ESG outlook in 2025: despite headwinds, no setback on sustainable development

The hot spot for climate policy heading into 2025 is that it will be a tough year for investors and business leaders tracking environmental, social and governance, or ESG, criteria.

After all, the last year has seen considerable backlash against ESG, led by officials in fossil fuel-producing states, and voters just elected a president who called climate change a “scam.” » and pledged to remove incentives for clean energy.

Faced with such headwinds, one might expect executives and fund managers to move away from ESG. But three recent reports on ESG plans by business executives and investors show little sign of backsliding on sustainability and climate goals.

“In fact, we found quite the opposite,” said Marcy Twete, CEO of sustainability consulting firm Veerless. News week. A new report from Veerless says state leadership, international regulatory requirements and growing demand for sustainability from younger consumers will advance ESG.

Twete ​​said the small businesses it works with find competitive advantages in ESG practices, especially if they are suppliers to larger companies with ambitious climate goals. Many large companies, she said, now consider ESG policies as part of their fundamental decisions about material risks and business opportunities.

“In the world of big business, there has been a shift in sustainability from a ‘nice-to-have’ to a ‘must-have’,” Twete ​​said, adding that more companies will need to meet sustainability requirements. climate-related financial information in 2025 if they do so. in Europe, and similar requirements are pending in California.

This view is reflected in an executive survey released this month by financial reporting software company Workiva. The survey of about 1,600 business executives found that 85% of executives said they would move forward on climate disclosure regardless of recent election results or political developments.

Workiva found that most respondents agree that this transparency and disclosure “helps them identify performance gaps that improve opportunities for financial growth.”

A third report released this month explored the ESG attitudes of major investors.

“I don’t see any pullback from any of our investors,” said Maria Lettini, CEO of the US Sustainable Investment Forum. News week. The US SIF is a capital markets network that pioneered sustainable investing in the capital markets nearly 40 years ago and has just released its 15th report on Sustainable Investing Trends in the States -United. The report found that 73% of respondents said they expected the sustainable investing market to grow in 2025 and the following year.

“We don’t think this approach is going to go away,” Lettini said.

U.S. SIF’s analysis of Securities and Exchange Commission filings found that $6.5 trillion, or about 12% of the total U.S. market, has been specifically identified or marketed as sustainable or ESG investments.

Upcoming changes to the SEC in 2025 will significantly influence ESG investing and reporting. This year, an SEC initiative to expand reporting requirements related to climate change risks and emissions has drawn more comment than any other in the commission’s history. The new regulations have been delayed pending legal challenges, and most market observers expect that as the commission’s makeup changes under the Trump administration, the rule will be scrapped.

However, Lettini said, many companies already include climate-related impacts in their financial reports and will continue to do so.

“There is no denying that we are seeing an increase in extreme weather events and physical risks,” she said.

State-level regulations and new rules for companies doing business in the European Union will become more important in the short term, Twete ​​said.

Starting in 2025, companies listed in the EU or with a subsidiary there will have to follow the Sustainability Reporting Directive, and California is developing a similar disclosure rule.

“Any company that does business in California knows they will be subject to these types of compliance demands,” Twete ​​said.

Other sustainable business groups say massive capital flows triggered by climate policies have already launched big projects for electric vehicles, batteries and renewable energy, and that companies won’t simply walk away from those investments .

“I find it hard to believe that this is all going to go away one way or another,” said Mindy Lubber, CEO of Ceres. News week last month. “I just think this momentum is unstoppable.”

Clean technology and renewable energy options are also reaching tipping points in the market that will make them an irresistible option for many companies, a point that climate investor Tom Steyer highlighted in his July interview with News week.

“People don’t understand that renewable energy is much cheaper than fossil fuels and that advantage increases significantly every year,” Steyer said.

Another emerging ESG trend in 2024 likely to continue in the coming year concerns the relationship between some large companies and the industry and business groups to which they belong, and whether these groups have similar views on sustainability .

Microsoft and Unilever released reports this year identifying a “misalignment” between their climate and sustainability goals and the actions of the industry and trade groups of which these companies are members.

Unilever said that of the 27 associations, eight are “misaligned with Unilever in one or more of our priority policy areas”.

In its report, Microsoft said that “we will redouble our efforts to collaborate with the trade association to achieve closer alignment in their advocacy for a more sustainable future.”

This type of corporate sustainability leadership may become more important as companies and trade groups engage in competing climate policy agendas at the federal and state levels. Donald Trump has pledged to ease environmental regulations while states including California, Illinois, Massachusetts and New York push for more climate action.

Twete ​​said she hears from many business leaders who want stability and predictability in the regulatory landscape in order to develop long-term business plans and investments. The type of climate policy reversals that Trump campaigned on might not appeal to them much if they bring more disruption than opportunity.

“We cannot afford to let this pendulum swing back,” she said.