Environmental, social and governance (ESG) compliance is entering a new phase: one less about voluntary disclosure and more about corporate accountability, risk management, shared responsibility across the value chain, and global regulations. And the changes are coming at a rapid pace.
To keep the industry up to speed, the American Apparel & Footwear Association (AAFA) gathered sustainability and climate experts from BSI Consulting for a webinar to unpack the rapidly evolving ESG landscape facing apparel and footwear companies.
Leaders emphasized that despite anti-ESG rhetoric in the U.S., most global stakeholders along the value chain are still pushing ahead with social/environmental accountability. Companies are increasingly expected to understand, measure, disclose and manage sustainability-related risks. Ignorance is no excuse for non-compliance.
From climate disclosure frameworks and greenhouse gas accounting to digital product passports (DPP) and packaging regulations, the webinar covered a lot of ground, highlighting a shift in how organizations approach ESG readiness for 2026 and beyond.
“There’s obviously a relationship between the regulations and the standards. Many regulations point to standards, reference them on how to produce the reporting or the business activity that is described in detail in the regulations,” said Ryan Lynch, global practice director for sustainability for BSI Consulting, a founding member of the British Standards Institution.
From Disclosure to Accountability
ESG reporting traditionally focused largely on disclosure, with companies responding to stakeholder expectations with published sustainability reports documenting risks. Now, regulators, investors, insurers and customers demand evidence that companies are actively managing those risks and embedding sustainability into governance and strategy.
“There’s a shift from simply identifying risks to demonstrating due diligence, resilience and value creation,” said Lynch.
IFRS S1 and S2 Become the Global Baseline
One clear trend is the growing influence of the International Sustainability Standards Board (ISSB) framework, particularly the IFRS S1 and IFRS S2 standards.
Originally issued in 2023, the standards were created to form a consistent global baseline for sustainability-related financial disclosures for the investor and capital market audience. Shanayia Munoz, consultant, sustainability strategy & ESG reporting for BSI Consulting, described IFRS S1 as the “umbrella” sustainability disclosure standard, focusing on risks and opportunities that could affect enterprise value, financial performance or access to capital.
And as countries like Canada, Australia, the UK, Singapore and several others are actively integrating ISSB into their regulatory approaches, IFRS is “rapidly becoming the global foundation for investor-focused sustainability reporting,” she said.
Meanwhile, IFRS S2 focuses specifically on climate-related disclosures, requiring scenario analysis and resilience testing, and pushing organizations to evaluate how their business models perform under different climate futures.
CSRD Narrows
The European Union’s Corporate Sustainability Reporting Directive (CSRD) also bears understanding.
Originally viewed as one of the most expansive ESG disclosure regimes ever introduced, CSRD mandates organizations report on sustainability impacts, risks and opportunities (IROs) via “double materiality.” This means not just evaluating how sustainability issues affect their financial performance, but how they impact people and the environment as well.
The initial scope obligated reporting for approximately 50,000 companies, including many non-EU businesses with substantial European operations. However, the EU’s Omnibus simplification package, introduced in February 2025, significantly reduced the number of companies falling within scope by 80%.
Among the most significant changes:
- CSRD thresholds increased to companies with more than 1,000 employees
- Reporting deadlines delayed by two years for many organizations
- Sector-specific reporting standards removed
- SME reporting moved to voluntary
- Large non-EU companies with significant EU activity have modified, not eliminated, scope
- Introduction of a “value-chain cap”
- Assurance requirements retained at “limited assurance” rather than escalating to “reasonable assurance”
Despite such adjustments, “the core concepts of CSRD still remain,” Munoz noted, including double materiality, governance disclosures, value-chain reporting and sustainability risk management. As a result, many organizations continue to move ahead with materiality assessments, governance structures and ESG data systems.
California SB 253 Raises Carbon Reporting Stakes
On the carbon/greenhouse gas (GHG) front, one of the biggest near-term compliance challenges facing companies is California’s SB 253 climate disclosure law. The regulation applies to companies with more than $1 billion in annual revenue and over $735,000 in California sales, and those deemed “in scope” must file their 2025 GHG reports by August 10 of this year.
Initially, reporting requirements focused on Scope 1 (direct operational emissions) and Scope 2 (purchased electricity and energy emissions). Scope 3 (emissions throughout the broader value chain) reporting rules are to be determined, contingent on California’s Air Resources Board (CARB) rulemaking. Overall, non-compliance can trigger fines of up to $500,000 annually.
Lynch emphasized, however, that regulators are “signaling flexibility” during the first reporting year, particularly for companies still building internal reporting systems. “They’re looking for good-faith efforts,” he said, acknowledging the complexity involved in establishing enterprise-wide emissions accounting programs.
GHG Protocol Undergoing Major Overhaul
There are also major revisions coming to the Greenhouse Gas Protocol, a global accounting standard framing most corporate emissions inventories and established in 2015.
One of the biggest proposed changes involves Scope 2 emissions accounting and renewable energy claims. Under the draft revisions, companies can only account for clean power purchases if the electricity is produced in the hour they consume it, and on a local electric grid that can physically serve their facilities. This would significantly restrict the use of unbundled Renewable Energy Certificates (RECs), which many organizations currently rely on to offset emissions.
“Unbundled RECS are generally less expensive, and they’re also more flexible, so if you’re currently reliant on lots of these types of market-based instruments, then you’ll want to follow this closely as it goes through the draft process,” said Lynch. The standard is scheduled to be released by 2027 and then phased in.
Net Zero Targets Become More Rigorous
While the GHG Protocol is a framework around producing inventory, the global Science Based Targets initiative (SBTi) is a standard to define “setting a target to reduce emissions leading all the way up to 2050,” said Lynch.
SBTi is also tightening requirements for corporate net zero commitments. Under proposed updates to the Corporate Net Zero Standard, organizations will face more rigorous expectations around transition planning, governance oversight and annual progress reporting.
Key changes include: board approval replacing a letter of intent; separate reduction targets for Scope 1, 2, and 3 emissions; greater flexibility for Scope 3 category-specific targets; more detailed supplier and customer expectations; and circularity and low-carbon product targets incorporated into reporting pathways.
Here, companies are expected to not just announce targets, but to show how they will achieve them.
Climate Risk Reporting Continues Despite Regulatory Uncertainty
Although certain U.S. climate disclosure regulations remain paused or contested, webinar speakers cautioned companies against assuming that climate risk reporting is disappearing. California’s SB 261 climate risk reporting rule is currently delayed pending litigation, while the SEC climate disclosure rule has also been stayed.
However, Gouri Ganbavale, senior consultant for climate risk and resilience at BSI Consulting, stressed that banks, insurers, investors and international customers increasingly expect organizations to demonstrate climate resilience and preparedness, regardless of regulatory uncertainty.
“Given the uncertainty in U.S. climate disclosure rules, many companies are looking toward the global baselines, especially the IFRS S1 and S2 to meet growing investor, customer and cross-border expectations,” she said.
After all, climate risk management is increasingly becoming “a business continuity and access-to-capital issue,” not simply a compliance exercise. For insurers, climate risk exposure can directly influence premiums and coverage availability, while for lenders, vulnerabilities may affect creditworthiness assessments.
Product and Packaging Compliance Expands
Sustainability regulation is also expanding beyond corporate reporting and into more detailed product-level data. “The main theme is product-specific and packaging compliance is moving beyond plastic waste reporting, so companies are increasingly expected to know what they sell and what they’re made out of where it goes, who’s responsible for it and what evidence supports that information,” said Ethan Redden, associate consultant for circularity and carbon reduction at BSI Consulting.
He highlighted several emerging regulations reshaping product and packaging compliance, including: Extended Producer Responsibility (EPR), Packaging and Packaging Waste Regulation (PPWR), Ecodesign for Sustainable Products Regulation (ESPR) and Digital Product Passports (DPPs).
Under EPR laws, organizations must increasingly identify packaging materials, determine producer responsibility, report packaging weights and pay eco-modulated fees tied to recyclability. Meanwhile, the EU’s PPWR establishes long-term requirements around recyclability, reuse, labeling and recycled content.
While the webinar covered a lot of ground, one theme is non-negotiable, said Lynch: “Companies must focus on establishing an effective management system to understand and manage these risks, impacts and opportunities, and then tie it to organizational value—in the language of the CFO.”
Digital Product Passports may prove even more transformative. Far beyond a simple QR code, DPPs are designed to provide structured product-level information covering material composition, durability, repairability, recycled content and recyclability, concerning substances and end-of-life handling.
“The common thread is data,” Reddin said, noting that it’s now key to centralize product information that might now sit across sourcing teams, suppliers, compliance systems and design functions. “Regulators are asking companies to understand products and packaging in much greater detail.”
Build Systems, Don’t Chase Regulations
Despite the volume of new or changing requirements, speakers stressed that organizations should not treat ESG compliance as disconnected reporting exercises.
Rather, companies should build integrated management systems that support multiple frameworks simultaneously. This means investing in strong governance structures, centralized ESG data systems, cross-functional coordination, supplier engagement, climate risk assessment capabilities, and enterprise-wide reporting readiness.
“If we focus on understanding and managing risks, impacts and opportunities—and tie that to organizational value—companies will be in a much stronger position,” Lynch said.
