Entering 2025, there will be significant changes in the field of Environmental, Social, and Governance (ESG). The expansion of regulatory frameworks, strengthening of supply chain reviews, and increasing importance of assurance have led to a rapid evolution of the ESG landscape. At the same time, the integration of artificial intelligence brings both opportunities and challenges, and companies need to find a balance between innovation and sustainability. This article will explore the major ESG trends worth paying attention to in 2025 and provide insights on how companies can respond to these changes to maintain their leading position and meet stakeholder expectations.
1. ESG regulation continues to expand
In 2024, the first batch of enterprises will face challenges from the EU Corporate Sustainability Reporting Directive (CSRD). As time goes by, more companies will be included in the scope of the report, including those that meet one of the following two conditions: annual revenue exceeding 50 million euros, total balance sheet exceeding 25 million euros, or an average annual number of employees exceeding 250. Unlike the first batch of companies, many newly included companies lack the experience advantage of reporting under the Non Financial Reporting Directive (NFRD) replaced by CSRD.
In the United States, California has introduced regulations requiring large corporations to disclose their climate related financial risks and greenhouse gas (GHG) emissions for 2026 based on fiscal year 2025 data. Despite the temporary suspension of SEC rules nationwide, California's vast economic scale is sufficient to encourage many businesses to comply with the new requirements.
The trend of regulatory agencies adopting International Financial Reporting Standards (IFRS) S1 and S2 disclosure standards is becoming increasingly evident worldwide. Australia and Singapore have committed to mandatory disclosure of 2025 sustainable development data based on these standards, while countries such as the UK, Canada, and Japan have also expressed plans to implement similar measures. Regulatory agencies have made appropriate adjustments to the adoption of IFRS S1 and S2 to adapt to the actual situation in their jurisdictions. Enterprises need to closely monitor the movements of relevant regulatory agencies, rather than simply assuming consistency with ISSB.
2. Supply chain risks are highlighted
Supply chain, distribution network, and suppliers have always been key considerations in modern economy. In addition to traditional indicators such as cost, speed, reliability, and adaptability of partners, stakeholders are increasingly demanding transparency in sustainability, ethics, and corporate responsibility for the entire supply chain.
(1) Major supply chain risk enterprises must assess risk factors, including their ability to withstand unpredictable climate disasters, changes in natural resource availability, and carbon tariffs such as the EU CBAM. These factors not only disrupt a company's operational strategy, but also have an impact on its reputation. Investors and customers are concerned about whether companies have the ability to withstand climate related risks, and stakeholders tend to punish related companies due to uncertainty.
Consumer preferences also play an important role in transparency requirements. The 2024 Sustainability Consumer Study by global consulting firm Simon Kucher found that 64% of consumers consider sustainability as one of the three value drivers for purchasing decisions, and nearly 70% of consumers study a brand's sustainability statement. With the development of consumer trends, companies lacking reliable sustainable development data will face dual pressures of consumer brand responsibility and business to business (B2B) revenue responsibility.
(2) One of the most significant downstream impact requirements of regulations such as CSRD and California Climate Law is the disclosure of indirect greenhouse gas emissions, which are Scope 3 emissions under the Greenhouse Gas Agreement. These requirements of large enterprises are gradually permeating throughout the entire supply chain, and also pose demands on small enterprises that do not directly face such regulatory scrutiny.
Although there may be some leniency towards small businesses at present, their constraints are tightening. Large enterprises will seek partners who can provide sufficient sustainable development data to ensure their compliance. Sustainability issues are becoming increasingly common in RFPs, allowing businesses to have a more accurate understanding of the risks faced by their partners and select preferred suppliers when differentiation factors are limited.
(3) With its extensive supply chain, Wal Mart has been a successful case in encouraging partners to improve the transparency of sustainable development. In 2017, Wal Mart launched the "One Billion Tons Project" to involve suppliers in climate action, and achieved the goal of reducing or avoiding one billion tons of greenhouse gas emissions by 2023 by providing participation, education and resources to more than 5900 suppliers.
Other large corporations and conglomerates are also paying attention and developing their own plans to achieve ambitious sustainable development goals. Some companies achieve this goal through shared goals and strengthened cooperation, while others take more punitive measures, requiring suppliers to maintain transparency as a condition for continuing the partnership. It is expected that these two types of measures will expand and mature by 2025.
(4) The potential impact of tariffs is that the incoming Trump administration has consistently expressed its intention to increase tariffs on imported goods. Enterprises need to evaluate the impact of these new taxes, including measuring the risk factors related to sustainable development in different production countries, and understanding whether the return will improve cost-benefit analysis. Offshore outsourcing has always been a cost driven activity, but the wider application of tariffs may disrupt supply chain strategies.
Enterprises that transfer their business in response to changes in import and export costs need to measure and predict how these changes will affect their sustainable development commitments and long-term goals.
3. Reporting integrity becomes the focus
(1) Over the past few years, the proportion of organizations obtaining sustainability and ESG disclosure guarantees has steadily increased. A study by the International Federation of Accountants (IFAC) and the Center for Audit Quality (CAQ) found that from 2020 to 2022, the assurance rate of global companies has significantly increased, from 58% to 69%, and the assurance rate of S&P 500 index companies has increased from 61% to 70%.
Both studies found that the proportion of American companies choosing between reasonable assurance and limited assurance remained unchanged - according to the IFAC sample, this proportion was approximately 18%; According to CAQ, this proportion is approximately 13% in the S&P 500 index. However, CAQ did observe that the number of S&P 500 companies receiving reasonable assurance increased from 31 in 2021 to 62 in 2022.
The growth trend of overall assurance and reasonable assurance may stem from the increasing maturity of sustainable development reports of various enterprises, increased pressure from investor groups on CDP disclosure, and obtaining A-level reputation benefits according to assurance requirements. Due to various reasons, the guaranteed growth rate may continue to exceed the guaranteed maturity rate by 2025.
Limited warranties are required by CSRD and California climate laws, and reasonable warranties are expected to be gradually implemented starting from 2028 and 2030, respectively. Most voluntary incentive measures (such as CDP A-level) require general assurance and differentiated reasonable assurance. The hard cost (estimated median SEC audit cost of $75000- $175000 in 2022) and reasonable assurance resource commitments are relatively high, but there are not many significant benefits compared to limited assurance (estimated median SEC audit cost of $45000- $110000 in 2022). When costs exceed incentives and demand does not exist, companies will continue to act cautiously, avoiding additional scrutiny and reasonable assurance of resource requirements.
(2) Although regulatory agencies and voluntary standard setters generally accept all methods for calculating Scope 3 greenhouse gases in the Greenhouse Gas Agreement, companies face pressure from customers and investors to use more accurate methods beyond expenditure based Scope 3 carbon accounting. Especially for enterprise companies, they are required to provide more accurate scope 3 measurement standards, which will permeate their supply chain and the products they purchase.
Over the past year, we have observed a significant increase in demand for product level carbon footprint data, "shared Kevin Ferris, Sales Director at IsoMetrix. Regulatory pressure is only part of the problem, other stakeholders demand greater data confidence without the government facing procedural barriers
This is consistent with the feedback received in the recent Scope 3 stakeholder survey on greenhouse gas agreements, where many people are dissatisfied with expenditure based carbon accounting. Stakeholders have put forward a series of suggestions, including creating a hierarchical structure of calculation methods that may rank expenditure based calculation methods lower than other methods, establishing contingency factors, fundamentally punishing lower quality calculation methods, and even completely phasing out expenditure based calculation methods.
Obtaining reliable product level data remains a costly approach and can be daunting for many small businesses. This trend may already be on the brink in 2024, but we expect it to strengthen as the threat of losing customers becomes more realistic.
4. Artificial Intelligence Balance Method
(1) The demand for computing power and energy from artificial intelligence (AI) technology has been widely met in the past two years due to its application and adoption. From 2020 to 2023, Microsoft's electricity consumption has more than doubled, and its carbon dioxide emissions have increased by over 40% during the same period. Microsoft, Google, Amazon, and Meta have all announced their intention to invest in nuclear energy as a reliable clean energy source to reduce the impact of artificial intelligence on the climate caused by increasing the load on data center power grids.
Every company is looking for ways to leverage the widespread application of artificial intelligence, but not every company will see an increase in energy usage levels, requiring clear and intentional mitigation measures to balance computing power demands. The energy cost of artificial intelligence will continue to attract attention and scrutiny from large technology circles. It would not be surprising if companies start reporting the emissions avoided by artificial intelligence in 2025.
(2) Although chat GPT has not yet reached the level of creating a complete sustainability report for your enterprise from an unstructured data pool spread across the entire enterprise, there are some time and cost saving applications that can be utilized in sustainability reporting and risk management. Artificial intelligence can effectively process large amounts of data.
Anomaly detection: Applying learning models to label abnormal data for review, alerting managers to potential data input errors or problem areas that may need to be fixed.
Key driving factor analysis: With the help of good data, artificial intelligence can avoid human bias, identify and apply data science models, reveal correlations, root causes, and leading indicators in risk management, especially in environmental, health, safety, and stakeholder participation monitoring.
Natural language summary: Concentrate large amounts of data into actionable insights for leaders to develop wiser strategies in a shorter amount of time.
Predictive forecasting and scenario modeling: Predictive and scenario modeling typically require