Meeting Fiduciary Duty in a Changing Sustainability Landscape

In an era of regulatory whiplash, boards must anchor sustainability oversight in risk, resilience, and long-term value. 

Oversight in a Time of Uncertainty

Corporate directors are operating in a time of extraordinary uncertainty. In addition to geopolitical and economic upheavals, the rules governing sustainability and climate disclosure are in flux across every major market. In the United States, the Securities and Exchange Commission’s climate rule has been stayed pending judicial review, leaving companies without clear federal direction. At the same time, California pressed forward with landmark legislation—Senate Bills 253 and 261—requiring greenhouse gas and climate-related financial risk disclosures from large companies doing business in the state. Those laws, like the SEC rules, are being challenged in court. New York, New Jersey, Colorado, and Illinois each introduced similar bills in their latest legislative sessions and are expected to revisit them in 2026.

Across the Atlantic, Europe’s Corporate Sustainability Reporting Directive is now being partially rolled back through the European Commission’s omnibus proposal, delaying it and reducing its reach and scope. Yet even as Europe recalibrates, the International Sustainability Standards Board (ISSB) is accelerating in the opposite direction: its new global disclosure standards are being adopted or considered in roughly 40 jurisdictions, from the United Kingdom and Canada to Japan and Singapore.

Layered on these shifts, in 2025, more than 100 anti–environmental, social, and governance bills have been introduced at the state level. These include bills that would prevent state treasurers or pension fund trustees from considering environmental, social, and governance (ESG) factors in their investment selection; “antiboycott” bills prohibiting state officials from investing with firms that boycott sectors such as fossil fuels or firearms; prohibiting the consideration of ESG factors in state procurement decisions; and restricting universities’ integration into their investment policies, hiring, or curricula.

This convergence of expansion and retrenchment has created a regulatory whiplash. For boards, it underscores a central truth: amid political volatility, the surest path forward is to stay grounded in fiduciary duty. Approaching sustainability through the lens of long-term risk management and value creation provides a steady course through the shifting political tides.

As a director who serves on public and private companies said: 

"The board must continue to focus on sustainability as a core tenet of long-term value creation and risk mitigation, even with the current regulatory quagmire."

The Fiduciary Lens: Sustainability as a Core Element of Oversight

Boards are responsible for ensuring that management considers short-term returns and material long-term risks and opportunities. Sustainability issues, from climate risk and supply chain resilience to human capital and data integrity, are squarely within that remit.

Framing sustainability oversight in fiduciary terms helps boards transcend the political noise. The question is not whether a company is “pro- or anti-ESG,” but whether it is prudently identifying and managing material risks and opportunities that could affect long-term enterprise value.

From Compliance to Foresight

Effective oversight requires boards to ensure their companies have the processes and procedures in place to ensure compliance with applicable laws and regulations. These are table stakes. Boards must also consider issues that are over the horizon and beyond immediate compliance obligations.  

Sustainability-related risks are multidimensional, spanning a range of issues such as climate, technology, geopolitics, talent attraction and retention, and reputation. These risks can be dynamic and interconnected, and they frequently evolve faster than traditional risk models.  

Leading boards engage in scenario analysis and horizon scanning, exploring how different regulatory or market outcomes could affect the company’s strategy, opportunities, and resilience. They ask how changing dynamics and demands of key stakeholders might present future market opportunities or business risks. They might inquire as to how future carbon-pricing mechanisms, resource constraints, or investor shifts might alter the economics of their business lines. They encourage management to run “future-fit” exercises that integrate material sustainability factors into capital allocation decisions and innovation.  

When done strategically and with a long-term outlook, this can be a value driver for companies. It can be an exercise in engaging management to understand what sustainability topics present material opportunities and risks over the short, medium, and long term. The process can also help management challenge and test their assumptions within various scenarios. Boards should have a good sense of how well prepared the management team is to mitigate future risks and capitalize on future opportunities. If management has not asked these questions and identified those areas of material risk and opportunity, it might well be time for them to engage on these issues, conduct peer benchmarking, customer benchmarking, and financial stakeholder engagement, and adopt a future-focused perspective.  

The Data Imperative  

Behind every sustainability disclosure lies data. Greenhouse gas emissions are a proxy for energy diversification and costs, physical property risk is a proxy for storm, fire, and environmental exposure, supplier information is a proxy for business interruption or brand exposure, and workforce and human capital metrics are a proxy for attraction and retention of talent. The challenge is not just collecting this data but managing and verifying it and understanding what the data means for your business. Equally important, ask management to report not only on the data they track to measure performance against metrics and goals, but what the data tells them about the performance of the business, its risks, opportunities, and prospects for the future.  

High-quality data enables boards and management to make informed decisions. Boards should expect management to establish robust systems for data governance, tracking, and monitoring. They should also have significant clarity as to why certain data is tracked, and what it reveals about the business.  

In this vein, boards should ask management how the company is deciding on the data it collects and how it is using this data. The actual power of sustainability information lies in the insights it provides—identifying inefficiencies, anticipating supply chain or operational interruptions, informing new product design, and guiding capital investment priorities. When data becomes a tool for strategy rather than a reporting burden, the company’s sustainability journey matures from compliance to competitiveness.  

Managing Political and Reputational Risk  

The current polarization around ESG poses reputational challenges on both sides of the debate. Some investors criticize companies for doing too little while others for doing too much. Boards must navigate this tension with consistency, authenticity, and integrity. 

The safest and strongest position is grounded in fiduciary duty. A board focused on long-term value, supported by reliable data, and anchored to business success, can clarify its positions regardless of local, national, or global political dynamics.  

Consistency between internal practices and external messaging is critical. If a company announces sustainability goals but lacks credible plans or data, it risks accusations of greenwashing. Conversely, silence on material sustainability risks can raise red flags with investors and regulators alike.  

Boards should hold management accountable for the accuracy and consistency of the company’s public statements, filings, and investor communications. These statements should align with their internal risk assessments and identification of material issues. Credibility is built not by rhetoric, but by evidence, consistency, and connection back to the business.  

The Board’s Call to Action  

The next few years will test companies’ ability to adapt to shifting rules while staying focused on value creation.  

Boards should begin by ensuring that sustainability data and governance receive the same rigor and attention that financial information does. This could entail engaging with the corporate secretary more specifically about regulatory and accounting issues, as well as with sales and marketing about sustainability performance. Customers are increasingly asking about this information; customers, investors, insurers, lenders, and regulators expect verification of sustainability data. The reporting of sustainability data is rapidly moving from a voluntary exercise to a license to operate. Boards should confirm that management is preparing for multiple regulatory outcomes at the federal, state, and international levels. Most importantly, they should frame the sustainability discussions in terms of enterprise value, asking how this issue affects our ability to create, preserve, or protect value over time.  

By asking these questions and insisting on clear, evidence-based answers, boards fulfill their fiduciary duty and help steer their companies through uncertainty toward durable success.  

Questions Directors Can Ask

Risk and Strategy

• How does management identify and evaluate potentially material sustainability-related risks and opportunities over the value chain?
• What core weather-related assumptions do we have about the performance of our supply chains, corporate infrastructure, and critical assets?
• How do these assumptions inform our strategy, risk assessments, and capital allocation decisions?
• Which company assets, future development plans, or critical supply chains are affected by climate change, and what are we doing about it?
• How well prepared is our management team to manage future risks and capitalize on future opportunities?
• Are we tracking costs to the company, including insurance premium changes, annual damages, or repairs due to extreme climate conditions such as floods, fires, or storms?

Governance Structure and Processes

• Is the full board or a particular committee best positioned to oversee the implications of sustainability for risk and strategy?
• What information does our board receive from management about sustainability?
• Does management present sustainability information in a way that facilitates board and management discussion of the connection to value creation for the business?
• How are sustainability considerations integrated into board and committee charters, annual calendars, and decision-making processes?

Sustainability Reporting Regulations and Voluntary Standards

• What is our company’s obligation to reporting regulations in the United States or overseas, in particular related to the EU?
• Do any of our key customers have reporting obligations that may cascade to us?
• As global standards converge toward the ISSB framework, have we considered reporting to this standard?
• How does our board stay informed about emerging or evolving sustainability disclosure requirements and their potential business implications?

Sustainability Data

• Has management established robust systems for data governance, tracking, and monitoring?
• Does our board understand why our company tracks specific sustainability data?
• What do the data and trends we monitor and report reveal about our business?
• How does management ensure the accuracy and reliability of sustainability data reported to stakeholders?

Stakeholder Engagement

• How do we meet the expectations of suppliers and customers regarding sustainability reporting, resilience, and opportunity?
• Has the company consistently communicated the underlying business drivers of resource efficiency, innovation, and cost management?
• Is the board involved with or aware of communication with investors on sustainability matters?
• How do we ensure credibility in our reporting and instill confidence in our approach to fundamental business-relevant issues?

Board Education

• How do directors stay informed about emerging sustainability issues relevant to our industry?
• Does the board periodically review the adequacy of its sustainability expertise or receive external briefings?
• Are we leveraging third-party perspectives or benchmarking to strengthen our oversight approach?
• How do we evaluate the board’s collective readiness to oversee complex, evolving sustainability risks?

NACD thanks Donna F. Zarcone and Leilani Latimer for sharing their expertise and insights for this report.