In 2025, the commercial real estate (CRE) industry will continue to navigate a new landscape influenced by ever-evolving ESG (Environmental, Social, and Governance) and sustainability trends. In particular, with regulatory shifts and deregulatory policy changes on both sides of the Atlantic, CRE stakeholders, including developers and investors, face a wave of uncertainty as to what comes next and whether to continue to pursue ESG and sustainability initiatives.
Legal and Regulatory Uncertainty in 2025
Though various climate, sustainability, and ESG-related federal laws and regulations are at risk of rollback or, at least, unlikely to move forward under the new Trump Administration, regulatory developments on the state and international levels are expected to continue. This will require regulated entities (or those in the supply chains of regulated entities) to carefully monitor and tailor their compliance strategies to align with a patchwork of laws and regulations.
For example, California, a long-time leader in environmental regulation, is poised to continue leading progressive climate policies despite federal setbacks. In 2025, California’s ambitious decarbonization goals, including net-zero carbon emissions by 2045, will push the CRE sector to adopt more sustainable construction methods, energy-efficient technologies, and renewable energy solutions. The California effect also extends California’s borders, including the scopes of California’s trio of landmark climate disclosure laws AB 1305, SB 253, and SB 261, which create obligations for businesses that may not have a physical presence in California. Other U.S. states, especially in the Northeast and on the West Coast, are expected to follow California’s lead, and continue to implement laws and policies to achieve state-level environmental goals. These state-by-state developments are expected to influence CRE practices, requiring properties to meet higher environmental standards, implement energy efficiency measures, and invest in green building certifications to comply with local laws. On the international stage, and as part of its push to become the world’s first climate-neutral continent by 2050, the EU continues to implement stringent requirements on energy efficiency, carbon emissions, and sustainable building practices. The EU’s requirements for energy-efficient buildings under its Energy Performance of Buildings Directive (EPBD), as well as ESG disclosure requirements under its Corporate Sustainability Reporting Directive (CSRD), will influence how real estate owners and developers approach sustainability in the commercial sector, and CRE companies operating within or engaging with European markets will face increased scrutiny and compliance demands regarding their sustainability efforts.
The EU’s developments are not completely linear, however. For example, the European Commission recently adopted a package of proposals to simplify EU rules, including CSRD, EU Taxonomy, carbon border adjustment mechanism (CBAM), and European investment programs, with an aim to balance between economic concerns and environmental and human rights goals. Such so-called “anti-ESG” developments are expected to continue in both Europe and the US, though US “anti-ESG” developments tend to go further, including legislation targeting climate initiatives, corporate disclosures, investment practices, and DEI (Diversity, Equity, and Inclusion).
Litigation Risk in 2025
Even if ESG-related regulatory developments slow down, what is currently in place creates a hotbed of litigation risk on a range of ESG-related claims, both “pro-ESG” and “anti-ESG”. This includes potential allegations of antitrust violations due to coordination among independent parties, securities class actions challenging the accuracy of corporate ESG-related disclosures, private causes of action under state false advertising and consumer protection laws, and more. In the face of most of such claims, sound governance practices remain fundamental and important to manage and mitigate potential litigation risks.
One of the most significant litigation trends in 2025 is the increasing scrutiny of corporate ESG-related disclosures in the CRE sector. As businesses are under growing pressure from stakeholders, including regulators, investors, and tenants, to disclose their sustainability efforts, many are facing lawsuits alleging misleading or inaccurate reporting. Claims are often based on discrepancies between what companies have publicly stated about their environmental impact, social equity initiatives, or governance practices and the actual practices on the ground. The rise in class action lawsuits and shareholder derivative actions targeting inaccuracies in ESG and sustainability reporting reflects the growing concern over whether companies are providing a true and fair view of their sustainability efforts. CRE companies are under heightened scrutiny for greenwashing, where their stated ESG and sustainability achievements are challenged as exaggerated or false. For example, tenants, environmental advocacy groups, and investors may claim that failure to meet energy savings targets, inadequate waste management systems, or the use of unsustainable materials in the construction or retrofitting of buildings constitute a breach of contract and a violation of consumer protection laws.
This heightened scrutiny of ESG and sustainability claims may increasingly push businesses towards “greenhushing”—i.e., opting to not disclose sustainability initiatives and achievements—in an effort to avoid this increased scrutiny. While saying less may seemingly reduce certain litigation risks, it may also prompt other forms of litigation based on claims of a business not doing or saying enough. This paradox poses a difficult challenge for businesses, requiring a proactive and strategic approach to risk management, one that addresses the patchwork of requirements faced in 2025 and that remains rooted in sound governance practices.
