The importance of ESG (Environmental, Social, and Governance) criteria continues to rise across industries. As consumers, investors, and regulators place emphasis on corporate social responsibility, businesses must incorporate ESG practices into their overall strategies and take more robust action.
This article outlines key ESG trends from 2024 and anticipates what legal teams can expect in 2025, including ongoing initiatives, necessary adjustments, and emerging priorities.
An Overview of Environmental, Social, and Governance (ESG) Criteria
ESG criteria help assess how well organizations, both private and public, integrate sustainability and ethical practices into their operations. This extra-financial analysis includes:
Environmental: Focuses on reducing a company’s carbon footprint.
Social: Addresses key issues such as access to employment, wage inequality, and respect for workers’ rights.
Governance: Ensures businesses operate in compliance with laws and stakeholder needs.
What ESG Criteria Looked Like in 2024
Major ESG developments in 2024
The evolution of the European regulatory framework highlights the importance of ESG terms. The Corporate Sustainability Reporting Directive (CSRD) that became effective as of January 1, 2024, obliged companies to integrate ESG criteria across their activities.
More than 80 countries worldwide have adopted laws or regulations governing ESG reporting, with over 2,000 regulations in place that make transparency mandatory across various ESG factors.
Of course, organizations need to comply with these regulations. But they can also leverage them as opportunities. A Schroders Global Investor Study in 2016 revealed that especially young investors place significant value in ESG criteria.
Regulatory Developments
2024 was a pivotal year for ESG, with several European regulations coming into effect, shaping the regulatory landscape. Here’s a a non-exhaustive list of the key developments:
- CSRD: Effective January 2024, the Corporate Sustainability Reporting Directive (CSRD) imposes new rules of enhanced extra-financial reporting regarding governance, environmental, and social factors, to provide a clearer assessment of companies’ impact.
- Directive on Gender Balance on Corporate Boards: Adopted in 2022 by the European Parliament, this initiative promotes greater gender diversity in the leadership of publicly listed companies. By 2026, member States are required to adopt national rules requiring 40% of non-executive directors, or 33% of all board members of listed companies, to be women.
- Equality Promotion Directives: In May 2024, the EU adopted new directives aimed at strengthening anti-discrimination measures across Europe, providing a unified framework for member states.
- European Green Claims Directive: Passed in January 2024, this regulation sets clear standards to prevent misleading environmental claims (greenwashing) in product labeling.
- Deforestation-Free Products Regulation: Coming into effect in December 2024, this regulation imposes strict due diligence obligations on companies importing key products, ensuring they do not contribute to deforestation.
3 Key ESG Trends
Evolving Consumer Expectations
Consumer expectations have shifted significantly, with growing awareness of corporate environmental and social impacts. In response, businesses are expected to take action, adding to the pressures of legal compliance.
ESG has become way for brands to differentiate themselves from competitors. Companies leading the way with initiatives such as sustainable supply chains, recycled products, and community engagement programs enhance their brand image and strengthen customer relationships.
Public Opinion and NGO Influence
The influence of public opinion and advocacy groups on ESG priorities is becoming more apparent. Campaigns highlighting harmful business practices can prompt swift changes in corporate strategies, as companies seek to avoid public backlash. For instance, boycotts in the fashion industry over poor working conditions have led to significant supply chain reforms.
External pressure is now a significant driver of ESG integration.
Development of ESG Skills in Legal Departments
In 2024, demand for ESG-related roles grew substantially, underlining the strategic importance of these issues within businesses. Legal teams are expanding their skill sets to meet this shift, requiring continuous training and the hiring of ESG specialists. Birdeo, a recruitment firm specializing in the ESG transition, reports high demand for positions such as CSRD project leads and sustainable transformation managers.
This trend is also influencing job seekers, with candidates increasingly prioritizing employers that incorporate ESG responsibility into their strategies.
Looking Ahead to 2025
The dynamics around ESG are constantly evolving, driven by new regulatory frameworks, increased litigation, and heightened scrutiny from investors and stakeholders. 2025 promises both challenges and opportunities.
Heightened Focus on Greenwashing
In Europe, concerns around greenwashing have gained momentum, prompting stricter regulatory oversight. European regulations now require companies to substantiate environmental claims with verifiable data. Legal teams will need to ensure that environmental statements comply with disclosure requirements, implementing rigorous verification processes.
Sustainable Finance and Energy Transition
With the revision of the Sustainable Finance Disclosure Regulation (SFDR), European businesses will need to align sustainability goals with concrete and measurable transition plans. The automotive sector, for example, faces mounting pressure to reduce CO₂ emissions in line with the European Commission’s goal of climate neutrality by 2050.
Legal departments will need to adapt, establishing new compliance procedures while ensuring adherence to evolving European environmental regulations.
Diversity, Equity, and Inclusion
In Europe, diversity, equity, and inclusion (DEI) remain central to ongoing discussions. Emerging regulations, such as pay transparency laws, aim to reduce gender pay gaps and promote equal opportunities in the workplace. Legal teams must ensure that internal policies align with these new obligations.
Convergence of ESG and Human Rights
In 2025, corporate social responsibility will increasingly focus on human rights due diligence. Companies will be required to demonstrate their commitment to human rights protection across their supply chains. This will involve conducting audits to identify and mitigate abuses. Legal teams will face challenges in verifying and documenting compliance commitments throughout the supply chain, ensuring suppliers adhere to ethical and legal standards through rigorous processes.
Legal Teams at the Forefront of ESG changes
2024 saw significant regulatory advancements in ESG, and companies must be prepared to tackle new challenges in 2025. To meet growing consumer and investor expectations, as well as future regulatory requirements, businesses must continuously adapt to a shifting regulatory landscape. Legal teams play a critical role in ensuring full compliance with ESG regulations, contributing to brand reputation and positively influencing overall business success. To respond and be ready for these new challenges legal teams must count on the appropriate governance tools, to facilitate work and ensure no outdated legal processes jeopardize ESG reporting and practices.
