Why businesses are still dedicated to ESG, even as governments pull back

As governments around the world scale back on sustainability mandates — notably the United States, which has withdrawn from the Paris Agreement, and the European Union, which recently simplified requirements under its Corporate Sustainability Reporting Directive (CSRD) — many multinational companies are moving in the opposite direction. 

This move is a strategic one, according to a recent research conducted with the University of Cambridge, and DNV, an independent assurance and risk management provider.

Strategy more so than compliance

Conducted with the Masters of Philosophy in Engineering for Sustainability Development Programme at the University of Cambridge, in partnership with DNV, this research surveyed 43 multinational organisations — 72% of which operate business-critical functions across continents and more than half employing over 1,000 staff. It particularly focussed on the EU’s CSRD regulations. 

Introduced in 2023, the CSRD is the most comprehensive ESG regulation to date. It requires businesses to report extensively on their environmental and social impact, including data from their supply chains. 

Yet the study found that 71% of respondents were already engaged in sustainability reporting before the directive became mandatory — not because of legal obligation, but to meet rising expectations from customers and employees.

After all, seven in ten businesses reported that stronger ESG compliance has boosted their value to investors and shareholders, with many citing direct business benefits such as enhanced stakeholder trust and customer acquisition. Operational advantages were also brought up: 44% said ESG reporting has improved efficiency, while two-thirds said it has helped them manage risks, particularly around supply chain disruptions.

“Our findings show that businesses that are embracing ESG regulations are seeing concrete benefits across operations and stakeholder engagement;” said Elizabeth Appel, student of the Masters in Philosophy student in Engineering for Sustainable Development programme, University of Cambridge. “Benefits that make them more resilient in the face of shifting markets, dynamic regulatory landscapes, and a changing climate.” 

“We find that businesses that invest in ESG see wider engagement on internal sustainability initiatives and innovation, which creates a forward-thinking culture that sets them apart from competitors.”

The difficulty with compliance

Despite these benefits, full compliance is a far harder matter to adhere to. Only 7% of companies were going beyond CSRD requirements, suggesting that the complexity of the directive, and its resource-intensive regulations may serve as a barrier for most businesses.

Perhaps in response to these challenges, the European Commission introduced its Omnibus Simplification Package earlier this year — just before the survey was conducted — aiming to ease the regulatory burden on businesses. The package is particularly aimed to reduce complexity for smaller businesses, while maintaining a stricter regulatory framework on the largest corporations, which are more likely to have an impact on the climate and the environment. Overall, this amendment is expected to deliver over €6 billion (SG$8.8 billion) in administrative relief.

Still, companies face persistent barriers. Integrating sustainability into financial systems (19%), managing ESG data (18%), and conducting supply chain due diligence (33%) remain key operational challenges. To accelerate progress, respondents asserted that clearer regulatory guidance (26%), financial support (26%), and better digital reporting tools (23%) would be instrumental external tools.

Learning from each other

Interestingly, a separate, earlier report by Forvis Mazars, revealed that the Asia-Pacific region may be slightly ahead in some regards. That report cited that 54% of Asia Pacific (APAC) organisations were already embedding sustainability metrics directly into their financial reporting. Within this, sustainability appears to be treated as a core part of corporate value creation, not an additive. 

As companies around the world grapple with the complexities of ESG regulation, there may be valuable lessons to draw from the more integrated approaches being taken in the Asia-Pacific region.

“Regulation such as the CSRD is accelerating a fundamental shift in how businesses think about sustainability.” said Lars Sorum, Regional Manager, Europe, Supply Chain and Product Assurance, DNV. “But while the ambition is high, capability often lags. To realize the full operational and strategic value of ESG, businesses need the right tools, resources and expertise.”

“The additional time is a gift,” Sorum added, speaking of the recent longer runway provided by the CSRD. “Use it to integrate ESG into your financial, governance and supply chain systems. Businesses that move early will be better positioned to meet stakeholder expectations and outperform competitors in a more transparent, sustainable economy.”