Sustainability Outlook 2026

Foreword

Matthew Townsend, Danae Wheeler, Gauthier Jacqmin and Philippe Allen

ABOUT THIS PUBLICATION

This publication surveys sustainability-related legal and policy developments across the globe over the last year. It seeks to provide decision-makers with a concise, practice-ready overview of where regulatory frameworks are moving, how market dynamics are interacting with law and policy, and what that might mean for business strategies.

The Outlook pairs a high-level narrative with jurisdiction-specific legal snapshots, setting out forward-looking expectations across the short, medium, and long term.

THIS YEAR'S THEME: SECURITY, SOVEREIGNTY AND THE FRACTURED ENERGY TRANSITION

Support for global decarbonization is becoming more contested. The hard-won multilateral consensus around climate ambition is fraying as governments assign higher priority to domestic energy security and its associated investment and job creation, and grapple with financial pressures. Yet, in the face of these headwinds, progress on decarbonization endures. This is particularly so where governments align legal instruments with industrial strategy and deploy credible pathways for investment at scale. In parallel with legal and regulatory action, businesses have been competing for central roles within global supply chains, with cheaper clean energy technologies continuing to emerge as a result.

THE 2026 REGULATORY INFLECTION

Against this shifting backdrop, law and regulation have been in flux. This will continue in 2026 as authorities amend environmental and energy laws to reflect emerging technologies and embed security of supply as a primary goal. In the coming year, climate targets will be reviewed and sequenced, disclosure frameworks and taxonomies will consolidate, and courts will continue to shape outcomes on fiduciary duties, green claims, and climate liability. The result for global businesses is an uneven map of legal risk and opportunity, where cross-border operations must navigate diverging standards, subsidy regimes, trade protection measures and inconsistent disclosure requirements.

OBJECTIVE OF THIS REPORT

This publication offers an overview of the most important recent regulatory developments in the jurisdictions covered, and provides predictions to help businesses navigate the evolving rules of the energy transition. Within each chapter, we take one of two approaches. In some, we identify the near-term changes most likely to affect investment allocations and compliance programs, the mid-cycle developments that could realign value chains and the longer-term shifts that signal where policy is ultimately heading. In others, we offer reflections on recent developments and predictions for the future. In all cases, the goal is to assist decision-makers in developing and implementing strategy in a world where security and sovereignty compete with climate ambition to set the pace of transition.

Introduction: global fragmentation, energy security, and the evolving ESG agenda

Law and clear policy signals are key drivers of the energy transition but they operate in markedly different ways across jurisdictions.

The articles in this year's Sustainability Outlook identify regulatory divergence as a feature of sustainability developments globally. In certain jurisdictions, most notably the U.S., laws and regulations promoting sustainability have been lightened or withdrawn entirely. Even the EU, a long-time frontrunner in this space, is recalibrating its approach.

At the same time, other countries such as Australia, China, the Gulf Cooperation Council (GCC) states, and Singapore are pressing ahead with new climate or climate-adjacent legislation. Accordingly, global businesses face a fragmented map of legal risks and opportunities.

The geopolitical landscape is now dominated by concerns over defense, energy security, and the race on AI. We may be in an era where political concerns over the price and secure supply of energy are bigger drivers of the energy transition than environmental regulation.

Five major themes emerge from the Sustainability Outlook.

THEME 1: SECURITY AND STRATEGIC AUTONOMY

Perhaps the most important thread running through these contributions is the increasing premium countries are placing on security of supply and strategic autonomy. Global tensions remain elevated, and many countries place increasing emphasis on sourcing goods, components, suppliers and energy domestically. This has had a marked effect on the legal and regulatory landscape across jurisdictions.

Heightened demand for energy security is driven by volatile energy prices, by supply shocks following the Russian invasion of Ukraine in 2022, and by the significant energy demand from the rapid growth in data centers. These factors have catalyzed regulatory change. U.S. regulation in 2025 strongly favored domestic energy supply, with measures including the Unleashing American Energy and Beautiful Clean Coal executive orders seeking to bolster domestic production. Japan's Seventh Basic Energy Plan, released in February 2025, marks a significant pivot from the decarbonization-focused 2021 plan, elevating energy security as a central theme. Non-western countries with lingering exposure to Russian energy also took measures to boost domestic production. China, for example, brought its Energy Law into force in 2025, prioritizing energy security alongside emissions reduction.

In other areas, strategic autonomy has been a key policy driver. The Ukraine war has pushed defense to the top of European agendas, and EU policymakers recognized the need to build European defense capability, with the European Defence Industrial Strategy targeting 50% EU sourcing of defense equipment by 2030.

Chemicals policy is reflecting the same move toward strategic autonomy: jurisdictions are treating key chemical inputs as strategic commodities, tightening controls on high-risk substances while incentivizing onshoring of critical intermediates for batteries, semiconductors and pharmaceuticals. In the EU, proposed reforms to the REACH chemicals regime underscore a dual track of supply security and hazard reduction that is reshaping sourcing strategies and reweighting markets toward domestically-produced, lower-risk alternatives.

But what does this mean for sustainability? In some jurisdictions, including China and the GCC, renewables build-out has played an important part in efforts to strengthen domestic capacity. In the U.S., by contrast, legislative emphasis at the federal level is still being placed on traditional sources of energy, as exemplified by 2025's Unleashing American Energy and Beautiful Clean Coal executive orders.

THEME 2: ADJUSTMENT SPEED AND CENTRALISM

Our analysis has also highlighted the need for businesses to act quickly in order to secure an advantage. Countries have sought to support the ambition for speed in various ways. In the GCC, flexible legal systems allow entities to move fast and deploy capital in pursuit of strategic objectives, which include decarbonization. In the more rigid European legal architecture, faster permitting has emerged as a key enabler of accelerated capital allocation, with the EU Clean Industrial Deal delivering multiple reforms in this area. More time, however, will be needed before a conclusion can be reached on whether these reforms have been a success.

Centralism, including in procurement, benefits countries that can execute at scale. It gives statist systems an edge, as their governments often have the resources and positioning to act as first movers and primary buyers. China's centralized procurement of clean energy equipment exemplifies this advantage. However, other economies are also viewing centralized procurement as a key element of the strategy, including in the EU, with joint procurement becoming a feature of EU defense. The ability to carry out purchases or push through changes centrally, at scale, is enabling countries to act fast—in sustainability, defense, and other areas. Indeed, the very fact that defense, once excluded from ESG frameworks, is now part of the sustainability conversation is testament to the pace of change in this area.

THEME 3: THE RISE OF SUSTAINABILITY DISCLOSURES

Corporate disclosures are also a central battleground of the ESG debate.

Many countries have either pushed forward with, or rolled back, requirements for businesses to disclose ESG-related information publicly, and sometimes both. In the first category, Australia adopted new corporate disclosure standards in 2024, including AASB S2, a mandatory climate-related disclosure standard. Requirements are set to be phased in over financial years commencing on or after January 1, 2025 through to July 1, 2027, with the rules first applying to larger listed and other public interest entities. On the other side, climate rules have been rolled back in the U.S. (with the Securities and Exchange Commission voting to end its legal defense of the Climate Disclosure Rule in March 2025), and been recalibrated in the EU. As we explore in the Outlook, the EU's Corporate Sustainability Reporting Directive and other aspects of its sustainable finance agenda continue to undergo revision amid pushback from industry and from politicians at home and abroad.

At a more micro level, many countries have placed increased requirements on businesses to provide more ESG-linked information as part of their day-to-day business operations, without necessarily requiring businesses to disclose such information publicly. For example, the recent introduction of the UK's Biodiversity Net Gain (BNG) requirement, and its proposed expansion in scope to new developments, requires businesses to disclose biodiversity information when making planning applications. Where these requirements and the public-facing disclosure obligations set out above operate, businesses often face higher compliance costs resulting from the need to build and maintain governance and monitoring structures to meet them.

Set against these disclosure dynamics, France's 2017 Duty of Vigilance Law provides a complementary due diligence model: it imposes a corporate duty to identify and prevent severe human rights, environmental and health and safety risks across companies' own activities, subsidiaries and certain suppliers, and it has served as a blueprint for Germany's supply chain due diligence act and the EU's Corporate Sustainability Due Diligence Directive.

Against this backdrop of evolving disclosure rules and emerging due diligence regimes, the EU's Omnibus package seeks to ease mounting implementation strains flagged by businesses, foreign governments and Member States. It aligns with the agenda outlined in Mario Draghi's September 2024 report on the Future of European Competitiveness, which calls for a lighter administrative burden, clearer sequencing, and greater regulatory predictability.

THEME 4: THE CENTRALITY OF THE GRID

Grid connectivity and efficiency have also been central to developments in the last 12 months. With demand for energy increasing rapidly in some areas due to the AI and data center boom, interconnection backlogs have become a key obstacle to economic growth, notably in the U.S..

Countries worldwide are pushing through law and regulation to address this problem. China's Energy Law is designed to strengthen grid infrastructure, with policies promoting intelligent grid upgrades and the construction of smart microgrids. The U.S. and EU have advanced proposals for grid reforms. The European Grids package, for instance, announced by the European Commission in January 2025, is expected to require transparency in grid connection queues and faster permits for grid upgrades. This will continue to be a major area to watch, a key determinant in each country's sustainability success story.

THEME 5: SUSTAINABILITY AS AN ECONOMIC DRIVER

Some commentators view ESG requirements as a handbrake on growth, at least in the short term. Every penny spent on complying with regulation, so the argument goes, is one that is not spent on R&D or capital investment.

However, a striking feature in the contributions is how often sustainability emerges as a driver of growth. In the UK, for instance, the BNG requirement is likely to support investment in areas where the UK already has strengths, including consulting and data. In the GCC, large-scale renewables deployment has allowed surplus fossil fuels, previously burnt domestically, to be exported. In Singapore, low-carbon hydrogen is seen as a key area of focus, given its potential applications in aviation and maritime shipping—a reflection of the country's role as a global transport hub. Law and regulation have played an important role in shaping the picture, whether as hard-edged catalysts for the development or strengthening of new industries (as with the UK's BNG requirement) or as softer-edged responses to developments instigated by businesses themselves (as in Singapore).

Similarly, innovation and sustainability have advanced in tandem. COP 30 recognized multilateral finance as a critical pillar of the financing mix underpinning climate adaptation and mitigation. Recent developments underscore this. For example, the Asian Development Bank's Innovative Finance Facility for Climate in Asia and the Pacific (IF-CAP) uses first-loss guarantees from financing partners on portions of its sovereign loan portfolio to free up regulatory capital and expand climate lending capacity. Yet the scale of the financing challenge still demands further and faster progress.

REFLECTIONS: A CENTRAL ROLE FOR LAW AND REGULATION?

Law and regulation do not exist in a vacuum: they inform and respond to external economic, social and political factors. 2025 has been no different. Key political drivers, including the ongoing fallout from the Russian invasion of Ukraine and continued geopolitical tension over trade, have played a leading role in many of the issues we touch upon in the Outlook.

However, if politics has been a critical catalyst behind many of the themes in this Outlook, law and regulation have been an important aid for delivery. That said, different countries and regimes strike very contrasting balances between a regulation- or market-led approach to the decarbonization transition.

With the law and regulation behind the transition just as contested globally as the politics, if not more so, businesses are starting to face requirements to behave in markedly different ways worldwide. As such, an important conclusion from this Outlook is that businesses that treat law and regulation with strategic focus—shaping business strategy, capital allocation, technology choices and supply-chain design—will be best placed to navigate the rules that will define competitiveness in a fractured but decarbonizing global economy.

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