Global sustainability regulation is fracturing as energy security moves up the agenda

The divergence is particularly stark when comparing the scale-back of requirements in the U.S. with new regulation across Asia-Pacific, such as China’s first-ever Energy Law, which came into effect at the beginning of 2025.

The Sustainability Outlook, which is published today, pinpoints regulatory divergence as a defining feature of the global sustainability landscape, with security and strategic autonomy emerging among the most significant policy drivers. Heightened demand for energy security, driven by volatile energy prices, supply shocks following the Russian invasion of Ukraine in 2022, and significant energy demand from the rapid growth in data centers, has catalyzed regulatory change across the world.

Matthew Townsend, partner and global co-head of A&O Shearman's Environmental and Climate Law Group, said: “Law and clear policy signals are key drivers of the energy transition, but they operate in markedly different ways across jurisdictions. 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.”

In the U.S., the Securities and Exchange Commission has ended its legal defense of the Climate Disclosure Rule, whilst the “Unleashing American Energy” and “Beautiful Clean Coal” executive orders have prioritized domestic oil, gas, and coal production over renewable alternatives, and the One Big Beautiful Bill Act has reduced the future availability of federal tax credits for renewables projects.

Despite this federal retreat, greenwashing litigation continues to proliferate, with over 150 greenwashing class actions tracked through early 2025. California is maintaining its own status as a climate leader among U.S. states with legislation— including SB 253 and SB 261—which is in some cases meeting with legal challenge. At the same time, other states are pushing back on ESG requirements, with a coalition of 23 state attorneys general publicly challenging the Science Based Targets initiative over antitrust and consumer protection concerns. Even within the U.S., therefore, a patchwork of conflicting mandates for businesses is emerging.

In the EU, regulation is waking up to the need to move quickly to protect European competitiveness and strategic autonomy. Accordingly, the European sustainability agenda has been reshaped, with the Omnibus package reducing reportable datapoints under the Corporate Sustainability Reporting Directive and narrowing its scope.

Faster permitting for renewables projects is being pursued as a competitive response to jurisdictions where centralized state machinery can deliver at scale. Defense, once largely excluded from ESG frameworks, is now being integrated into the EU's sustainability conversation as Europe prioritizes strategic autonomy. As Europe’s climate ambition becomes ever more contested in the face of competitiveness concerns, the next five years will determine whether the European Green Deal becomes a durable economic settlement or is substantially weakened by rollbacks.

By contrast, many countries in Asia-Pacific are pushing forward with climate or sustainability regulation. Australia has adopted mandatory climate-related disclosure standards, with requirements being phased in over financial years commencing on or after January 1, 2025 through to July 1, 2027.

Interventions from the Australian Securities and investments Commission led to AUD34.7 million in penalties across three greenwashing cases in FY2024–25. China's first Energy Law became effective in January 2025, embedding decarbonization as a policy aim and strengthening grid infrastructure through measures promoting intelligent grid upgrades. Singapore has leaned heavily on the use of soft law to achieve climate goals. Its Green Plan 2030—a mixture of tax incentives, financial assistance, labor force measures and regulation—is operationalizing its 2030 targets, including installing 60,000 EV charging points by the end of the decade and reducing domestic aviation emissions from airport operations by 20% compared to 2019 levels.

In the Middle East, Gulf Cooperation Council states are emerging as key players in the energy transition. Flexible legal systems and centralized planning allow GCC countries to move fast and deploy capital in pursuit of strategic objectives, including large-scale renewables deployment. New legislation, including the UAE's Climate Change Reduction Law, mandates emissions monitoring, while announcements indicate the UAE is working towards a formal sustainable aviation fuel mandate.

The Sustainability Outlook also examines the growth of climate litigation, the evolution of supply chain due diligence requirements under frameworks such as France's Duty of Vigilance Law and the EU's Corporate Sustainability Due Diligence Directive, and the role of multilateral finance in climate action following COP 30.

The full A&O Shearman Sustainability Outlook is available here.