Partners from UK-based law firm Latham & Watkins give their insights into the 10 trends that will shape ESG 2025, spotlighting AI, US politics & much more.
1. US politics
The evolving political landscape in the US is influencing ESG priorities.
The incoming administration's stance on climate and sustainability initiatives, coupled with debates around "fair access" laws and scrutiny of ESG coalitions, creates a complex regulatory environment.
"Many observers are wondering how the incoming Trump administration may affect ESG and sustainability," says Betty M. Huber, Corporate Partner and Board Advisor at Latham & Watkins.
Businesses must stay informed and agile to navigate potential shifts in federal and state policies.
2. EU directives
The EU's regulatory environment continues to advance, with initiatives such as the Corporate Sustainability Due Diligence Directive (CSDDD) and the EU Deforestation shaping Regulation ESG obligations.
Discussions around simplifying ESG frameworks aim to balance sustainability goals with economic competitiveness, but businesses must prepare for the possibility of significant regulatory changes.
3. Mandatory ESG reporting
The transition to mandatory ESG reporting under the Corporate Sustainability Reporting Directive (CSRD) represents a major milestone.
Companies must adopt robust governance mechanisms to comply with new reporting standards, including double materiality analysis and third-party assurance. This shift will redefine how ESG data is collected and disclosed.
4. Value chains
Geopolitical tensions and regulatory requirements are pushing companies to re-evaluate their supply chains.
Near-shoring and reshoring strategies are gaining traction as businesses seek to enhance resilience and comply with frameworks like the CSDDD and the Uyghur Forced Labour Prevention Act.
Tracing value chains to their origins remains a significant logistical challenge.
5. The rise in importance of “traditional” environmental topics
Issues such as pollution control, waste management, and chemical stewardship are regaining prominence. Heightened awareness of topics like PFAS and sustainable packaging is driving stricter regulations.
Businesses must invest in cleaner technologies and circular economy practices to meet these growing expectations.
6. A continued focus on net zero and transition plans
Net zero commitments are under increasing scrutiny, particularly around Scope 3 emissions. Companies are expected to disclose detailed transition plans and demonstrate progress toward 2050 targets.
Regulatory frameworks like the CSRD are compelling businesses to adopt pragmatic, measurable strategies to achieve their climate goals.
7. The importance of AI and its connections with ESG
Artificial intelligence is transforming ESG data management, enabling efficient data collection and analysis. However, ethical concerns such as algorithmic bias and energy consumption must be addressed.
Compliance with frameworks like the EU's AI Act will be crucial as companies integrate AI into their ESG strategies.
“For companies that have committed to environmental and ESG targets and are simultaneously advancing AI and seeking power to do so, managing both goals can lead to a competitive advantage,” Betty explains.
8. The growing connection between anti-trust policies and ESG policies
The intersection of anti-trust enforcement and ESG is becoming more and more pronounced, and Latham & Watkins expects this to continue into 2025.
Regulatory bodies are examining whether sustainable collaborations violate competition laws.
Companies must balance their ESG goals with compliance to avoid regulatory challenges, particularly in jurisdictions like the EU.
9. ESG, greenwashing and DEI litigation
Litigation risks around greenwashing and diversity, equity, and inclusion (DEI) initiatives are increasing.
Companies must ensure transparency in their ESG claims and avoid misleading stakeholders. Enhanced verification processes and adherence to evolving legal standards are critical to mitigating these risks.
10. Biodiversity and natural capital
Biodiversity is emerging as a key focus in ESG strategies. Initiatives like the UN Convention on Biodiversity aim to mobilise substantial funding for conservation efforts.
Businesses are integrating natural capital considerations into their operations, aligning with frameworks such as the Taskforce on Nature-related Financial Disclosures (TNFD).
Read the full article @ Sustainability Magazine
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