The political winds around environmental, social, and governance (ESG) issues have shifted – and not subtly. Under the Trump administration, ESG issues are not a regulatory priority. The SEC has scaled back climate disclosure rulemaking, federal enforcement of environmental mandates has softened, and the broader political climate has emboldened a wave of anti-ESG sentiment across state legislatures, corporate boardrooms, and institutional investment committees alike. The ripple effects are global: Major asset managers have retreated from net-zero coalitions, corporations have quietly scrubbed ESG language from public filings, and even the European Union – long the standard-bearer for sustainability regulation – faces mounting pressure to soften implementation timelines for its own disclosure frameworks. For private equity (PE) firms watching this retreat, the temptation is to deprioritize ESG diligence as a relic of a different regulatory moment. That temptation could be a costly mistake.

Beyond 'compliance,' it’s risk management

The case for ESG due diligence was never principally about compliance but was instead related to risk management. Environmental liabilities do not disappear because an administration declines to enforce them. Contaminated sites still trigger remediation obligations under existing federal and state law. Toxic tort plaintiffs still file suit. Permitting challenges driven by community opposition or environmental impact still delay or defeat projects regardless of which party is in the White House. And critically, cross-border exposure remains very real: The EU’s Corporate Sustainability Reporting Directive and Sustainable Finance Disclosure Regulation remain in force, imposing obligations on portfolio companies with European operations, customers, or supply chains. A U.S. sponsor’s decision to ignore ESG does not insulate its portfolio from the legal regimes of the jurisdictions in which it actually operates.

The greenwashing trap

These risks, moreover, are not confined to the energy sector. PE buyers acquiring health care platforms face ESG issues like supply chain exposure, labor concerns at manufacturing facilities, and biomedical waste liabilities. Additionally, many health care platforms have ambitious sustainability plans that must be evaluated for feasibility and cost. Sponsors investing in technology companies confront supply chain labor practices, conflict mineral sourcing, and data governance failures that generate regulatory action and reputational harm. Consumer and retail targets carry exposure to product safety litigation, labor standards enforcement, and increasingly aggressive state-level environmental packaging and waste regulations.

What deal teams should do

Across every sector, ESG risk is asset-level risk – and it demands asset-level diligence.

Energy and infrastructure remain the most vivid illustration. A firm acquiring a midstream energy asset still faces sustainability concerns (for example, scrutiny regarding long-term viability in a decarbonizing economy) whether the U.S. EPA is enforcing aggressively or not. A sponsor backing renewable energy development still confronts land use conflicts and biodiversity impacts that erode project economics. Community opposition to pipelines, LNG terminals, and transmission lines does not abate because federal policy has shifted; the vacuum left by reduced federal oversight often amplifies local resistance.

But the greenwashing dimension deserves equal attention, and it cuts across every industry. If a target company has made public sustainability commitments in marketing materials, investor disclosures, or ESG reports that it cannot credibly achieve, or that would prove prohibitively expensive to fulfill, the acquiring sponsor inherits that exposure. Greenwashing litigation is accelerating, driven by plaintiff-side firms, state attorneys general, and investor suits alleging material misrepresentation. A PE buyer that fails to stress-test the credibility and achievability of a target’s sustainability claims risks acquiring not an asset, but a liability that may manifest as securities litigation, consumer protection enforcement, or investor demands for costly remediation of commitments the target never had the capacity to honor.

The practical implications for deal teams are straightforward. ESG diligence should begin before the letter of intent, with rapid screening of the target’s environmental footprint, regulatory compliance history, public sustainability claims, litigation exposure, and governance structure. For targets that advance, third-party environmental site assessments, emissions audits, and regulatory compliance reviews should be standard confirmatory diligence. Governance gap assessments – evaluating board oversight, ethics infrastructure, and whistleblower protections – remain critical. And ESG-specific representations, warranties, and indemnities that allocate identified risks with precision may be necessary in certain scenarios. These steps do not depend on the regulatory environment for their value; they depend on the recognition that undiscovered risk is unmanaged risk.

PE firms that maintain rigorous ESG diligence through this political cycle are positioning themselves for durable competitive advantage. Political climates change; asset-level liabilities, litigation exposure, greenwashing risk, and cross-border regulatory obligations do not. The sponsors best positioned to protect value will be those who understood that ESG diligence was never about political fashion – it was always about seeing the deal clearly.