The year 2024 witnessed significant developments in the environmental, social, and governance (ESG) and sustainability landscape. As we step into 2025, these dynamics are expected to intensify, driven by regulatory shifts and global geopolitical developments. For companies, investors, and asset holders, staying agile and informed will be essential to navigate the challenges of energy transitions, increased scrutiny of value chains, and the growing phenomenon of “greenlash.” Directors and senior managers will need to integrate ESG considerations into corporate strategies with increasing sophistication and precision.
US Developments
The incoming Trump administration has sparked speculation about its impact on ESG and sustainability initiatives. Despite uncertainties, these areas remain critical for business resilience in 2025.
A Republican-led Congress is expected to continue scrutinizing climate coalitions and organizations. Conservative state attorneys general have previously questioned asset managers’ memberships in climate initiatives, alleging violations of antitrust, fiduciary duty, and consumer protection laws. Related lawsuits and demand letters from US Representatives are set to carry over into 2025. Boards of companies facing such scrutiny must stay informed and ensure their management teams address risks while aligning with publicly disclosed strategies.
Meanwhile, progressive states like California and New York are advancing climate change disclosure obligations. California is pushing for robust reporting standards, and New York recently enacted a climate superfund law to impose fines on companies contributing to climate change. Companies operating across jurisdictions will need to manage physical risks from extreme weather and comply with diverse domestic and international regulations.
US entities operating globally must also navigate federal and state trends against potential reputational or operational risks from diverging global ESG standards. This is particularly relevant as the US may counter the extraterritorial impacts of EU regulations through trade negotiations and legislative actions.
EU Developments
The EU’s ESG regulatory landscape underwent significant shifts in 2024 due to parliamentary elections and evolving Member State dynamics. The Corporate Sustainability Due Diligence Directive (CSDDD) faced delays before eventual adoption, setting a tone of resistance to stringent ESG regulations. Similarly, the EU Deforestation Regulation (EUDR) experienced a year-long delay.
For 2025, European Commission President Ursula von der Leyen has proposed an “omnibus” initiative to simplify key ESG frameworks like the EU Taxonomy, Corporate Sustainability Reporting Directive (CSRD), and CSDDD. While positioned as a simplification effort rather than substantive change, these initiatives reflect an attempt to balance high ESG standards with economic competitiveness.
However, concerns about the economic impact of stringent regulations, especially on small- and medium-sized enterprises, may lead to a dilution of requirements. Non-EU countries have also criticized the extraterritorial implications of these laws. Businesses must monitor the European Commission’s early actions in 2025 and prepare for potential regulatory shifts.
Mandatory ESG Reporting
A significant milestone in ESG reporting will be reached in 2025 with the first mandatory reports under the EU’s CSRD. These reports, primarily from large financial institutions and EU-listed entities, will transition ESG disclosures from qualitative narratives to data-driven formats subject to third-party assurance.
The approach to double materiality analysis, climate change targets, value chain reporting, and limited assurance will set precedents for companies required to report in 2026. Businesses must prepare for heightened scrutiny and ensure their disclosures align with genuine progress, avoiding allegations of greenwashing.
Value Chains Under Scrutiny
Geopolitical tensions, supply chain disruptions, and regulatory requirements are driving a focus on near-shoring and reshoring value chains. Regulations like the CSDDD, EUDR, EU Batteries Directive, and Uyghur Forced Labor Prevention Act demand increased transparency and compliance.
Critical minerals, essential for renewable energy and military applications, will face heightened scrutiny. China’s dominance in this sector raises challenges for US and EU companies aiming to meet sustainability commitments. Responsible sourcing and compliance with human rights standards are becoming critical. Entities may need to support value chain partners with training and resources, while some regions, such as Latin America and sub-Saharan Africa, may capitalize on opportunities to develop sustainable production frameworks.
Litigation and reputational risks linked to environmental and social issues in value chains remain significant. Companies may need to reevaluate market participation, particularly in regions with stringent regulations like the EU. Shifts in sourcing strategies could present new opportunities for other economic regions.
Renewed Focus on Net Zero and Transition Plans
The pursuit of net zero commitments and transition plans continues to gain momentum. Companies are addressing the complexities of measuring and reducing Scope 3 emissions through collaborative efforts with suppliers and customers.
Mandatory reporting frameworks like the CSRD are driving companies to reassess net zero targets and ensure their disclosures reflect genuine progress. This preparation is critical to maintaining trust with stakeholders and avoiding greenwashing allegations.
Detailed transition plans outlining pathways to net zero are increasingly expected. With the CSRD and similar frameworks, companies must balance global regulatory demands with the changing priorities of the Trump administration, including a likely withdrawal from the Paris Agreement and increased support for fossil fuels. Businesses must weigh the financial implications of transitioning to a low-carbon economy against opportunities for innovation and growth.
Conclusion
As 2025 unfolds, the ESG and sustainability landscape will demand proactive adaptation from businesses. Navigating complex regulatory environments, managing value chain risks, and committing to credible net zero goals will be essential for resilience and long-term success. By staying informed and agile, companies can seize opportunities for growth while meeting evolving stakeholder expectations.
References
Betty M. Huber, P. A. (2025, January 9). ESG and Sustainability Insights: 10 Things That Should Be Top of Mind in 2025. Retrieved from Latham & Watkins LLP: https://www.lw.com/en/insights/esg-and-sustainability-insights-10-things-that-should-be-top-of-mind-in-2025
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