Sustainability and ESG Advisory Practice Update, July 2025

United States

One Big Beautiful Bill Act Signed into Law

On July 4, 2025, President Trump signed H.R. 1, also known as the "One Big Beautiful Bill Act" (the OBBB) into law. The OBBB includes a number of changes that significantly impact the energy and climate solutions sector. First, the OBBB accelerates the termination of or eliminates several renewable energy credits established under the Inflation Reduction Act of 2022 (IRA). The OBBB retains the IRA's transferability regime for eligible credits, subject to the timing of the underlying credit and limitations on who can purchase such credits. Finally, the OBBB introduces significant restrictions around certain foreign entities, which will not only impact who can invest in renewable energy projects, but also who can supply components and know-how to develop them.

For more information about OBBB, please find a link to our client alert here.

Preparing for SB 261: Climate-Related Financial Risk Disclosure Reports Due by January 1, 2026

The California Air Resources Board (CARB), the regulatory entity empowered to implement SB 261 and SB 253 (California Climate Bills), held a virtual public workshop in May 2025 and released FAQs in July 2025, to help companies prepare for compliance with upcoming compliance deadlines for the California Climate Bills, the first of which is January 1, 2026 for companies required to comply with SB 261. For practical next steps for companies, please see our client alert here.

U.S. Department of the Treasury (Treasury) and Internal Revenue Service (IRS) Release New Guidance on Energy Community Bonus Credit

On June 23, 2025, the IRS issued Notice 2025-31, which provides the latest guidance on eligibility for the energy community bonus credit as defined in Section 45(b)(11) of the IRC and related IRS guidance. The energy community bonus credit can be applied to Sections 48, 48E, 45, and 45Y of the IRC. For taxpayers claiming an investment tax credit (ITC) or a production tax credit (PTC) in an eligible energy community, the applicable ITC or PTC base credit percentage is increased by two percent, or 10 percent (a five-times multiplier) if the prevailing wage and apprenticeship requirements are met.

Notice 2025-31 provides new five new appendices to update relevant features of the statistical area category eligibility. The new appendices a) list additional counties that satisfy the fossil fuel employment threshold, b) list counties that satisfy both the fossil fuel employment and the unemployment rate criteria for eligibility as an energy community, and c) list additional census tracts that satisfy the coal closure category for eligibility as an energy community. The updates are effective from June 23, 2025, until the next annual update.

New Executive Order Indicates Forthcoming Guidance on Tech-Neutral Credits and Foreign Entity of Concern (FEOC) Restrictions

On July 7, 2025, President Trump issued an Executive Order (the Order) which directs the Secretary of the Treasury to enforce the termination of the Tech-Neutral Credits for wind and solar (i.e., the credits under Internal Revenue Code (IRC) Sections 45Y and 48E) by issuing new and/or revised guidance related to established beginning of construction rules. The Order also directs the Secretary to implement the enhanced FEOC restrictions included in the OBBB. Each action is to be taken within 45 days of the Order. Finally, the Order directs the Secretary of the Interior to revise regulations and policies to eliminate preferential treatment for wind and solar facilities over dispatchable energy sources.

California Legislature Modifies California Environmental Quality Act (CEQA) and State Housing Laws

On June 30, 2025, California Governor Gavin Newsom amended the CEQA by signing Assembly Bill 130 (AB 130) and Senate Bill 131 (SB 131) into law in conjunction with the state's budget package. AB 130 establishes a new method for developers to meet transportation-related CEQA requirements—contributing to a statewide mitigation fund—and both creates new and prolongs existing deadline requirements for agency decisions as to development projects. The bill also creates a new statutory exemption from CEQA for certain urban, low-acreage and high-density housing development projects based on nine qualifying criteria. SB 131 builds on this exemption by requiring the Office of Land Use and Climate Innovation to map urban sites in which projects would meet those nine criteria and further streamlines CEQA review for projects that fail to secure an exemption based on only one disqualifying condition. SB 131 also creates new statutory CEQA exemptions for certain other project types, including advanced manufacturing and high-speed rail facilities, with limitations based on the location and environmental context of such projects. These changes were immediately effective on June 30, 2025.

California Office of Administrative Law (OAL) Approves Amendment to Low Carbon Fuel Standard (LCFS)

On June 27, 2025, the OAL approved an amendment to the LCFS, which the CARB confirmed would become effective on July 1, 2025. The LCFS was approved in 2009, and initial implementation began in 2011 with the aim to reduce greenhouse gas emissions and air pollution by creating a cap-and-trade system for carbon levels in California transportation fuels. Permissible carbon levels progressively decrease each year, and the cap-and-trade system allows producers that do not meet the target to purchase credits from compliant suppliers. The LCFS amendment increases the stringency of the benchmarks for fuel transactions that take place on and after July 1, 2025, with the goal of reducing the carbon in California's transportation fuel mix by 30 percent in the next five years, and by 90 percent in the next 20 years. The amendment, among other things, provides increased support for zero-emissions infrastructure and introduces requirements for fuel producers to track crop-based and forestry-based feedstocks to their point of origin. Independent experts project that the amendment could increase gas prices by between five and eight cents per gallon.

Europe

Preliminary Agreement on Simplification of European Union (EU) Carbon Border Taxation

On June 18, 2025, the European Commission welcomed the provisional political agreement reached between the European Parliament (EP) and the Council of the European Union (Council) on the proposal to simplify the EU's carbon border adjustment mechanism (CBAM), although the compromise text is not yet available. The key aspect of the proposal is a new exemption threshold of 50 tons for CBAM goods, meaning that companies which do not exceed a single mass-based threshold set at a level of 50 tons of imported goods per year are exempt from CBAM obligations.

The adjustment is anticipated to save around €1.12 billion (approx. US$1.31 billion) in administrative costs while still covering over 99 percent of emissions. The overall aim of the proposal is to reduce the regulatory and administrative burden, as well as compliance costs for EU companies, in particular for small and medium enterprises which import small or negligible quantities of goods. The EP and the Council must formally adopt the proposal before it can enter into force. It is expected that the adoption process will be finalized by September 2025.

United States

U.S. Securities and Exchange Commission (SEC) Requests Eighth Circuit Decide Climate Rules Litigation

On July 23, 2025, the SEC submitted a status report to the U.S. Court of Appeals for the Eighth Circuit regarding the final climate-related disclosure rules. According to the status report, the SEC does not intend to review or rescind the rules “at this time,” and requests “that the Court proceed with the litigation and decide the case.” The status report was submitted in response to the court’s April 2025 request that the SEC advise the court as to its next steps with respect to the rules since the SEC withdrew its defense of these rules in March 2025. At this time, the rules continue to be stayed pending the outcome of this litigation and the litigation continues to be held in abeyance pending court action in response to the SEC’s status report.

For more information about the latest on the SEC’s climate-related disclosure rules, please see our recent post on Wilson Sonsini’s public company blog, Known Trends.

Don't miss Wilson Sonsini attorneys' recent interviews and features on relevant ESG topics including Energy Demand in AI Infrastructure Development. Additionally, the firm is proud to participate in upcoming events including the WPTF Summer General Meeting and to sponsor the launch of Node, an ecosystem initiative for stakeholders in first-of-a-kind climate projects.

On July 23, 2025, the International Court of Justice issued an advisory opinion providing that countries have a legal obligation to protect the environment from the effects of climate change.

On July 8, 2025, Australia's Accounting Professional and Ethical Standards Board released an Amending Standard to the APES 110 Code of Ethics for Professional Accountants, establishing new ethics and independence requirements for sustainability reporting and aiming to conform such reporting to the standards applied to financial statements audits, as well as creating new requirements for evaluating external experts.

On July 3, 2025, the French Directorate for Competition, Consumer Affairs, and Fraud Control announced that it hadimposed an administrative fine of €1.1 million (approx. US$1.3 million) on fast-fashion retailer Shein for not fulfilling certain information obligations on the environmental characteristics of its products regarding the emission of plastic microfibers.

On June 18, 2025, the U.S. Supreme Court issued two decisions holding, respectively, that challengers to nationally applicable actions taken by the U.S. Environmental Protection Agency (EPA) under the Clean Air Act (CAA) must be heard in the U.S. Court of Appeals for the District of Columbia, but regionally applicable EPA actions pursuant to the CAA must be decided by regional circuit courts.

On July 7, 2025, the White House published an executive order instructing the Secretary of the Treasury to issue guidance regarding the department's evaluation of wind and solar development projects following the termination of the clean electricity production and investment tax credits under sections 45Y and 48E.

On July 17, 2025, the White House issued a series of proclamations granting various industrial plants two-year exemptions from EPA environmental standards.

On July 18, 2025, the EPA indicated in a recent announcement that it will shutter its office of research and development in conjunction with its planned reduction in force.