In less than two decades, the Sustainability Environmental Social and Governance (ESG) narrative has gone from a United Nations initiative, widely considered the first mention of ESG in modern terms1, to a widespread phenomenon. ESG covers a wide spectrum of topics, which are interconnected, but at the same time cover a broad scope of issues from environmental through to diversity, equity and inclusion (DEI). This complexity means companies are finding it increasingly hard to implement the full range of ESG initiatives and directives, particularly across multiple jurisdictions.

Rating companies on their ESG scores is attracting controversy, complicated by divergent views on ESG in different US states, resulting in some states seeking to embrace it in their laws and others excluding it2. This approach differs to the UK and Europe, where there is mainly broad support for ESG initiatives and disclosure rules and mandatory reporting for companies is in the midst of the a significant transformation. 

The European Union (EU) has far reaching targets across climate, sustainability and human rights. This has therefore resulted in stricter disclosure requirements for businesses that operate in this market, most notably the Corporate Sustainability Reporting Directive (CSRD), which expands upon and replaces existing non-financial reporting requirements. In addition, the Sustainable Finance Disclosure Regulation (SFDR) and EU Taxonomy requirements, which aim to promote the move towards more environmentally sustainable investments, are also being enforced.

Increased public scrutiny is also contributing to the concern among global executives. Regulators, watchdogs and activists are keeping a close eye on executives and any wrongdoings are quickly made public.

With executives under pressure from shareholders to abide by new regulations and directives, the need to accurately report on business activities is clear. From an ESG perspective, businesses must not overstate the progress they are making to combat climate change or risk being accused of greenwashing. Greenwashing involves misleading consumers and investors around the climate-friendly benefits of a product or service and can bring significant financial and reputational challenges for organisations. 

For example, Carbon Market Watch, a climate activism organisation, kept a close eye on FIFA during the 2022 Qatar FIFA World Cup following its claim the event would be fully carbon neutral. The organisation later accused FIFA of dramatically underestimating the tournament's emissions levels.6

In Europe in 2024, the European Commission and national consumer protection authorities announced it had started action against 20 airlines for misleading greenwashing practices. While the statement said the EU had worked with Belgian, Dutch, Norwegian and Spanish watchdogs on identifying airlines, it would not name the airlines until the investigation had completed7. With 69% of global executives agreeing[i] their industry will struggle to meet its Net Zero targets, many executives may run the risk of making ESG commitments they cannot meet.