Corporate Sustainability in 2025: Still Not Optional

There has been a significant shift in corporate strategy and global trade in 2025. Companies and their stakeholders are facing unprecedented and uncertain circumstances.

Despite these changes, corporate sustainability and ESG priorities remain crucial. The extreme weather events of 2024 and the January fires in Southern California starkly illustrated that climate risk is, fundamentally, business risk. Investors are maintaining their focus on climate resilience and adaptation across their portfolios and actively engaging with companies to understand these risks thoroughly.

Sustainability disclosure regulations may evolve, but they are here to stay

Companies of all sizes and ownership structures must proactively address the evolving landscape of global and regional sustainability disclosure regulations. Here's a breakdown of key standards and regulatory developments:

• California's climate disclosure laws, among several other states, establish a clear mandate for large companies operating within the state: they must account for and report their greenhouse gas (GHG) emissions. Even for companies technically outside this scope, developing a robust emissions inventory and conducting thorough climate risk assessments has become a best practice. This proactive approach is essential to avoid future regulations, rather than merely reacting to them.
• The Corporate Sustainability Reporting Directive (CSRD) sets out a comprehensive set of disclosure rules for companies with EU operations. Recent updates include a two-year postponement for certain companies, a reduction in the scope of companies required to report, and revisions to the European Sustainability Reporting Standards (ESRS). Many non-EU companies are already preparing for compliance, using this extended timeframe to enhance their readiness.
• Beyond the CSRD, the International Sustainability Standards Board's (ISSB) disclosure standards are gaining global traction, with adoption or consideration in the regulatory frameworks of 30 countries and growing. These standards provide a global baseline for capital markets, guiding voluntary disclosures for all reporters.
• Australia's mandatory climate-related financial disclosures (AASB S2), which are beginning phased implementation this year, exemplify the integration of ISSB-aligned standards into national frameworks. This regime will require large businesses and financial institutions to disclose climate-related risks and opportunities. This includes their governance and risk management approaches, the potential financial impacts of climate change, and their transition plans for a low-carbon economy. Australia's adoption highlights the increasing convergence of financial and sustainability reporting worldwide, and underscores the need for early preparation to meet these evolving regulatory expectations.

The regulations signal a tighter link between sustainability and financial reporting. Companies should align their goals with the regulatory requirements to ensure compliance, mitigate risks and achieve success.

Listen to your stakeholders: Do you understand their priorities?

In order to align reporting efforts with the shifting landscape companies should align with shareholders and stakeholder on sustainability. Identify companies key stakeholders by conducting "listening tours" is an efficient way to understand and address their concerns regarding the changing sustainability regulations. 

Open dialogue around sustainability initiatives will contribute to a broader corporate strategy, which companies can use to gain valuable insights. These insights can then be used to strengthen and refine the strategy for all aspects of the sustainability process. If a company needs to adjust its sustainability commitments, transparency about the reasons and the business context is crucial for maintaining stakeholder trust.

Sustainability requires balancing long-term goals with short-term resources

A sustainability strategy requires balancing shareholder expectations with sustainable growth. Companies should consider the environmental and social risks and opportunities that can be clearly articulated and measured.

While sustainability is inherently a long-term endeavor, companies should also pursue quick wins that deliver immediate financial benefits, such as investments in energy efficiency and waste reduction. A well-defined roadmap that links priorities to broader business goals can help showcase the value of investments to leadership. Companies should regularly update their roadmaps to reflect evolving macro trends, conditions, and stakeholder expectations. Whether developing a long-term decarbonization strategy or implementing a short-term circularity pilot program, integrating these priorities into existing business objectives and processes is the most effective way to advance sustainability goals. The traditional separation of sustainability and other business units is no longer viable.

Stay the course and communicate value

Regardless of the political climate, our advice to sustainability clients remains consistent: tailor your sustainability strategy and disclosures to your specific business context, the expectations of your investors and key stakeholders, and your readiness to comply with regulations.

In 2025, there will be less tolerance for superficial sustainability commitments and communications that lack clear connections to core business strategy and financial performance. This should be viewed as an opportunity to communicate the value of more focused and financially material sustainability programs, backed by strong stakeholder buy-in.