in recent years,ESG(Environmental, Social, and Governance) has become a focal point in the political and cultural debate in the United States, and this is no longer a secret. Several Conservative led states have passed relevant legislation explicitly opposing the inclusion of ESG factors in investment decisions. Meanwhile, companies that are considered to prioritize ESG factors have also encountered resistance. Some well-known politicians even attempt to redefine ESG as the 'awakening of capitalism'.
Recently, ESG advocates have been closely monitoring the newly appointed Trump administration, concerned that it may weaken US climate policies and ESG regulations, such as new regulations requiring listed companies to disclose climate related risks.
Despite the unpredictable political climate in the coming year that brings uncertainty to certain regions, there are still five major trends that keep me optimistic about the future of ESG and sustainability.
1.Although the ever-changing regulatory and geopolitical environment may bring chaos, multinational corporations will continue to push forward the ESG agenda. As the 2024 global elections approach, some current officials may lose their positions, raising expectations that conservative leaders may repeal sustainability regulations and agreements set by their predecessors. These geopolitical changes will undoubtedly bring turbulence and prompt companies to rethink how to communicate their ESG progress. However, it is worth noting that 99% of companies in the S&P 500 index have reported ESG indicators. Most multinational corporations still need to comply with substantive disclosure requirements such as the Corporate Sustainability Reporting Directive. In addition, major markets including China, Hong Kong, Japan, and Singapore have made significant progress in ESG regulation in recent years. Even in the United States, more and more states may follow California's example and develop their own regulations requiring reporting of greenhouse gas emissions and climate change impacts. Therefore, it is expected that by 2025, multinational corporations may be more candid in discussing their ESG initiatives rather than over packaging or introducing new terminology. At the same time, they will continue to invest in best practices and transformational technologies to improve the transparency, accuracy, and reporting efficiency of ESG data.
2.Forward thinking business leaders will continue to value ESG insights as they help reduce risks and enhance resilience. In addition to political factors, climate change, resource scarcity, supply chain disruptions, and social unrest also bring business risks to enterprises. According to global S&P forecasts, if no action is taken, climate risks and extreme weather events could lead to a loss of up to 4.4% in global GDP annually. Therefore, in 2025, business leaders who have a deep understanding of ESG data will be more capable of mitigating these risks. For enterprises that wish to avoid high risks and protect long-term success, promoting sustainability initiatives will continue to be a strategic priority.
3.AI will drive digital transformation in the ESG field, but business leaders need to effectively manage their commitments and potential risks. Amnesty International and other organizations are promoting digital transformation in the fields of ESG and sustainability. According to a survey by PwC, nearly half of the respondents stated that artificial intelligence has been fully integrated into their company's core business strategy. Meanwhile, KPMG's research shows that 58% of organizations believe AI is a key tool for improving ESG capabilities. In 2025, AI will continue to change the way ESG data is collected, analyzed, and reported, providing real-time insights. Enterprise leaders utilizing AI will be able to make faster and wiser decisions, predict market changes, and drive short-term and long-term sustainable growth. However, the power consumption of AI is also increasing, accounting for 1% to 1.5% of the global total electricity. In addition, AI has also raised concerns about governance, privacy, transparency, accuracy, bias, and employee doubts. Therefore, by 2025, financial and ESG team leaders must demonstrate their ability to effectively balance the relationship between AI technology and human insight, fully utilize the potential of AI, and comprehensively address its inherent risks.
4.Companies with ESG teams will benefit from their sustainability acumen. Establishing a sustainable organization requires collaborative efforts among teams, and this demand will become even more urgent in the future. Civil society organizations will continue to play a leading role in ESG strategy development and reporting, while collaborating with the finance department. They will increasingly utilize data provided by environmental, health, and safety (EHS), business, and supply chain leaders to develop and guide ESG strategies. However, in 2025 and beyond, companies still need to integrate ESG, sustainability, and data analysis into the entire organization. For example, a recent study shows that 68% of legal professionals believe there is an increased demand for legal expertise that is oriented towards social responsibility. This sensitivity will be seen as a key factor driving the transformative outcomes, cost savings, overall efficiency, and innovation brought about by companies fulfilling their ESG commitments.
5. Data driven ESG projects will continue to bring significant competitive advantages. Despite the uncertainty in the political environment, the financial reality is that companies that exceed compliance and consistently provide high ESG performance have total shareholder returns and operating profits that are 2.6 times and 4.7 times higher, respectively, than companies with average ESG performance. Strong ESG performance can also improve return on equity, return on assets, and stock prices, as well as business efficiency and risk management level. Therefore, the market size of ESG reporting software is expected to reach $4.3 billion. These data all indicate a core fact: no matter how political sentiment changes, strategic, data-driven ESG and sustainability initiatives will continue to exist and become true tools for driving competitive advantage. In 2025, companies that use ESG data as an innovation catalyst will continue to identify costly inefficiencies, reduce risks, establish stronger stakeholder relationships, and enhance profitability. These are tangible business benefits that visionary business leaders should not overlook.