Evolving ESG-related enforcement risk in 2026

In 2026, there will be a dual risk environment: in Europe and certain other regions, there will be heightened regulatory and criminal enforcement, while in some areas of the United States, companies will face increased political scrutiny and litigation risks.

Expect ongoing investigative activity in some jurisdictions, with ESG themes emerging as predicates in fraud, consumer protection, sanctions, customs, and money laundering cases.

Mandatory ESG reporting, tighter supply chain rules, and a shifting enforcement posture

Mandatory ESG reporting and due diligence obligations are a reality in multiple jurisdictions, with the EU continuing to set the pace despite recent calibration to reduce burden and moderate trickle down effects on smaller companies.

Criminal authorities are facing pressure to act on environmental and climate issues, and activists are testing novel pathways, including private complaints and attempts to characterize environmental or human rights harms as predicates for money laundering.

Simultaneously, certain regions of the U.S. have experienced political opposition to ESG, resulting in investigations, challenges to regulatory developments, and litigation concerning corporate DEI initiatives and climate-related communications. This has introduced an additional, yet equally significant, category of risk for companies with ties to the U.S.

Increased reporting requirements and intensified scrutiny from regulators and activists

Existing criminal and consumer protection laws in many jurisdictions already cover misleading ESG claims. Layered on top are new or tightened rules mandating disclosure of sustainability credentials and climate related information. The EU remains a leader despite efforts to streamline elements of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD/CS3D) to temper compliance burden and the indirect impact on smaller entities. In practice, the trend is toward more granular reporting, greater external assurance, and more active enforcement.

Some businesses are already facing consequences for ESG disclosures:

• In Germany, the financial regulator BaFin has imposed a significant penalty on an asset manager for alleged greenwashing.
• In France, enforcement against greenwashing has gained traction, with the financial markets regulator repeatedly indicating that tackling misleading sustainability communications will remain a priority. A recent civil judgment scrutinizing climate related communications by a leading French energy company underscores the materiality of these issues and may lead to criminal proceedings in serious cases. More broadly, environmental and climate matters are increasingly being addressed through corporate criminal law in France, often following complaints by civil society groups and NGOs; misconduct may constitute general criminal offenses or fall within specialized environmental 

In France, the criminalization of ESG related breaches continues, with more than 25 environmental deferred prosecution agreements since 2020. In a separate development, the French Supreme Court confirmed in January 2024 that French courts have jurisdiction over international crimes against humanity that companies commit overseas, a ruling that may embolden complainants and prosecutors in cross border matters. In Germany, criminal investigations have been opened into alleged greenwashing, including potentially false ESG statements about financial products. Belgium’s introduction of an “ecocide” offense in 2024 illustrates the expanding use of criminal law in the environmental sphere. In the Netherlands, environmental enforcement continues to tighten, with more assertive use of administrative and criminal powers.

The U.S. enforcement picture is more complex. While public statements have often focused on traditional white collar priorities, investigative activity through 2025 has extended into politically charged areas, including corporate DEI efforts and organizations perceived as promoting ideas disfavored by the current Administration. These matters have generally not culminated in formal actions yet, but they indicate a developing area of risk. 

Supply chain risk

Supply chain accountability and labor exploitation enforcement is likely to persist and may intensify, especially in sectors reliant on outsourced production. Fashion and luxury, construction, logistics, and retail face elevated risk where unlawful labor intermediation, social security or tax evasion, or health, safety and environmental breaches arise from weak third party governance. Certification regimes and mandatory contractual clauses are becoming more common, increasing operational burden across procurement, finance, compliance, and legal functions. Regulators and prosecutors are also increasingly considering theories that place liability on brands and buyers for the acts of suppliers and subcontractors, particularly where red flags were present or systems and controls were inadequate.

The EU Corporate Sustainability Due Diligence Directive (CS3D) will phase in from July 2027. It imposes mandatory human rights and environmental due diligence across EU and non EU companies’ worldwide chains of activities and requires companies to adopt and implement a climate transition plan, going beyond the International Sustainability Standards Board’s global baseline and the CSRD in several respects (although the. potential restatement of the CS3D currently under discussion has watered down these requirements). Non compliance can trigger regulatory investigations and enforcement, complaints by concerned persons, significant fines, and restrictions affecting public procurement and contractual performance. The directive also contemplates civil liability exposure, with trade unions and NGOs permitted to bring claims on behalf of affected persons. As with the CSRD, scope extends to EU based entities and to companies from third countries that meet specified thresholds for employees and turnover.

Even beyond jurisdictions with specific supply chain due diligence laws, NGOs and activists are using existing criminal laws in novel ways to encourage enforcement against alleged human rights abuses and environmental harms in supply chains.

Geopolitics complicates compliance. In 2024, China’s Ministry of Commerce launched an investigation under its Unreliable Entity regime into a major U.S. company over alleged sourcing decisions in a sensitive region, highlighting the tension multinationals face between Western import controls and local retaliatory measures. Companies should anticipate increased conflict of laws risk across sanctions, export controls, human rights due diligence, and data localization.

Labor exploitation closer to home

Beyond global supply chains, “social” risks nearer to home remain prominent, with scrutiny of labor practices and associated tax issues presenting both regulatory and criminal exposure., e.g.:

• In Italy, public prosecutors continue to scrutinize corporations for illicit labor exploitation and related tax offenses, targeting not only direct perpetrators but also international businesses in logistics, fashion, and distribution that benefited from or facilitated such practices through subcontractors or suppliers. A widely reported 2025 case involved the Italian subsidiary of a global transportation company, with a EUR 46 million seizure linked to alleged tax fraud via tiered intermediaries and cooperatives used to supply low cost labor while evading taxes and social contributions.
• In Belgium, authorities are intensifying enforcement against social fraud and social dumping. Inspection services have conducted high volumes of targeted investigations across construction, transport, logistics, cleaning, and hospitality, supported by coordinated cross border actions and closer cooperation with the European Labour Authority. These inspections are increasingly paired with criminal enforcement.

Practical implications for investigations and controls

For white collar and investigations teams, the 2026 ESG landscape has practical implications:

• Claims and disclosures must be evidence based and verifiable. Marketing, investor relations, and sustainability functions should be integrated with legal, finance, and internal audit to ensure that statements about products, services, and transition plans are supported by data that can withstand regulatory assurance and adversarial testing.
• Supply chain diligence must be risk based, dynamic, and documented, with clear escalation pathways, remediation protocols, and contractual levers.
• Investigations protocols should anticipate ESG themed allegations and be calibrated to handle complaints from NGOs, whistleblowers, and investors across multiple jurisdictions simultaneously.
• Businesses with U.S. touchpoints should recognize the political sensitivity around ESG and DEI programs and maintain careful governance, training, and record keeping that emphasize compliance with applicable law, viewpoint neutrality where relevant, and accurate, non misleading disclosures.

This article is part of the A&O Shearman Cross-border white-collar crime and investigations review 2026.