. These actions reflect the intensifying greenwashing enforcement trend in Poland and coincide with draft legislation, targeted for early 2026, implementing theEU Empowering Consumers Directive, which will establish clearer legal standards distinguishing legitimate environmental claims from prohibited greenwashing practices.

Information provided by contributing law firm: Osborne Clarke

APAC

Vietnam Pilots Domestic Carbon Trading Exchange

On January 19, the Vietnam government issuedDecree No. 29/2026/ND-CP, establishing a comprehensive legal framework for organizing and operating a domestic carbon trading exchange.The Decree governs registration, domestic coding, ownership transfer, custody, trading and settlement of GHG emission quotas and eligible carbon credits, and assigns management responsibilities and reporting obligations. It also requires all tradable allowances and carbon credits to be centrally registered with the Ministry of Agriculture and Environment. To support a roadmap of pilot implementation from late 2026 until December 31, 2028, financial institutions subject to the Decree will waive service fees, with a full market rollout in 2029 to help meet Vietnam's 2030 emissions-reduction targets and net-zero commitment by 2050.

Information provided by contributing law firm: Le & Tran

Standards and Associations

Science Based Targets Initiative Releases New Draft Auto Sector Net-Zero Standard

On February 3, the Science Based Targets initiative (SBTi)releasedits updated draft of its Automotive Sector Net-Zero Standard, enhancing alignment with the developingCorporate Net-Zero Standardand existing SBTi methods. Key updates included in this updated draft include (i) redefining low-emission vehicles as zero-emission vehicles, (ii) providing optionality for automakers to set targets using either Scope 3, category 11 emissions or a ZEV sales-share metric and (iii) allowing global aggregated targets for light-duty vehicles to streamline implementation. The new framework establishes a clear, science-based framework for automotive companies to set credible net-zero targets with a particular focus on these use-phase emissions, enhancing the accuracy, credibility, and specificity of these net-zero targets when used with the Corporate Net-Zero Standard. A consultation period regarding the Standard is open until March 22, 2026.

GHG Protocol Launches Carbon Accounting Standard for Land Sector

On January 30, the GHG Protocolreleasedthe Land Sector and Removals (LSR) Standard, establishing its first global standard for companies to account for GHG emissions and carbon dioxide removals from agricultural land use and emerging carbon dioxide removal technologies. The LSR Standard only applies to companies that own or control land, purchase or sell products produced on agricultural lands, or have other relevant land-based activities in their value chain. The LSR Standard is also the first GHG Protocol standard to include requirements for traceability for Scope 3 emissions, enabling land sector companies to engage suppliers to reduce those emissions and scale up removals. The LSR Standard takes effect on January 1, 2027, to allow companies sufficient time to prepare.

IPSASB Launches Climate-Related Reporting Standard for Governments and Public Sector

On January 29, the International Public Sector Accounting Standards Board (IPSASB)issuedits first-ever public sectorstandardto help governments and public sector entities report climate-related risk and opportunities. IPSASB SRS 1,Climate-related Disclosures, was developed with support from the World Bank and is aligned with the International Financial Reporting Standards S2 to enhance consistency and comparability of climate-related disclosures across the public and private sectors for market participants, in particular for lenders and other resource providers.

Net Zero Financial Service Providers Alliance Shuts Down

On January 28, the Net Zero Financial Service Providers Alliance (NZFSPA), an alliance comprised of ratings agencies, data and index providers, proxy advisors and others,announcedits decision to shut down its coalition and no longer function as a standalone initiative. The organizations part of the alliance will now continue their target setting activities independently. Prior to the disbandment, NZFSPA faced prominent exits from S&P Global and Moody's. It is now the latest net-zero alliance to cease or reorganize its activities following similar developments at the Net Zero Insurance Alliance in 2024 and Net Zero Asset Managers Initiative in 2025.

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