When federal climate oversight weakens, businesses face state-driven complexity

Federal climate policy was dealt a huge blow earlier this month with the repeal of the Endangerment Finding – the 2009 legal and scientific precedent saying GHG emissions are harmful to human and environmental health. The finding has long underpinned the U.S. climate policy and the Environmental Protection Agency’s authority to regulate emissions under the Clean Air Act.

Litigation is guaranteed against this move, and the final decision will inevitably be made in the Supreme Court. Regardless of the outcome, the United States remains a federal system in which 50 states retain substantial authority to pursue their own climate and disclosure policies. 

When federal regulatory authority wanes, states often expand their own policy responses. 

The resulting patchwork of state-led rules will mean businesses operating nationally will face higher compliance complexity. To understand where this might go, companies should identify what the federal government has weakened and what states are doing to fill the gaps. 

Where states are already moving beyond federal baselines

Even before this administration began deregulating climate rules, California had approved its climate-related disclosure mandate. The rule requires both public and private companies with more than $500 million in revenue and doing business in the state to report climate risks (SB 261), and those with more than $1 billion to report emissions (SB 253) this year.

These requirements are far beyond those the Securities and Exchange Commission (SEC) would have required for reporting under its federal rules for publicly listed companies, until it was withdrawn early in 2025. 

Now, all of those public companies and many more private ones are covered by the more rigorous California rule, and six other states are now at various stages in the legislative process. From Washington state to New Jersey, state regulators and their constituents care about the climate performance of companies they use and invest in that operate in their states. 

Other than California’s rule, both New York and New Jersey have emissions reporting rules that are close to being passed by their state governors. New York’s rule recently passed the state Senate and is now in the State Assembly. It is pegged almost directly to California’s SB 253 rule, requiring companies doing business in the state to report Scope 1, 2, and 3 emissions and obtain assurance. However, this one will be phased in from 2028. New Jersey’s rule also recently passed through key votes in the rulemaking process. It is almost the same as SB 253, but does not include Scope 3.

In addition to corporate climate report rules, we are beginning to see new state regulations in direct response to federal deregulation. When the EPA ended its 14-year-old GHG reporting program for large emitting facilities late last year. New York released its own version of the bill shortly after, which was an almost exact replica. 

These examples illustrate how state regulatory bodies can step in to fill the void left by federal inaction or deregulation. While many of these state rules are similar and consider whether companies have already reported under another similar regulation in another state. They require multi-state companies to take a more proactive approach to complying with a quickly evolving state regulatory landscape. Given subtle nuances across state lines, complying with this growing patchwork of rules increases costs, reputational risks, and fines for non-compliance. 

Going further still

Some states actually believe that this Endangerment Finding repeal could unshackle their ability to enact state emissions rules that have previously been overruled by the federal Clean Air Act.  In California, for example, the Trump administration revoked its Clean Air Act waivers last year, which allowed it to enact its own stricter emissions rules. However, now that the Clean Air Act no longer has jurisdiction over emissions, the state will have the legal authority to do as it pleases regarding emissions.

Cottie Petrie-Norris, chair of California’s Utilities and Energy Committee, said in a recent interview, “There’s a certain irony that in the revocation of the endangerment finding, it actually could provide California with more latitude and more direct responsibility.”

While the EPA’s repeal asserts that it preempts states from adopting or enforcing “any standard relating to the control of emissions from new motor vehicles or engines,” legal experts argue that eliminating the Endangerment Finding, if upheld in court, could instead free states from federal oversight, allowing them to set their own emissions standards.

Climate risks are still risks

Changes in federal regulatory posture do not alter underlying physical climate risks. Extreme weather events continue to affect infrastructure, supply chains, and insurance markets, creating material exposure for businesses across sectors. 

Extreme weather events driven by rising temperatures resulted in the most costly year for climate disasters, with last year's costs reaching $260 billion, despite no major hurricanes. These climate realities mean regulators and the business world are pressing ahead regardless of federal clemency. State-level action is not operating in isolation. More than 40 countries are now moving ahead with climate reporting rules aligned with the International Sustainability Standards Board (ISSB).

On the voluntary side, large multinationals are still trying to understand their exposure and are requesting that their supply chains share climate risk data and emissions. More than 22,000 companies reported to CDP last year, and despite the U.S. withdrawal from climate action their was a 7% increase in North American reporters. These voluntary requests may turn mandatory as companies ask their suppliers to support state-level mandates

Despite ongoing efforts to reduce fragmentation among voluntary and regulatory standards, companies will inevitably face competing requests in different forms, increasing complexity even in sectors anticipating federal regulatory relief.

What this means for business planning

A shift in federal authority does not eliminate regulatory or physical climate risk. It changes where and how those risks manifest. Neither does it negate state-level rulemaking or alter the underlying changes in the climate systems businesses depend on. Businesses will still have to comply with regional regulations. Critical infrastructure, assets, and supply chains are still exposed to extreme weather.

At the same time, the broader global direction of travel is clear. Dozens of countries are advancing climate disclosure requirements, capital markets continue to price risk, and large multinationals are maintaining expectations for emissions reporting and supplier transparency. 

The challenge for U.S. businesses is that this expansion is increasingly decentralized and fragmented. Instead of a single federal standard, companies face a growing mosaic of state requirements layered alongside international rules and voluntary frameworks. The issue is no longer whether disclosure will be required, but where, when, and under what guidelines.

For business leaders, the best response is to build systems that can operate across jurisdictions. To build a best-in-class program that enables them to meet even the most stringent state or international rules. Companies that invest in consistent, high-quality emissions data and adaptable compliance infrastructure will be better positioned to manage the variation inherent in the growing patchwork of rules. Those who assume federal regulatory relief today may find that reduced exposure leads to complexity and cost that compound over time.

illuminem Voices is a democratic space presenting the thoughts and opinions of leading Sustainability & Energy writers, their opinions do not necessarily represent those of illuminem.

Interested in the companies shaping our sustainable future? See on illuminem’s Data Hub™ the transparent sustainability performance, emissions, and climate targets of thousands of businesses worldwide.