The first quarter of 2025 has been, if anything, a busy news quarter. ESG regulation and Diversity, Equity and Inclusion (DEI) initiatives face significant shifts globally, driven by regulatory rollbacks in the U.S., evolving EU and UK reporting requirements and increasing political scrutiny. The SEC paused its climate disclosure rule, while state-level ESG policies continued to diverge along party lines. Pro-ESG states are reinforcing climate reporting and anti-ESG states are seeking to restrict the consideration of sustainability factors by fiduciaries. 

In the EU and UK, regulatory frameworks are undergoing revisions, including potential delays, an overhaul of classifications and adjustments in implementation. Meanwhile, corporate and institutional DEI programs are scaling back amid federal and state pushback, with leading firms eliminating or restructuring diversity initiatives. 

Against this backdrop, private fund managers and businesses must carefully navigate shifting ESG and DEI landscapes, balancing regulatory compliance with investor and stakeholder expectations. 

To help firms stay ahead of these changes, Silver’s ESG Team has compiled a guide that offers a deeper dive into the latest regulatory updates and their outcomes worldwide.

Regulatory Updates:

Snapshot in the United States

• Appetite for ESG-related Regulation in the U.S. Loses Momentum:
  Federal-level sustainability regulation in the U.S. is losing momentum as the Trump administration’s priorities come into focus. The SEC’s climate disclosure rule, a key component of the previous administration’s agenda, faces rollback efforts. On February 11, 2025, SEC Acting Chair Mark Uyeda directed the agency to pause its legal defense of the rule amid widespread litigation from Republican-led states and other business groups. Other rulemaking efforts, such as the ESG Disclosure Rule for Investment Advisers, remain in limbo.

• Additionally, the Heritage Foundation’s Project 2025 and recent Congressional efforts underscore a burgeoning federal anti-ESG sentiment from the Trump administration, with new bills seeking to limit ESG considerations in fiduciary decision-making and corporate disclosures.

• Pro and Anti-ESG Bills abound as the state legislative calendars begin:
  We continue to observe sharp divergence in state-level ESG approaches, primarily along party lines. Pro-ESG states such as New York and Colorado are advancing climate reporting laws. Following California’s lead, both states have introduced corporate climate reporting bills in 2025 requiring large companies to disclose greenhouse gas emissions.

• Conversely, anti-ESG legislation is continuing in Republican-led states. Wyoming introduced the “Stop ESG-State Funds Fiduciary Act” in January 2025, restricting state investments based on ESG criteria despite anticipated revenue losses for state funds. In Ohio, the legislature passed SB 6, which bans state pensions from considering non-pecuniary ESG factors within their investments.  

• States recommit to the Paris Agreement as an industry signal:
  Following the federal government’s withdrawal from the Paris Agreement, 24 U.S. states, including California and New York, reaffirmed their commitment to these climate goals. Through the U.S. Climate Alliance, all 24 states pledged to reduce greenhouse gas emissions by 50-52 percent from 2005 levels by 2030, sending a strong industry signal that sub-national climate action remains robust despite federal retrenchment.

Silver’s Take: The divergence in opinion on ESG and sustainability issues accelerated in the first quarter of 2025, driven by the change in federal administration and resulting activity from Democratic and Republic-led states. We expect further anti-ESG activity from the federal government, with continuing efforts at the state level along party lines. 

Snapshot of the EU and UK 

EU Omnibus Proposal

The EU Omnibus proposal, introduced in February, aims to streamline certain sustainability reporting obligations in the EU. Key proposal highlights include:

• Corporate Sustainability Reporting Directive (CSRD): Scope Reduction and Timeline Delay 
  • ~80 percent of current “in-scope” entities will no longer have a reporting requirement; only large corporations (1,000+ employees, €50 million turnover) will be required to report.
  • Two-year delay to reporting; The European Parliament is scheduled to vote on the delay on April 1, 2025.

• Corporate Sustainability Due Diligence Directive (CS3D): Timeline Delay
  • Reporting to be delayed from 2027 to 2028.
• Taxonomy Regulation: Scope Reduction
  • Only entities with more than 1,000 employees and EUR 450m in net turnover will be required to undertake reporting.
•  Carbon Border Adjustment Mechanism: Scope Reduction
  • Small importers would be exempt from reporting, representing a ~90 percent decrease in current “in-scope” participants.

Read our summary of proposed changes here. 

SFDR 2.0 – Is the EU’s latest sequel on the horizon?

Amidst the cascade of news related to the EU Omnibus, changes to the Sustainable Finance Disclosure Regulation (SFDR) are also anticipated this year.

Following the consultation on SFDR, the EU Platform on Sustainable Finance (a body that advises the European Commission) proposed a new categorization for products in December 2024, taking into account the comments and feedback gathered through the consultation phase. The proposal suggests that sustainability strategies be recategorized as:

• Sustainable: Investment strategies that can demonstrate contributions through Taxonomy-aligned Investments or Sustainable Investments with no significant harmful activities; or assets based on a more concise definition consistent with the EU Taxonomy.
• Transition: Investments strategies that support the transition to net zero and a sustainable economy, avoiding carbon lock-ins, in line with the European Commission’s recommendations on facilitating finance for the transition to a sustainable economy.
• ESG collection: Investment strategies that exclude significantly harmful investments/activities, investing in assets with better environmental and/or social criteria or applying various sustainability features.
• All other products should be identified as “Unclassified Products.”

The European Commission was expected to publish its proposed changes to SFDR in June 2025. However, according to the European Union’s 2025 Work Programme, the initiative has been delayed to Q4 2025. 

A look at the current state of the UK’s Sustainability Disclosure Requirements Regulatory Framework 

The UK’s Sustainability Disclosure Requirements (SDR) regulatory framework seeks to improve transparency in sustainability-related investment products and reduce greenwashing. The regime applies primarily to UK-based asset managers and investment funds and utilized a phased-in implementation approach beginning last year and continuing through 2025.

Read our original summary of the UK SDR here.

Recent Developments and Adjustments

• Temporary Flexibility for Naming and Marketing Rules: In September 2024, the FCA announced temporary flexibility measures for firms struggling to comply with the naming and marketing rules under the UK Sustainability Disclosure Requirements. Firms that applied for relief have until April 2, 2025 to comply with the naming and marketing rules. 
• SDR Expansion to Portfolio Managers: The Financial Conduct Authority initially planned to extend SDR to portfolio managers, but as of February 2025, it halted the expansion indefinitely, citing the need for further review.
• Investor Awareness & Observations: A recent study by The Investment Association and The Wisdom Council surveyed UK retail investors and financial advisers to assess awareness and understanding of the investment labels used by SDR, key findings include: 
  • > 50 percent of retail investors were aware of SDR labels, and of these, 94 percent believe the labels are helpful in making investment decisions.
  • Jargon and vague terminology remain a major barrier for investors. 
  • 92 percent of advisers report increased client interest in sustainable investments.
• Alignment with International Standards: The UK SDR builds on Task Force on Climate-Related Financial Disclosures standards and is expected to be further aligned with the International Sustainability Standards Board reporting framework in Q2 2025.

Industry News and Trends:

The ESG Landscape Continues to Shift 

The first quarter of 2025 saw continued movement in the ESG regulatory landscape. While certain jurisdictions and investors reinforced the importance and legality of ESG considerations, others faced growing pushback.

American Airlines: Communication Risk and ESG Approach Shift 

A recent ruling found that American Airlines’ 401(k) plan violated its fiduciary duties by encouraging ESG investing and thus favoring socially conscious goals over financial returns. The surprise ruling by U.S. District Judge Reed O’Connor in Texas determined that American Airlines’ relationship with BlackRock influenced the administration of its retirement plan, ultimately failing to prioritize employees’ financial interests.

This case highlights the increasing divergence in U.S. legal and regulatory opinion regarding ESG investing. It is important to note that the American Airlines pension plan was not invested in any ESG-focused products. Judge O’Connor’s findings were solely predicated on BlackRock’s broader proxy voting and engagement activities. 

Trending ESG Actions

Pro-ESG Developments

• UK Pension Fund Withdraws £28bn Over ESG Retreat – One of the UK’s largest pension funds pulled £28 billion from State Street, citing dissatisfaction with the asset manager’s move away from ESG commitments. This underscores how investors expect consistency in ESG strategies and may reallocate capital if managers reduce sustainability efforts. It also highlights the increasingly precarious position managers find themselves in amidst shifting ESG pressures.
• Biden Administration’s Labor Department Wins ESG Fiduciary Rule Case – A federal judge upheld the Department of Labor’s (DOL) rule allowing fiduciaries to consider ESG factors in investment decisions when a tiebreaker exists between equally beneficial options. This decision reinforces the legitimacy of ESG integration in investment selection under ERISA.

Anti-ESG Momentum

• Wave of Anti-ESG State Legislation – Since the start of 2025, 48 new anti-ESG bills have been introduced across 18 states, aiming to restrict the use of ESG considerations in public pension funds and state investments. With Congress shifting conservative, federal anti-ESG legislation is also expected.
• Republican Officials Urge SEC and DOL to Ban ESG Considerations – A coalition of 22 Republican state finance officials formally requested that the SEC and DOL issue guidance prohibiting ESG and DEI factors in investment decisions, citing the American Airlines case as justification.
• Tennessee’s Landmark Settlement with BlackRock on ESG Disclosures – The Tennessee Attorney General reached a settlement with BlackRock, requiring enhanced transparency on proxy voting and investor communications regarding ESG integration. The settlement aims to ensure ESG claims are accurate and that investors knowingly opt into non-financially motivated strategies.

Silver’s Take: As stakeholders with different ESG preferences dig in their heels, we expect the onus to be on fund managers to evidence the rationale behind their responsible investment approaches. The mounting pressure on managers to accurately articulate and communicate their strategies will be a key theme in 2025. 

DEI: The Softening  

In the wake of the Trump Administration’s Executive Order, DEI activities continue to be targeted at the federal and state levels:

Trump Administration and Red States Target Corporate and Federal DEI Programs

In January, President Trump issued an Executive Order (EO) directing federal agencies and contractors to dismantle their DEI policies. This order revokes earlier EOs on topics such as diversity and equal opportunity from previous administrations and encourages corporate America “to end illegal discrimination and preferences, including DEI.” Under the new Executive Order, the Attorney General is now tasked with identifying, (i) key sectors of concern; (ii) the most egregious and discriminatory DEI practitioners; and (iii) a plan for specific steps or measures to deter DEI programs or principles that constitute illegal discrimination or preferences for potential regulatory action.

Despite this EO, in February, Apple shareholders overwhelmingly rejected a proposal urging the company to eliminate DEI initiatives. 

In contrast, companies such as BlackRock, Citigroup, Meta and Alphabet have all retrenched on their DEI strategies in recent months in response to this new enforcement risk. 

BlackRock, once a major proponent of DEI, removed all references to its DEI strategy from its annual report. In addition, Carlyle, Ares and others removed significant references to DEI from their annual 10-K filings. Furthermore, Citigroup has scrapped its DEI hiring targets, while Meta and Alphabet ended diversity interview and hiring mandates. 

At the state level, pressure has begun building for companies to end their DEI policies and initiatives. As examples, Texas’ Attorney General, alongside 19 other states, launched a pressure campaign aimed at Costco due to its decision to retain its DEI program. In Florida, the Attorney General filed a lawsuit alleging that Target’s DEI priorities have led to poor performance and, as a result, that the retailer has misled and defrauded investors on the basis of certain DEI/social initiatives. 

Board Diversity Rules 

On January 21, 2025, Nasdaq filed a proposal with the SEC to repeal its board diversity disclosure rule, which previously required Nasdaq-listed companies to either have at least two diverse directors or explain why they did not. The SEC approved the rule change, which went into effect on February 4, 2025. 

Further, Institutional Shareholder Services (ISS), a leading proxy advisory firm, has indefinitely halted consideration of board diversity in its director election recommendations as of February 25, 2025. 

Silver’s Take: Amid escalating federal and state scrutiny, DEI programs face mounting legal and political risks. Yet, as DEI-related terms change rapidly, many institutions have indicated their ongoing commitment to these efforts will not change. We believe it is prudent to review DEI (or similar) practices with a close eye on the most recent EO to ensure initiatives do not expose a firm to unnecessary legal scrutiny. Investors and stakeholders are watching these actions closely. Any DEI-related commitments should be reviewed ahead of program or disclosure changes. 

Reminders on Up-Coming Deadlines:

Investment advisers should be aware of several key ESG and regulatory filing deadlines approaching in 2025. Below are upcoming deadlines to keep in mind:

PRI Transparency Reporting:

• Deadline: Estimated for late July 2025, but PRI is expected to announce the reporting window soon.
• Partial Reporting or Full Reporting: PRI alerted all Signatories to their reporting obligations on December 12, 2024. Regardless of whether partial or full reporting is required, the deadline will remain the same for both reporters.

Corporate Sustainability Reporting Directive (CSRD) Reporting:

Based on the European Commission’s February 26, 2025, proposal, CSRD requirements are expected to be postponed by two years for entities that were originally scheduled to first report on fiscal years 2025 and 2026.

• 2025 Reporters: No change to reporting and entities originally scheduled to report for fiscal year 2024 (by 2025) must still proceed as planned.

SFDR Periodic Reporting: 

• Deadline: June 30, 2025 (for funds with fiscal year ending December 31, 2024).

• Firms with products registered under Article 8 or Article 9 must submit periodic disclosures prepared under Annex IV of the SFDR by June 30, 2025. Periodic reports should contain updates on the performance of E and S characteristics, as well as other allocation information. 

Conclusion

Q1 2025 brought about major developments in global ESG and DEI regulation. As we move into Q2, the Silver ESG team encourages private fund managers to, among other things: (i) stay current on evolving U.S., EU and UK rules; (ii) review ESG and DEI policies, investment strategies and disclosures to ensure they align with current legal and regulatory expectations; and (iii) engage with investors and stakeholders on their approach to material ESG considerations, when possible.

We will continue to monitor and share key regulatory updates. For questions, reach out anytime at  [email protected].