The U.S. federal government approach to the energy transition and climate risk will change under the new administration, but with global, state, and market influences also at play, business impacts remain. In this edition of BDO Knows Sustainability, we share insights on presidential impact on the energy transition and climate risk, key sustainability regulations impacting U.S. business in 2025, and a new How-To feature, focused this quarter on how to conduct a double materiality assessment (along with why your business may want to).
FEATURED INSIGHT
Presidential Impact on the Energy Transition and Climate Risk
With a new U.S. president who holds majorities in both chambers of Congress, expect to see a different approach to policies related to the energy transition and climate risk. Now that the new administration is underway, here are a few important areas to watch.
Tax Credits and Incentives
The Inflation Reduction Act (IRA) clean energy tax incentives and transferability mechanism has helped drive over $230 billion in energy manufacturing investment in the U.S. While there has been talk of rolling back the entire IRA, lawmakers on both sides of the aisle are advocating for using “a scalpel rather than a sledgehammer” in determining changes. In fact, 80% of clean energy projects funded through the IRA have been in red states, and oil and gas companies have benefited from carbon capture incentives. So expect to see incremental changes over time. As the demand for energy is expected to double by 2030, investment in clean energy continues to gain momentum.
Reporting Mandates
While the U.S. federal regulatory landscape may be uncertain, international and state-level directives are driving transformative changes in how companies report on climate-related financial risks. The EU’s Corporate Sustainability Reporting Directive (CSRD) and California’s climate rules (while under legal challenge) will require many U.S. businesses to disclose and obtain assurance over certain sustainability information. Additionally, emerging extended producer responsibility (EPR) regulations introduce a new dimension of compliance requirements, mandating detailed disclosures on the environmental impacts of some consumer products and holding manufacturers and producers accountable for managing their products' end-of-life phase.
Energy Transition
New policies are likely to focus on promoting a broad supply of energy sources, including oil and gas, to meet growing demand. But renewables have proven to be low-cost solutions and continue to grow their share of energy production. If interest rates continue to drop, investment in renewable energy sources will become more affordable. However, new tariffs on imports may impact sourcing costs and availability of rare minerals needed for solar, batteries, and electric vehicles. Infrastructure and permitting for new projects – both clean energy and traditional – continue to be a barrier that the new administration will need to address.
Market, Global, and State Influence
While the previous administration focused on clean energy incentives and net zero goals, the new administration has signaled a focus on meeting energy demand. That said, market forces, geopolitical concerns, and the broad regulatory landscape are all likely to play a role in shaping the story for the upcoming year.
REGULATIONS & STANDARDS
Key Sustainability Regulations Shaping Business in 2025
U.S. businesses will navigate an increasing number of sustainability-related compliance requirements, both at home and abroad. Here’s a look at a few to prioritize this year.
1. EU’s CSRD Has Extensive U.S. Impact
There are several scenarios under which U.S. businesses, and/or their subsidiaries, would need to report under the EU’s CSRD, which requires compliance with the EU Taxonomy and the European Sustainability Reporting Standards (ESRS), and mandates third-party assurance. Compliance continues to phase in for some entities for fiscal year 2025 (reports due in 2026). Also of interest to U.S. businesses, in Q1 2025, EFRAG will launch a public consultation on the draft reporting standards for non-EU groups who must report in fiscal year 2028 (reports due in 2029).
Why It Matters: With its extensive requirements and broad reach, the CSRD has global impact. Businesses that are in scope, or that are part of related supply chains, may be asked to disclose and obtain assurance over new sustainability-related information. As reporting processes and controls take time to establish, businesses should make CSRD compliance a priority.
2. California Emissions Reporting Requires 2025 Data
California’s emissions disclosure law (SB 253) requires businesses to report and obtain assurance over greenhouse gas data for fiscal year 2025 (reports due in 2026). However, some scoping details still need to be worked out in the regulations. The California Air Resources Board (CARB) has until July 1 to release implementation guidance. As reports will still be due in 2026, it’s important for organizations to start preparing sooner rather than later.
Why It Matters: Businesses may need to establish new processes, systems, and controls to fulfill reporting requirements, and time is running out to do so. CARB seemed to acknowledge the time crunch in a recent enforcement notice that stated it wouldn’t issue penalties in the first reporting year to those acting in good faith but urged businesses to “move toward full compliance as quickly as possible.” This does not reflect an extension of the compliance deadline but rather an understanding that comprehensive reporting will take time.
3. CBAM Compliance Continues to Ramp Up
The EU’s Carbon Border Adjustment Mechanism (CBAM) will require EU importers to pay a tax on the emissions released during the production of certain goods manufactured outside the EU (cement, iron and steel, aluminum, fertilizers, electricity, and hydrogen). Non-EU manufacturers are required to provide this emissions data to the EU importer, and they will need to carry out robust monitoring, reporting, and verification processes. CBAM is now in the final year of its transitional phase, with full implementation and data assurance going into effect in 2026.
Why It Matters: CBAM costs for EU importers will be determined by the volume of emissions in their covered imports, and it may be advantageous to examine their supply chain to determine if lower carbon-intensive alternatives are available. To maintain EU market access, U.S. manufacturers and producers will need to establish controls and processes in reporting and verifying their emissions data. These U.S. manufacturers may gain a competitive advantage by supplying goods with lower and transparent carbon footprints.
HOW TO SERIES
How To Conduct a Double Materiality Assessment
Learn what a double materiality assessment is and how it can inform business strategy.
What is a double materiality assessment?
A double materiality assessment is a process that helps identify the issues that matter most to a company and its stakeholders. It considers both the influence that sustainability-related factors have on a company’s financial risks and opportunities (financial materiality) and the impacts that a company has on the environment and people (impact materiality).
How do you conduct a double materiality assessment?
The double materiality assessment process typically includes both workshops and desktop research to determine a company’s impacts, risks, and opportunities, which are then presented in a consolidated list of top priorities.
BDO’s approach to double materiality prioritizes efficiency by streamlining the analysis to include both financial and impact materiality in a five-step assessment process. To help a company identify its final list of material topics, we incorporate peer performance and the viewpoints of business units across the client’s organization, value chain, and external stakeholders.
Why does double materiality matter?
While corporate reporting has traditionally focused on financial materiality, there is growing consensus that sustainability reporting should be driven by issues that impact both a company’s dependencies on natural and social resources as well as its impacts (both positive and negative) on the environment and society. A company may also be able to strengthen its risk management planning and build a more resilient business strategy by identifying its broader spectrum of material issues, on top of addressing any compliance requirements.
Contact Us
Whether you are starting your sustainability journey, seeking assurance on your reporting, need help with tax transparency and credits, or other services, BDO Sustainability & ESG services and solutions can help.