Governance & Sustainability Roundup – June 17, 2026

Welcome to our Governance & Sustainability Roundup — Our regular briefing that gives a quick overview on what has recently happened in the world of governance and sustainability that may be of interest to your company, your executive team, or your board. This is a fast-evolving space and we hope to share brief highlights with you on a regular basis. V&E continues to monitor these developments and is happy to discuss any of these updates in more detail, so please reach out with any questions.

Key Developments You Should Know

• California SB 253: First GHG Emissions Reports Due August 10
• FTC Settles AI Washing Charges for Nearly $1 Million
• EEOC Issues New National Enforcement Plan with Focus on DEI
• Omnibus Proposal Dramatically Reduces Non-EU Companies in Scope of CSRD
• Environmental Groups Sue to Enforce Stricter California Plastic Packaging EPR Regulations
• Second Circuit Affirms Decision to Dismiss Gap Investor Suit
• Supreme Court Rejects Financial Harm Requirement for SEC Disgorgement
• State Officials Clash Over Credit Ratings and ESG Factors
• FCA Proposes Practical Amendments to Climate Disclosure Requirements

California SB 253: First GHG Emissions Reports Due August 10

The first reports under California’s Climate Corporate Data Accountability Act (“SB 253”) are due August 10, 2026 — less than two months away. Companies subject to the law should be finalizing their Scope 1 and Scope 2 greenhouse gas (“GHG”) emissions disclosures now.

For the 2026 reporting cycle, covered entities must disclose Scope 1 (direct) and Scope 2 (indirect, purchased energy) GHG emissions for their prior fiscal year, in conformance with the GHG Protocol Corporate Accounting and Reporting Standard (“GHG Protocol”). Scope 3 (value chain) emissions reporting begins in 2027. The California Air Resources Board (“CARB”) has published an optional reporting template to help streamline submissions, particularly for first-time reporters.

CARB has indicated it will exercise enforcement discretion for the initial reporting cycle. Companies may submit Scope 1 and Scope 2 data based on information they already had on hand or were collecting when CARB issued its December 2024 Enforcement Notice, whether or not the data received limited assurance. Companies that were not collecting emissions data at the time of the Enforcement Notice may submit a short statement explaining non-collection rather than emissions data. Third-party assurance is not required for the 2026 cycle, though limited assurance for Scope 1 and 2 will be expected beginning in 2027.

Although a constitutional challenge led by the U.S. Chamber of Commerce remains pending before the U.S. Court of Appeals for the Ninth Circuit, the court previously declined to enjoin SB 253, even as it granted an injunction pausing enforcement of the companion climate risk disclosure law, SB 261. While it is possible that SB 253 will become enjoined closer to the August 10, 2026 date, it is not certain, and SB 253 therefore remains fully in effect and enforceable. Companies should confirm whether they (or any subsidiaries) meet the revenue and “doing business” thresholds, and begin compiling Scope 1 and Scope 2 data consistent with GHG Protocol standards — using CARB’s optional template where helpful. Companies should also begin planning for Scope 3 reporting in 2027, including supplier engagement and data readiness. In the M&A context, buyers and sellers should assess SB 253 obligations as part of diligence, particularly where a target’s revenues, footprint, or corporate structure may trigger or alter reporting requirements.

For further discussion of the legal challenges and regulatory developments surrounding California’s climate disclosure laws, see our prior V&E insights: Ongoing Legal Battle Over California’s Climate-Related Disclosure Laws and SCOTUS Asked to Block California Climate Laws Ahead of Pending SB 261 Compliance Deadline.

FTC Settles AI Washing Charges for Nearly $1 Million

On May 21, 2026, the Federal Trade Commission (“FTC”) announced settlements with three marketing firms accused of making deceptive claims about purported “AI-powered” advertising services. According to the FTC, the companies marketed a technology that used artificial intelligence (“AI”) to identify and listen to consumer conversations through smart devices and apps, and then used that information to help clients target advertisements in particular geographic areas.

The FTC alleged, however, that the advertised technology did not operate as described. Rather than using AI to analyze voice data or identify relevant conversations, the companies allegedly just provided customers with email lists obtained from data brokers at a significant markup. Additionally, the FTC contended that the companies deceived potential customers by claiming that consumers had opted into its listening services when no such consent was obtained — if the services had functioned as advertised, according to the FTC, it would have collected voice data without consent and resulted in additional FTC violations.

The settlements serve as a reminder that “AI washing,” i.e., making false and misleading statements about AI capabilities, remains an enforcement risk even in the current regulatory environment. Companies should carefully vet and substantiate claims and disclosure regarding “AI-enabled” or “AI-powered” products or services and provide additional explanations and/or disclaimers regarding such products and services when appropriate. Implementing and maintaining robust AI governance, including controls and procedures, can help companies mitigate these risks.

EEOC Issues New National Enforcement Plan with Focus on DEI

On June 4, 2026, EEOC Chair Andrea R. Lucas issued the agency’s National Enforcement Plan for Fiscal Years 2025–2029 (the “NEP”), replacing the prior administration’s strategic enforcement plan and describing a shift in enforcement priorities. While the full scope of the NEP is beyond the scope of this Roundup, the NEP makes clear that the EEOC will continue to focus on “diversity, equity, and inclusion” (“DEI”) policies, programs and practices, which it says are “often adopted by large corporations . . . and other . . . institutions.” The NEP states that the EEOC intends to prioritize pursuit of disparate treatment claims arising from DEI programming, identifying specific DEI-related practices in the NEP that it intends to prioritize, including “race- or sex-based quotas, including practices labeled ‘aspirational goals’”, “diverse slate” and “diverse hiring panel” policies, executive compensation “tied to employee . . . demographic . . . or . . . diversity goals”, and limitations on access to mentorships and “fringe benefits” based on protected characteristics. 

In addition to combatting unlawful DEI practices, the NEP further identifies the following enforcement priorities: (1) protecting American workers from “anti-American national origin discrimination;” (2) defending women’s rights to single-sex intimate spaces at work and workers’ rights to express the binary nature of sex; and (3) protecting workers’ religious liberty rights to receive religious accommodations and be free from religious discrimination, harassment, and related retaliation.

Since President Donald Trump took office in January 2025, DEI-related initiatives have come under significant scrutiny, and the NEP is further evidence of this administration’s focus on DEI-related policies, programs and procedures. For boards and governance practitioners, the implications are direct. The NEP’s nationwide enforcement model allows EEOC headquarters to reassign and consolidate priority charges across districts, meaning routine matters can escalate quickly into coordinated national investigations. As a result, companies should conduct privileged audits of DEI-related programs, review executive compensation structures, and consider whether additional review is necessary in light of the NEP.

Omnibus Proposal Dramatically Reduces Non-EU Companies in Scope of CSRD

The European Financial Reporting Advisory Group (“EFRAG”) has indicated that the EU’s Omnibus simplification package would significantly reduce the number of non-EU companies subject to the Corporate Sustainability Reporting Directive (“CSRD”) from approximately 10,000 companies to about 1,200. This reduction stems from a change in scope of the CSRD pursuant to the Omnibus package that would raise the net revenue requirement for non-EU companies to €450 million from €150 million.

EFRAG has also begun developing sustainability reporting standards for non-EU groups (“N-ESRS”) and is expected to release its draft standard for consultation in July. EFRAG announced that the draft will require non-EU companies to disclose sustainability‑related impacts, but not the risks and opportunities that EU companies must disclose. The N-ESRS will consist of 12 standards and four reporting areas. EFRAG has invited companies to participate in a field test for the July draft. Registration for the field test closes on July 1, 2026.

Environmental Groups Sue to Enforce Stricter California Plastic Packaging EPR Regulations

On June 2, 2026, three environmental organizations filed a petition and complaint in San Francisco Superior Court challenging the final regulations implementing California’s Plastic Pollution Prevention and Packaging Producer Responsibility Act (“SB 54”). The suit does not challenge the statute itself — signed into law in 2022 as the nation’s first comprehensive extended producer responsibility (“EPR”) program for packaging — but rather the permanent implementing regulations adopted by the California Department of Resources Recycling and Recovery (“CalRecycle”), which took effect May 1, 2026.

The plaintiffs allege that CalRecycle’s final regulations create unauthorized loopholes that undermine SB 54’s core mandates in various respects:

1. Exclusions for large categories of plastic packaging. The regulations allegedly exempt certain categories of covered products from the law’s reduction and recycling requirements, allowing those materials to escape regulation altogether.

2. Indefinite federal preemption exemptions. Under the regulations, a producer can claim that federal law preempts California’s requirements and receive an exemption without any deadline for CalRecycle to review or act on the claim.

3. Failure to exclude polluting recycling technologies. SB 54 requires CalRecycle to exclude plastic recycling technologies that produce significant amounts of hazardous waste. The plaintiffs contend the regulations instead allow such technologies to count as recycling as long as the facility holds a permit, regardless of the quantity of hazardous waste produced.

The lawsuit adds a layer of regulatory uncertainty for the more than 5,700 producers CalRecycle estimates are subject to SB 54. Key compliance deadlines are already in effect: Producers were required to register with the Circular Action Alliance or CalRecycle by June 1, 2026, with annual supply data reports and fees to follow. If the court sides with the plaintiffs, CalRecycle could be ordered to tighten the regulations, potentially narrowing available exemptions, restricting certain recycling technologies, and expanding the scope of covered materials — all of which could increase compliance costs and operational complexity for affected producers. Companies with plastic packaging, companies in the waste and recycling value chain, or entities with broader sustainability compliance obligations should monitor this litigation, both for its direct impact on California’s EPR program and as a potential bellwether for regulatory challenges in the growing number of states with packaging EPR laws.

Second Circuit Affirms Decision to Dismiss Gap Investor Suit

On May 28, 2026, the U.S. Court of Appeals for the Second Circuit upheld the dismissal of a proposed class action alleging that clothing retailer Gap, Inc. (“Gap”) and two of its senior executives violated Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5. See Smith v. Gap, Inc.,—F.4th—, 2026 WL 1502033 (2d Cir. May 28, 2026). Among other supposed misstatements, the plaintiffs premised their claim in part on an alleged Item 303 omission: Gap’s plus-size clothing initiative “Bodequality” purportedly had an “unfavorable impact on net sales and revenues,” so the failure to disclose that impact made its statement that Bodequality was a “key initiative” materially misleading. In rejecting this claim, the Second Circuit looked to the Supreme Court’s 2024 Macquarie Infrastructure Corp. v. Moab Partners, L.P. decision, which held that “the failure to disclose information required by Item 303 can[not] support a private action under Rule 10b-5(b)” unless the failure renders any “statements made” misleading.¹ Under Macquerie, the Gap plaintiffs’ theory failed because sales and revenue had “no bearing on whether Bodequality was a ‘key initiative’ intended to ‘expand customer reach.’” Accordingly, the Second Circuit affirmed dismissal of the claims.

This decision emphasizes the hurdle placed by Macquarie: A plaintiff must establish that an omission made affirmative statements misleading for a Section 10(b) claim to survive a motion to dismiss. Pure omissions cannot alone sustain a Section 10(b) or Rule 10b-5 claim.

Supreme Court Rejects Financial Harm Requirement for SEC Disgorgement

In its June 4, 2026 decision, the United States Supreme Court held that the U.S. Securities and Exchange Commission (“SEC”) could seek disgorgement in enforcement actions without needing to provide evidence of financial harm to investors. The decision marked a significant win for the SEC, following a series of recent decisions limiting the SEC’s enforcement and remedial powers. The case involved a “pump-and-dump” scheme by which the plaintiff and his co-conspirators acquired shares of penny stocks, promoted the companies to artificially inflate their prices, and then sold the shares at a profit. The plaintiff challenged the $4.1 million disgorgement order, arguing that the SEC failed to present evidence that victims of the alleged scheme suffered any pecuniary loss. In its unanimous decision, the Supreme Court resolved a circuit split, finding that evidence of financial harm is not required to justify a disgorgement order. Writing for the Court, Justice Neil Gorsuch relied on historical precedent and reasoned that equitable remedies have long been used to “deprive wrongdoers of their net profits from unlawful activity,” regardless of whether a victim was financially harmed by the defendant’s conduct. The Court explained that, so long as victims suffered an infringement of their legal rights, disgorgement may be ordered to strip defendants of their ill-gotten gains. While the decision marks a shift in challenges to the SEC’s exercise of its remedial powers, further litigation defining the bounds of disgorgement as an enforcement remedy are expected.

State Officials Clash Over Credit Ratings and ESG Factors

Democratic government officials have pushed back on recent claims made by Republican attorneys general (the “AGs”) that certain credit rating agencies engaged in downgrades based on speculative environmental, social, and governance (“ESG”) assumptions that never materialized. As described in more detail here, on April 22, 2026, Republican AGs from 23 states sent a letter to Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings contending that the agencies made “ESG-driven” downgrades that harmed fossil-fuel producing states and consumers, and demanding that the agencies take several actions, including certifying internal controls to prevent ESG from influencing credit determinations.

In a letter dated May 20, 2026, several financial officials from various Democratic states and localities pushed back, arguing that the Republican AGs mischaracterized the role of credit ratings and that their requested actions “would narrow risk analysis in ways inconsistent with sound credit practice and the needs of investors and issuers.” The officials asserted that, to be useful, credit ratings must be independent, forward-looking, and grounded in comprehensive risk analysis, which requires use of professional judgment on forward-looking factors such as long-term structural trends. According to the officials, differences in outlooks and assumptions just reflect the reality of proper credit analysis, and limiting analysis to fully realized developments would be harmful to ratings. The officials therefore urged the agencies to avoid “abrupt” changes in response to external pressures or ideological considerations that could undermine confidence in the ratings.  

This letter is the latest example of competing positions among state and local officials on sustainability-related matters, and the difficult compliance landscape faced by companies that work across states (and in some cases, internationally). As these debates continue, companies face a complex, and at times conflicting, landscape of expectations from different jurisdictions and stakeholders.

FCA Proposes Practical Amendments to Climate Disclosure Requirements

The UK’s Financial Conduct Authority (“FCA”) has proposed a simplification to climate disclosures for asset managers, life insurers, and FCA-regulated pension providers by moving away from reporting based on Taskforce on Climate-related Financial Disclosures (“TCFD”) recommendations and moving towards new outcomes‑based rules. For retail investors, firms would be required to periodically disclose climate risks and opportunities that would be materially relevant to the financial performance of a product, service or enterprise. For institutional clients, firms would be required to provide scope 1, 2, and 3 GHG emissions data on an annual basis, only as requested by clients. The FCA estimates the new rules would save firms approximately £20 million ($27 million USD) per year.

The FCA has undertaken these changes following reviews that showed retail investors were becoming disengaged with current TCFD-based reporting that was overly complex and institutional investors preferred direct engagement with firms. The new proposal is designed to allow disclosures to better meet retail and institutional investor needs while decreasing the regulatory burdens on financial firms.

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.

¹Macquarie Infrastructure Corp. v. Moab Partners, L.P., No. 22-1165, 601 U.S. 257, 266 (Apr. 12, 2024).

This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.