The Great Divergence: 2025 Sustainability Year-in-Review

Executive Summary

The year 2025 will be recorded in the annals of sustainability history as the year of the "Great Divergence." For the better part of a decade, the global sustainability narrative was defined by a convergence toward unified goals: the Paris Agreement’s 1.5°C target, the standardization of ESG reporting, and the collective march toward Net Zero. In 2025, however, this cohesion fractured into distinct, often contradictory, realities driven by geopolitical fragmentation, economic pragmatism, and technological paradoxes.

While the global energy transition passed a historic tipping point—with clean power growth finally exceeding total electricity demand growth, effectively capping fossil fuel generation in the power sector ¹—the political consensus required to phase out fossil fuels crumbled at COP30 in Belém.³ The multilateral process, strained by the diverging economic interests of the Global North and South, failed to deliver a binding roadmap for fossil fuel decline, leading to the rise of "minilateral" coalitions focused on industrial strategy rather than collective sacrifice.

In the corporate sphere, a similar divergence occurred. As European companies grappled with the rigorous transparency of the first wave of mandatory Corporate Sustainability Reporting Directive (CSRD) disclosures ⁴, US-based multinationals retreated into "greenhushing." Facing intense political pressure and antitrust threats, major financial institutions and oil majors rolled back climate targets or exited collaborative alliances like Climate Action 100+.⁶ The unified corporate front on climate action dissolved, replaced by a bifurcated landscape where sustainability is treated as a compliance burden in Europe and a strategic, albeit quiet, risk management tool in the United States.

Technologically, Artificial Intelligence (AI) emerged as both the savior and the sinner of sustainability. DeepMind’s GNoME and Microsoft’s AI for Science utilized deep learning to discover millions of new materials that could revolutionize battery storage and carbon capture.⁸ Simultaneously, the explosive energy demand of data centers to power these very models threatened to derail regional net-zero grids, creating a "clean energy cannibalization" effect that regulators are only beginning to address.¹⁰

This comprehensive report provides an exhaustive analysis of these trends, synthesizing data from multilateral institutions, regulatory bodies, and market analysis. It dissects the friction between policy intent and market reality, offering a nuanced view of a year defined by resistance, resilience, and realignment.

1. Global Climate Policy: The Fragmentation of Consensus

In 2025, the geopolitical consensus on climate action shifted from a unified global march to a multi-speed, multi-track ecosystem. The "Brussels Effect" continued to drive global disclosure standards, while the United States retreated into regulatory isolationism regarding federal climate mandates. Meanwhile, the Global South, led by Brazil’s COP presidency, asserted a new narrative focused on "Green Industrialization" and financial sovereignty, moving the debate from aid to investment.

1.1 COP30 Belém: The "Tropical" Consensus and Its Limits

Held in Belém, Brazil, COP30 was positioned as the "Forest COP," aiming to secure the legacy of the Paris Agreement a decade later. The outcomes were mixed, reflecting deep fissures in multilateralism. The summit highlighted the growing disconnect between the diplomatic machinery of the UNFCCC and the realpolitik of energy security and economic development.

The New Collective Quantified Goal (NCQG)

The central negotiation track focused on the NCQG, the successor to the long-standing $100 billion annual climate finance pledge. Developing nations entered the negotiations seeking a quantum leap in funding, proposing targets exceeding $1 trillion annually to meet the adaptation and mitigation needs of the Global South. The final agreement, dubbed the "Baku to Belém Roadmap," aimed to mobilize at least $1.3 trillion per year by 2035 from both public and private sources.12 However, the mechanisms to achieve this remain heavily reliant on reforming Multilateral Development Banks (MDBs) rather than direct grants from developed nations, a point of contention that left many developing country negotiators dissatisfied with the lack of "core" public finance commitments.12

Crucially, Parties agreed to call for efforts to at least triple adaptation finance by 2035.³ This specific target for adaptation—funding for resilience against climate impacts that are already locked in—marks a shift in focus from purely mitigation-centric goals. Yet, the final text was criticized for lacking binding enforcement on the private sector contribution components, leaving the $1.3 trillion figure as an aspirational signal rather than a guaranteed capital flow.¹⁴

The Failure on Fossil Fuel Phase-Out

Despite the historic "transition away from fossil fuels" agreed upon at COP28 in Dubai, COP30 failed to operationalize this into a binding roadmap. Hopes that countries would commit to specific timelines to end fossil fuel use were dashed by staunch opposition from petrostates.15 The final cover text omitted definitive phase-out language, reflecting the geopolitical reality that for many nations, energy security still trumps climate ambition in the short term.3

In response to this diplomatic gridlock, a "coalition of the willing"—including Colombia and the Netherlands—announced a separate initiative: the First International Conference on the Just Transition Away from Fossil Fuels, to be held in 2026.¹⁶ This move signals a potential fracturing of the global climate governance architecture, where ambitious nations may increasingly bypass the consensus-based UNFCCC process to drive supply-side restrictions through smaller, more agile multilateral groups.¹⁷

1.2 The Rise of Green Industrialization

Perhaps the most significant pivot in 2025 was the emergence of "Green Industrialization" as the dominant narrative for the Global South. Moving beyond the traditional dynamic of asking for compensation for climate damages (Loss and Damage), developing nations demanded the technology transfers and financing necessary to build their own green manufacturing bases.

The Belém Declaration

This shift was codified in the "Belém Declaration for Green Industrialization," launched with the support of over 35 countries and international organizations, including UNIDO.18 The declaration outlines a shared commitment to keeping the value add of the green economy within developing nations. The argument is economic as much as it is environmental: the Global South, rich in critical minerals and renewable potential, should process its own lithium, copper, and green hydrogen rather than exporting raw resources to the Global North or China.18

The Tropical Forests Forever Facility (TFFF)

Brazil’s flagship contribution to the financial architecture was the Tropical Forests Forever Facility (TFFF). This $125 billion mechanism represents a paradigm shift from aid-based conservation to treating forests as sovereign assets.20

• Structure: The fund is designed as a blended-finance vehicle, seeking ~$25 billion in public sponsor capital to de-risk and attract ~$100 billion from private institutional investors.²⁰

• Mechanism: Unlike carbon markets, which pay for offsets, the TFFF offers a fixed return on investment for the state of maintaining standing forests. It essentially treats the forest as a capital asset that generates a dividend for the country, monitored via satellite data.²¹

• Social Equity: Explicitly, the facility reserves 20% of funds for Indigenous Peoples and Local Communities (IPLCs), acknowledging their role as the most effective guardians of the forest.²⁰

• Geopolitical Buy-in: The initiative received endorsements from major economies, including China and the UK, signaling a rare convergence of interest between the BRICS bloc and Western nations on conservation finance.²²

1.3 The United States: Policy by Litigation

While Brazil and Europe pushed forward, the United States policy landscape in 2025 was defined by retrenchment and litigation. The Biden Administration’s regulatory agenda faced severe headwinds from the judicial branch and a recalcitrant Congress, leading to a "policy by litigation" environment.

The SEC Disclosure Rollback

The centerpiece of this retreat was the Securities and Exchange Commission (SEC) Climate Disclosure Rule. Originally designed to mandate rigorous reporting of Scope 1, 2, and 3 emissions, the final rule was significantly watered down and eventually abandoned in court defense by the SEC in March 2025.23

• The Decision: Following intense litigation consolidated in the Eighth Circuit, the SEC voted to end its defense of the rule, citing the "costly and unnecessarily intrusive" nature of the requirements.²⁵ This effectively killed the federal mandate for climate reporting for the foreseeable future.

• The Rationale: Commissioners arguing for the rollback, such as Mark Uyeda, framed the decision as a necessary check on regulatory overreach, arguing that the SEC lacked the statutory authority to act as a climate regulator.²⁵ Dissenting voices, like Commissioner Caroline Crenshaw, warned that this "policymaking by avoidance" would leave investors blind to material risks.²⁵

• The "Shadow" Regulation: Despite the federal rollback, the operational reality for US multinationals did not change as drastically as political rhetoric suggested. Major US firms remained bound by California’s Climate Corporate Data Accountability Act (SB 253), which mandates full Scope 3 disclosure for companies doing business in the state, and the EU’s CSRD, which captures US firms with significant European operations.²⁶ This created a "shadow regulation" effect, where US companies continued to build disclosure infrastructure to satisfy California and Brussels, even as Washington deregulated.

1.4 China: The Market Expansion

While the West debated the philosophy of disclosure, China focused on the mechanics of pricing. In 2025, China’s National Emissions Trading Scheme (ETS) underwent a massive expansion, transforming from a power-sector-only mechanism into a comprehensive industrial carbon market.

Sectoral Expansion

Regulators confirmed the inclusion of the steel, aluminum, and cement sectors into the national ETS.27 This move increased the coverage of the market from approximately 40% to 60% of China’s total emissions, bringing an additional 1,500 companies and 3 billion tCO2e under compliance obligations.29

Price Dynamics

The expansion triggered a surge in carbon prices. Allowance prices jumped to over 66 CNY (~$9.30) per ton as industrial players entered the market to hedge future liabilities.27 While still low compared to the EU ETS (which traded above €60), the trajectory signaled to Chinese heavy industry that the era of cost-free pollution is ending.

Strategic Intent

This domestic pricing strategy is partly defensive. By imposing its own carbon price, Beijing ensures that Chinese exporters can reduce their liability under the EU’s Carbon Border Adjustment Mechanism (CBAM). Effectively, China chose to collect these carbon revenues domestically rather than allowing them to flow to the EU treasury via border tariffs.30

2. The Regulatory Landscape: From Ambition to Implementation

If previous years were about setting targets, 2025 was the "Year of Implementation" for sustainability reporting. This transition from voluntary commitments to mandatory legal requirements was characterized by immense friction, as corporate systems struggled to meet the granular data demands of new laws.

2.1 The CSRD Reality Check

The first wave of reports under the EU Corporate Sustainability Reporting Directive (CSRD) was published in early 2025, covering the 2024 financial year. The results served as a harsh reality check for the maturity of corporate sustainability data.

Double Materiality Challenges

The core innovation of the CSRD—"double materiality," which requires companies to report both how sustainability issues impact their business (financial materiality) and how their business impacts the world (impact materiality)—proved difficult to implement. EFRAG reports indicated that while climate change (E1) was universally disclosed, topics like biodiversity (E4) and affected communities (S3) were frequently deemed "immaterial" by companies, often due to a lack of available data rather than a genuine lack of impact.31

The Simplification Omnibus

Acknowledging the crushing administrative burden, the EU Commission introduced a "Simplification Omnibus" in 2025. This package postponed the adoption of sector-specific standards and introduced "quick fix" amendments to ease the transition.4 Most notably, companies with fewer than 750 employees were granted a two-year delay for Scope 3 reporting, pushing that obligation to 2026.32 This regulatory relief acknowledged that the data ecosystem was simply not ready for the granularity originally demanded.

2.2 The ISSB Global Baseline

While the EU focused on a multi-stakeholder impact model, the International Sustainability Standards Board (ISSB) cemented its position as the global financial baseline for sustainability reporting.

Global Adoption

By mid-2025, the ISSB standards (IFRS S1 and S2) had achieved significant momentum. Over 36 jurisdictions—including major economies like Brazil, the UK, Japan, Canada, and Australia—had finalized or were in the process of integrating these standards into their national regulatory frameworks.33

The Fragmentation Risk

A clear divergence emerged in the global reporting landscape. Europe’s CSRD requires double materiality, forcing companies to disclose broad societal impacts. The rest of the world, following the ISSB, focuses primarily on financial materiality—risks that affect the company's bottom line.35 This divergence forces multinational corporations to maintain "two books" of sustainability data: a comprehensive impact-focused ledger for European regulators, and a risk-focused ledger for global investors and other jurisdictions. This regulatory bifurcation increases compliance costs and complicates the narrative companies present to stakeholders.36

2.3 The Scope 3 Conundrum

Scope 3 (supply chain) emissions remained the most challenging discipline in sustainability during 2025. Despite years of pledges, actual measurement capabilities stagnated.

Data Deficits

A 2025 survey of sustainability executives revealed that 70% still cite "lack of data from suppliers" as the primary barrier to accurate reporting.37 Consequently, 87% of companies reporting Scope 3 emissions are doing so on a voluntary basis rather than strictly for compliance, often relying on spend-based estimates (e.g., estimating carbon based on dollars spent on steel) rather than primary activity data.38 These spend-based methods are notoriously inaccurate and fail to capture the benefits of supplier decarbonization efforts.

Innovation and Collaboration

In response to this gridlock, industry bodies moved to create shared data infrastructure. The World Business Council for Sustainable Development (WBCSD) launched the "Emissions Reduction Accelerator" (ERA) at COP30.39 This platform focuses on sharing primary data for high-impact value chains, such as green steel and fertilizers, attempting to break the data bottleneck through pre-competitive collaboration. Similarly, tech giants like Meta open-sourced AI-driven methodologies to estimate component-level emissions where supplier data is missing, signaling a shift toward modeled data to fill the gaps.40

Table 2.1: Comparative Status of Major Reporting Frameworks in 2025

Feature	EU CSRD	ISSB (IFRS S1/S2)	US SEC Rule
Status (2025)	Mandatory (Wave 1 live)	Adopted by 36+ Jurisdictions	Defense Abandoned / Stalled
Materiality	Double (Impact + Financial)	Financial (Investor focus)	Financial (limited)
Scope 3	Mandatory (with phase-ins)	Mandatory (with relief)	Removed (in final stalled version)
Enforcement	Strong (Audit requirement)	National Regulators	Litigation / State Law (CA)

3. The Energy Transition: Tipping Points and Paradoxes

The energy sector in 2025 presented a dual narrative: the unstoppable economic logic of renewables versus the resurgent, voracious demand shocks from digital infrastructure.

3.1 The Renewable Victory

For the first time in industrial history, the growth of global solar and wind generation exceeded the growth of total global electricity demand.² This milestone represents a definitive structural tipping point: it means that all new demand for electricity globally is being met by clean energy, and fossil fuel generation has effectively peaked and begun its terminal decline in the power sector.

The Data

In the first three quarters of 2025, solar generation alone grew by 498 TWh (+31% year-on-year), while global electricity demand grew by 603 TWh. When combined with wind generation growth (+137 TWh), clean power additions significantly outpaced demand growth.2 Consequently, the share of fossil fuels in the global electricity mix dropped from 58.7% to 57.1%.1

Coal's Symbolic Defeat

Another historic crossover occurred in the first half of 2025: renewables officially overtook coal generation. Renewables accounted for 34.3% of the global electricity mix, surpassing coal’s 33.1% share.41 This transition was driven largely by China’s massive deployment of solar and wind, which continued to break records despite the country's continued permitting of coal backup capacity.

3.2 The AI Energy Cannibalization

While the macro grid decarbonized, a micro-crisis emerged in digital hubs. The rapid scaling of Artificial Intelligence (AI) and the data centers required to train and run large models created a localized energy crisis that threatened to "cannibalize" clean energy gains.

The Scale of Demand

The International Energy Agency (IEA) reported that data center electricity consumption is on track to double by 2030, reaching nearly 1,000 TWh—roughly equivalent to the entire electricity consumption of Japan.10 In 2025 alone, investment in data centers reached $580 billion, surpassing global investment in oil supply ($540 billion).42

The "Lift-Off" Scenario

The IEA modeled a "Lift-Off" scenario where AI adoption accelerates further. In this scenario, the demand for 24/7 firm power to support data centers could drive a resurgence in gas-fired power generation, potentially four times higher than baseline projections.10 Because renewables are intermittent and data centers require constant uptime, tech companies in 2025 increasingly looked to natural gas and nuclear power to bridge the gap, complicating their own net-zero commitments.

Grid Congestion and Localization

The impact of this demand is not evenly distributed. 85% of new data center capacity is concentrated in the US, China, and the EU.42 In specific hubs like Northern Virginia or Ireland, data center demand is overwhelming local grid capacity, leading to connection moratoriums and forcing utilities to keep aging fossil fuel plants online longer than planned to ensure reliability.43

4. Corporate Strategy: The Great Recalibration

The corporate landscape in 2025 was defined by a stark polarization: "Greenhushing" in the U.S. versus "Green Industrialization" in the Global South, and a retreat from ambition among oil majors.

4.1 The Great Walkback: Net Zero and Financial Services

A defining trend of 2025 was the coordinated retreat of major financial institutions from collective climate initiatives. This "Great Walkback" was driven by a combination of anti-ESG political pressure in the US, antitrust legal threats, and a strategic reassessment of fiduciary duty.

Climate Action 100+ Exodus

The prominent investor coalition Climate Action 100+ saw a mass exodus of its largest members. JPMorgan Asset Management, State Street Global Advisors, and PIMCO withdrew from the initiative early in the year, followed by Goldman Sachs' fund division in August 2025.6

• The Narrative: The departing firms publicly argued that their internal sustainability capabilities had matured to the point where they no longer needed a coalition to engage with portfolio companies. They emphasized their independence to make investment decisions solely based on financial value.⁴⁶

• The Political Context: However, the timing of these exits—following letters from the Republican-led US House Judiciary Committee demanding details on their ESG activities—suggested a capitulation to political pressure. The committee had threatened antitrust scrutiny, arguing that collective engagement on climate targets could constitute illegal collusion.⁴⁶

Oil & Gas Retrenchment

Concurrently, European oil majors recalibrated their strategies, prioritizing shareholder returns and energy security over aggressive transition targets. BP and Shell formally weakened their 2030 emissions reduction targets in 2025. BP, for instance, reduced its commitment to renewable power investment, pivoting capital back toward oil and gas production to capture short-term margins.7

• Shareholder Reaction: This pivot did not go unchallenged. At BP’s annual general meeting, nearly a quarter of shareholders opposed the re-election of the board director responsible for the strategy, signaling deep investor unease with the reversal.⁴⁷

• The Justification: The companies argued that the energy transition was moving slower than anticipated and that ensuring a stable supply of oil and gas was necessary to prevent price shocks. This "pragmatic" stance was bolstered by record profits in the fossil fuel sector, contrasting with the lower returns from renewable projects.⁴⁸

4.2 The End of Greenwashing

While some companies retreated, regulators ensured that those who remained committed could no longer rely on vague marketing. 2025 saw the end of the "wild west" of sustainability claims.

Regulatory Crackdown

The enforcement of the EU’s Green Claims Directive began to bite. Audits found that 53% of environmental claims used by companies were vague, misleading, or unfounded.49 In response, major consumer goods companies began a "green bleaching" of their packaging, removing terms like "eco-friendly," "natural," or "climate neutral" that could not be backed by scientific lifecycle assessments.

High-Profile Penalties

The risks of non-compliance were made clear by high-profile enforcement actions. Deutsche Bank’s asset management arm, DWS, agreed to pay a €25 million fine to settle German investigations into misleading ESG disclosures.50 Similarly, airlines including KLM and Ryanair continued to face legal challenges and ad bans for promoting "carbon neutral" flights based on controversial offsetting schemes, forcing a rewrite of aviation sustainability marketing.51

4.3 Greenhushing and "Silent" Progress

The combination of political pressure in the US and regulatory scrutiny in the EU led to the phenomenon of "greenhushing." Companies continued to invest in sustainability but stopped talking about it.

• The Data: Despite the public retreats, 83% of C-suite executives reported increasing their sustainability investments in 2025.⁵²

• The Shift: The rationale for these investments shifted from "saving the planet" to "operational efficiency," "energy resilience," and "supply chain security." Sustainability became an operational imperative rather than a brand differentiator.

  
  

5. Nature and Biodiversity: A New Asset Class?

If 2024 was the year of "Nature Positive" rhetoric, 2025 was the year of framework adoption and the struggle to create a viable market for nature.

5.1 TNFD and Corporate Adoption

The Taskforce on Nature-related Financial Disclosures (TNFD) achieved critical mass in 2025, moving from a pilot framework to a market standard.

• Adoption Numbers: Over 700 organizations, representing $22.4 trillion in Assets Under Management (AUM), committed to TNFD-aligned reporting.⁵³

• Integration: Crucially, 78% of early adopters integrated their nature reporting with their climate reporting, breaking down the silo between "Net Zero" and "Nature Positive".⁵⁴

• Asian Leadership: Surprisingly, adoption was particularly high in Asia, with Japanese and Chinese firms showing significant uptake. This is driven by the region's acute exposure to supply chain dependency risks (e.g., water scarcity impacting manufacturing).⁵⁵

5.2 The Plastics Treaty Stumble

The ambition to create a "Paris Agreement for Plastics" hit a significant roadblock in 2025. The Intergovernmental Negotiating Committee (INC) failed to reach a consensus on a legally binding treaty during its critical fifth session (INC-5.2) in Geneva.⁵⁶

The Deadlock

The negotiations fractured along predictable lines. The "High Ambition Coalition" (led by the EU, Rwanda, and Norway) pushed for binding global caps on virgin plastic production. Opposing them was a "Like-Minded Group" of polymer-producing nations (including Saudi Arabia, Russia, and Iran) who insisted the treaty should focus solely on downstream waste management and recycling, rather than restricting production.57

The Outcome

The session ended without a final text, necessitating a resumed session (INC-5.3) scheduled for February 2026. However, this future session is largely administrative, leaving the substantive disagreements unresolved.59 The failure to secure a production cap in 2025 suggests that the final treaty may be a "lowest common denominator" agreement, focusing on voluntary national plans rather than global mandates.

5.3 Biodiversity Credits: The Nascent Frontier

2025 was meant to be the year biodiversity credits took off, but the market remained in its infancy.

• Market Size: Cumulative transaction value in the voluntary biodiversity market was estimated at a mere $10 million in Q4 2025 ⁶⁰, with total global sales estimated between $325,000 and $1.8 million.⁶¹

• The Fungibility Problem: The market is plagued by the lack of a standard unit. Unlike a ton of carbon, which is the same everywhere, a "biodiversity unit" is hyper-local—a jaguar habitat in Brazil is not equivalent to a koala habitat in Australia.⁶² This lack of fungibility prevents the emergence of a liquid global market.

• Governance Split: Governance models are fracturing. Some countries like Australia are pursuing centralized, government-run markets (Nature Repair Market), while others like Canada and New Zealand are opting for "principle-driven" voluntary approaches.⁶³

  
  

6. Carbon Markets: Rebuilding Integrity

The carbon markets spent 2025 in a rebuilding phase, attempting to recover from the credibility crises of 2023-2024 that decimated the value of avoidance credits.

6.1 VCM 2.0 and the Core Carbon Principles

The Voluntary Carbon Market (VCM) began to bifurcate into "junk" credits and "integrity" credits, driven by the Integrity Council for the Voluntary Carbon Market (ICVCM).

• The CCP Label: By late 2025, the ICVCM had approved over 51 million credits under the new "Core Carbon Principles" (CCP) label.⁶⁴ This label serves as a quality threshold, guaranteeing that the underlying projects meet rigorous standards for additionality and permanence.

• Price Premium: A distinct price tier emerged. CCP-labeled credits commanded prices roughly 25% higher than non-labeled credits.⁶⁵

• Shift to Removals: The market saw a structural shift away from avoidance credits (e.g., renewable energy projects in grid-connected regions, which are no longer seen as additional) toward high-quality removals and nature-based solutions with clear measurement.⁶⁶

6.2 Article 6: The Eternal Delay

Operationalizing Article 6 of the Paris Agreement—the mechanism for countries to trade carbon credits to meet their NDCs—faced further delays in 2025.

• Timeline Slip: The first issuance of Article 6.4 credits (the centralized UN mechanism) was pushed to early 2026.⁶⁷ The supervisory body struggled to resolve technical disputes over methodologies for carbon removals and baseline setting.

• Progress: However, a critical milestone was reached with the agreement on the first methodology for removals under Article 6.4.⁶⁸ This technical breakthrough sets the stage for a functional market launch in 2026, potentially unleashing sovereign demand for credits.

  
  

7. Technology: The AI Sustainability Dualism

Artificial Intelligence defined the technological frontier of sustainability in 2025, acting simultaneously as a powerful accelerant for scientific solutions and a massive new burden on environmental resources.

7.1 AI for Scientific Discovery

The most profound positive impact of AI in 2025 was in the realm of "atomistic" discovery—using deep learning to invent new materials for the energy transition.

GNoME and DeepMind

Google DeepMind’s GNoME (Graph Networks for Materials Exploration) tool revolutionized materials science by discovering 2.2 million new crystal structures. Of these, 380,000 were predicted to be stable—a discovery rate equivalent to 800 years of traditional human research compressed into months.8

• Battery Breakthroughs: These discoveries included 528 new potential lithium-ion conductors, representing a 25-fold increase over previously known candidates. These materials could unlock the next generation of solid-state batteries, crucial for grid storage and EVs.⁶⁹

Microsoft and PNNL

In a practical application of similar technology, Microsoft partnered with the Pacific Northwest National Laboratory (PNNL) to use AI to screen 32 million potential inorganic materials. They identified a new battery material that uses 70% less lithium and moved from computer simulation to a working prototype in a matter of weeks.9 This demonstrated AI's ability to fundamentally alter the resource intensity of clean energy technologies.

7.2 The Operational Footprint

The environmental bill for this AI boom came due in 2025.

• Water Usage: The water consumption of AI data centers became a critical local issue. AI models were projected to consume nearly 7 billion cubic meters of water by 2027 for cooling, a trend that accelerated in 2025 as model sizes grew.⁷⁰

• The Efficiency Paradox: While hardware became more efficient—IBM reported new AI chips that are 14 times more energy-efficient ⁷¹—the "Jevons paradox" took hold. The efficiency gains made AI cheaper to run, which exploded demand, resulting in a net increase in total energy consumption. This rebound effect complicates the net-zero pathways for major technology companies, many of whom saw their Scope 1 and 2 emissions rise in 2025 due to AI infrastructure expansion.¹⁰

8. Conclusion: The Outlook for 2026

2025 was a year of necessary friction. The easy era of "win-win" rhetoric is over. The divergence between the "Real Economy"—where renewable deployment and AI breakthroughs are reshaping industries—and the "Political Economy"—where treaty failures and regulatory rollbacks are stalling progress—has never been wider.

For 2026, the stage is set for a confrontation between these forces. The failure of the Plastics Treaty and the stalling of Article 6 suggest that the era of universal UN consensus may be yielding to "minilateralism"—coalitions of the willing like the TFFF or the Green Industrialization bloc. The Global South has successfully asserted that it will no longer be a passive recipient of aid, but an active architect of a new, asset-based climate economy.

For corporate leaders, the lesson of 2025 is clear: Compliance is now the floor, not the ceiling. The "greenhushing" trend in the US is a temporary tactical retreat, not a strategic exit. The companies that will thrive in 2026 are not those that shout the loudest about their targets, but those that fundamentally alter their operations—using AI to reinvent their materials, securing low-carbon energy in a constrained grid, and building value chains that can withstand the scrutiny of a data-driven world.

Key Watchlist for 2026:

1. INC-5.3: Can the Plastics Treaty be saved, or will it fragment into national standards?

2. Article 6.4 Launch: Will the first centralized UN carbon credits finally be issued, unlocking sovereign trading?

3. The AI Grid Crunch: Will regulators impose efficiency standards or location mandates on data centers to protect the grid?

4. TFFF Implementation: Will sovereign wealth funds actually deploy capital into Brazil’s forest facility, proving the asset-based conservation model?

The "Great Divergence" has clarified the stakes: sustainability is no longer a sidecar to business strategy; it is the central arena of geopolitical and technological competition.

Works cited

1. accessed on January 13, 2026, https://ember-energy.org/latest-insights/q3-global-power-report-no-fossil-fuel-growth-expected-in-2025/#:~:text=Change%20in%20electricity%20generation%20Q1%2DQ3%2C%202025%20vs.&text=The%20rise%20in%20solar%20and,from%2034.0%25%20to%2033.1%25.

2. Q3 Global Power Report: No fossil fuel growth expected in 2025 - Ember-energy.org, accessed on January 13, 2026, https://ember-energy.org/latest-insights/q3-global-power-report-no-fossil-fuel-growth-expected-in-2025/

3. 5 Outcomes from COP 30: What the Belém Political Package Really Delivered, accessed on January 13, 2026, https://unu.edu/ehs/article/5-outcomes-cop-30-what-belem-political-package-really-delivered

4. Corporate sustainability reporting - Finance - European Commission, accessed on January 13, 2026, https://finance.ec.europa.eu/capital-markets-union-and-financial-markets/company-reporting-and-auditing/company-reporting/corporate-sustainability-reporting_en

5. Global Sustainability Reporting Survey - PwC, accessed on January 13, 2026, https://www.pwc.com/gx/en/issues/esg/global-sustainability-reporting-survey.html

6. Climate Action 100+ - Ballotpedia, accessed on January 13, 2026, https://ballotpedia.org/Climate_Action_100%2B

7. “The times they are a-changin” - World Oil, accessed on January 13, 2026, https://www.worldoil.com/magazine/2025/december-2025/industry-leaders-2026-outlook/the-times-they-are-a-changin/

8. AI for Materials Discovery: How GNoME is Changing Science - SentiSight.ai, accessed on January 13, 2026, https://www.sentisight.ai/ai-materials-discovery-gnome-changes-science/

9. AI transformations for sustainability - Microsoft On the Issues, accessed on January 13, 2026, https://blogs.microsoft.com/on-the-issues/2025/01/16/ai-transformations-for-sustainability/

10. Executive summary – Energy and AI – Analysis - IEA, accessed on January 13, 2026, https://www.iea.org/reports/energy-and-ai/executive-summary

11. In focus: Data centres – an energy-hungry challenge, accessed on January 13, 2026, https://energy.ec.europa.eu/news/focus-data-centres-energy-hungry-challenge-2025-11-17_en

12. COP 30 Outcome: What it means and what's next, accessed on January 13, 2026, https://www.iisd.org/articles/insight/cop-30-outcome-what-it-means-and-whats-next

13. Climate finance at COP30: how to leverage $1.3 trillion by 2035 - Materia Rinnovabile, accessed on January 13, 2026, https://www.renewablematter.eu/en/climate-finance-cop30-how-to-leverage-1-3-trillion-by-2035

14. What did COP30 achieve? - EU climate action - European Union, accessed on January 13, 2026, https://climate.ec.europa.eu/news-other-reads/news/what-did-cop30-achieve-2025-12-01_en

15. COP30: Outcomes, Disappointments and What's Next | World Resources Institute, accessed on January 13, 2026, https://www.wri.org/insights/cop30-outcomes-next-steps

16. Colombia and The Netherlands Announce First International Conference for Fossil Fuel Phase Out, accessed on January 13, 2026, https://fossilfueltreaty.org/first-international-conference

17. COP30 Establishes Landmark Just Transition Plan, Flames Out on Fossil Fuel Phaseout, accessed on January 13, 2026, https://biologicaldiversity.org/w/news/press-releases/cop30-establishes-landmark-just-transition-plan-flames-out-on-fossil-fuel-phaseout-2025-11-22/

18. COP30 launches Belém Declaration and strengthens the global green industrialization agenda, accessed on January 13, 2026, https://cop30.br/en/news-about-cop30/cop30-launches-belem-declaration-and-strengthens-the-global-green-industrialization-agenda

19. Global Climate Action Agenda at COP 30 - UNFCCC, accessed on January 13, 2026, https://unfccc.int/sites/default/files/resource/COP30%20Action%20Agenda_Final%20Report.docx.pdf

20. Statement on Brazil's Launch of the Tropical Forests Forever Facility | EDF, accessed on January 13, 2026, https://www.edf.org/media/statement-brazils-launch-tropical-forests-forever-facility

21. Brazil launches fund tying forest cash to steep deforestation penalties - Mongabay, accessed on January 13, 2026, https://news.mongabay.com/short-article/2025/11/brazil-launches-fund-tying-forest-cash-to-steep-deforestation-penalties/

22. Tropical Forests Forever Facility (TFFF) proposes innovative financing model for conservation - COP30, accessed on January 13, 2026, https://cop30.br/en/news-about-cop30/tropical-forests-forever-facility-tfff-proposes-innovative-financing-model-for-conservation

23. SEC abandons defense of climate-related disclosure rules, reducing investor access to material information - Clean Air Task Force, accessed on January 13, 2026, https://www.catf.us/2025/03/sec-abandons-defense-of-climate-related-disclosure-rules-reducing-investor-access-to-material-information/

24. SEC Votes to End Defense of Climate Disclosure Rules, accessed on January 13, 2026, https://www.sec.gov/newsroom/press-releases/2025-58

25. SEC Withdraws Defense of Climate Disclosure Rules - Winston & Strawn, accessed on January 13, 2026, https://www.winston.com/en/blogs-and-podcasts/capital-markets-and-securities-law-watch/sec-withdraws-defense-of-climate-disclosure-rules

26. The SEC Climate Disclosure Rollback - Osmosis US, accessed on January 13, 2026, https://www.osmosisim.com/us/2025/02/19/the-sec-climate-disclosure-rollback/

27. China Carbon Prices Rise as Metals and Cement Enter the National Trading Scheme, accessed on January 13, 2026, https://carboncredits.com/china-carbon-prices-rise-as-metals-and-cement-enter-the-national-trading-scheme-ets/

28. China Expands Its National Carbon Emission Trading Scheme to More Industries, accessed on January 13, 2026, https://www.globalelr.com/2025/04/china-expands-its-national-carbon-emission-trading-scheme-to-more-industries/

29. China National ETS - International Carbon Action Partnership (ICAP), accessed on January 13, 2026, https://icapcarbonaction.com/en/ets/china-national-ets

30. 2025 for carbon markets: new launches and plans, accessed on January 13, 2026, https://gmk.center/en/infographic/2025-for-carbon-markets-new-launches-and-plans/

31. State of Play 2025 - Implementation of the European Sustainability Reporting Standards (ESRS) - EFRAG, accessed on January 13, 2026, https://www.efrag.org/sites/default/files/media/document/2025-07/EFRAG_State%20of%20Play%202025%20Report_0.pdf

32. CSRD – Wave One: Lessons learned, quick fixes and practical tips - EurA AG, accessed on January 13, 2026, https://www.eura-ag.com/en/blog/csrd-wave-one-lessons-learned-quick-fixes-and-practical-tips

33. Adoption status of ISSB Standards | IFRS Foundation, accessed on January 13, 2026, https://www.ifrs.org/content/dam/ifrs/events-and-conferences/2025/september/wss/early-breakout-3-adoption-status-issb-standards.pdf

34. IFRS Foundation publishes jurisdictional profiles providing transparency and evidencing progress towards adoption of ISSB Standards, accessed on January 13, 2026, https://www.ifrs.org/news-and-events/news/2025/06/ifrs-foundation-publishes-jurisdictional-profiles-issb-standards/

35. The first wave of CSRD reporting: What you need to know - KPMG agentic corporate services, accessed on January 13, 2026, https://assets.kpmg.com/content/dam/kpmgsites/xx/pdf/2025/09/csrd-report.pdf.coredownload.inline.pdf

36. CSRD Wave 1 reports are in: Lessons to apply now | Grant Thornton, accessed on January 13, 2026, https://www.grantthornton.com/insights/articles/esg/2025/csrd-wave-reports-are-in-lessons-to-apply-now

37. Supply chain sustainability: Top ways firms track Scope 3 emissions - MIT Sloan, accessed on January 13, 2026, https://mitsloan.mit.edu/ideas-made-to-matter/supply-chain-sustainability-top-ways-firms-track-scope-3-emissions

38. Five reasons why more companies voluntarily report Scope 3 emissions - Sphera, accessed on January 13, 2026, https://sphera.com/resources/blog/five-reasons-why-more-companies-voluntarily-report-scope-3-emissions/

39. WBCSD Launches Emissions Reduction Accelerator (ERA) and value chain pilots at COP30 to drive business action, accessed on January 13, 2026, https://www.wbcsd.org/news/wbcsd-launches-emissions-reduction-accelerator-era-and-value-chain-pilots-at-cop30-to-drive-business-action/

40. How Meta Is Leveraging AI To Improve the Quality of Scope 3 Emission Estimates for IT Hardware, accessed on January 13, 2026, https://engineering.fb.com/2025/10/14/data-center-engineering/how-meta-is-leveraging-ai-to-improve-the-quality-of-scope-3-emission-estimates-for-it-hardware/

41. Global Electricity Mid-Year Insights 2025 - Ember-energy.org, accessed on January 13, 2026, https://ember-energy.org/latest-insights/global-electricity-mid-year-insights-2025/

42. Executive summary – World Energy Outlook 2025 – Analysis - IEA, accessed on January 13, 2026, https://www.iea.org/reports/world-energy-outlook-2025/executive-summary

43. Energy demand from AI - IEA, accessed on January 13, 2026, https://www.iea.org/reports/energy-and-ai/energy-demand-from-ai

44. Departures From Climate Action 100+ Highlight U.S.-Europe Divide Over ESG Investing, accessed on January 13, 2026, https://insideclimatenews.org/news/14092024/climate-action-100-esg-investing-departures/

45. Climate Action 100+ reaction to recent departures, accessed on January 13, 2026, https://www.climateaction100.org/news/climate-action-100-reaction-to-recent-departures/

46. Climate Action 100+ signatories drop out amid fresh Republican probe, accessed on January 13, 2026, https://www.responsible-investor.com/climate-action-100-signatories-drop-out-amid-fresh-republican-probe/

47. European oil and gas companies backtrack on climate - Reclaim Finance, accessed on January 13, 2026, https://reclaimfinance.org/site/en/2025/05/19/the-backtracking-of-major-european-oil-and-gas-companies-on-climate/

48. The Quiet Retreat: Why the oil and gas industry is implementing its own decline, even as the IEA resurrects an old growth scenario, accessed on January 13, 2026, https://carbontracker.org/the-quiet-retreat-why-the-oil-and-gas-industry-is-implementing-its-own-decline-even-as-the-iea-resurrects-an-old-growth-scenario/

49. Heightened Scrutiny of Green Claims in the European Union and Switzerland | Insights | Sidley Austin LLP, accessed on January 13, 2026, https://www.sidley.com/en/insights/publications/2025/03/heightened-scrutiny-of-green-claims-in-the-european-union-and-switzerland

50. The rise of greenwashing amid growing ESG pressures - Watson Farley & Williams, accessed on January 13, 2026, https://www.wfw.com/articles/the-rise-of-greenwashing-amid-growing-esg-pressures/

51. Greenwashing Examples for 2025 & 2026 | Products & Brands - The Sustainable Agency, accessed on January 13, 2026, https://thesustainableagency.com/blog/greenwashing-examples/

52. Deloitte Global's 2025 C-suite Sustainability Survey: From intention to impact | WBCSD, accessed on January 13, 2026, https://www.wbcsd.org/news/deloitte-globals-2025-c-suite-sustainability-survey-from-intention-to-impact/

53. TNFD Adopters, accessed on January 13, 2026, https://tnfd.global/engage/tnfd-adopters/

54. TNFD 2025 Status Report - Taskforce on Nature-related Financial Disclosures (TNFD), accessed on January 13, 2026, https://tnfd.global/tnfd-2025-status-report/

55. TNFD 2025 Status Report, accessed on January 13, 2026, https://tnfd.global/wp-content/uploads/2025/09/250918_TNFD-Status-Report_DIGITAL.pdf?v=1758808860

56. INC-5.2: The global plastics treaty talks - here's what just happened | World Economic Forum, accessed on January 13, 2026, https://www.weforum.org/stories/2025/08/global-plastics-treaty-inc-5-2-explainer/

57. UN Plastics Treaty - Global Plastic Laws, accessed on January 13, 2026, https://www.globalplasticlaws.org/un-global-plastics-treaty

58. CIEL Staff React to End of Resumed Fifth Plastics Treaty Talks, accessed on January 13, 2026, https://www.ciel.org/news/ciel-staff-react-to-end-of-resumed-fifth-plastics-treaty-talks/

59. Intergovernmental Negotiating Committee on Plastic Pollution - UNEP, accessed on January 13, 2026, https://www.unep.org/inc-plastic-pollution

60. Biodiversity credit prices rise in Q4 2025 in highly concentrated market -report, accessed on January 13, 2026, https://carbon-pulse.com/472517/

61. The State of the Voluntary Biodiversity Credit Markets: Key Trends and Insights - Terrasos, accessed on January 13, 2026, https://www.terrasos.co/en/the-state-of-the-voluntary-biodiversity-credit-markets-key-trends-and-insights/

62. Nature markets: how can credits and shares provide durable, additional finance? - Bruegel, accessed on January 13, 2026, https://www.bruegel.org/policy-brief/nature-markets-how-can-credits-and-shares-provide-durable-additional-finance

63. New Global Study Maps Policy for Nature Credit Markets, Revealing Diverse Approaches Across Six Continents - Ecosystem Marketplace, accessed on January 13, 2026, https://www.ecosystemmarketplace.com/articles/new-global-study-maps-policy-for-nature-credit-markets-revealing-diverse-approaches-across-six-continents/

64. The Core Carbon Principles Advancing High-Integrity Climate Action at Scale, accessed on January 13, 2026, https://icvcm.org/wp-content/uploads/2025/12/IC-Impact-Report-2025-FINAL.pdf

65. CCP Impact Report 2025 - ICVCM - Integrity Council for the Voluntary Carbon Market, accessed on January 13, 2026, https://icvcm.org/engagement-impact/ccp-impact-report-2025/

66. 2025 State of Integrity in the Global Carbon- Credit Market | MSCI, accessed on January 13, 2026, https://www.msci.com/downloads/web/msci-com/research-and-insights/paper/2025-state-of-integrity-in-the-global-carbon-credit-market/2025%20State%20of%20Integrity%20in%20the%20Global%20Carbon-Credit%20Market.pdf

67. How to Fully Operationalize Article 6 of the Paris Agreement - Center on Global Energy Policy at Columbia University SIPA | CGEP, accessed on January 13, 2026, https://www.energypolicy.columbia.edu/publications/how-to-fully-operationalize-article-6-of-the-paris-agreement/

68. UN Body agrees first methodology under Paris Agreement carbon market - UNFCCC, accessed on January 13, 2026, https://unfccc.int/news/un-body-agrees-first-methodology-under-paris-agreement-carbon-market

69. AI Discovers Millions of New Stable Materials for Future Technologies → Research - News → Sustainability Directory, accessed on January 13, 2026, https://news.sustainability-directory.com/research/ai-discovers-millions-of-new-stable-materials-for-future-technologies/

70. IBM: How will AI Impact Sustainability in 2025?, accessed on January 13, 2026, https://sustainabilitymag.com/articles/ibm-how-will-ai-impact-sustainability-in-2025

71. AI and the future of sustainability: A climate week conversation with IBM experts, accessed on January 13, 2026, https://www.ibm.com/think/insights/climate-week-qa-ai-sustainability