ESG Outlook in 2025: Despite Headwinds, No Retreat From Sustainability

The hot take on climate politics heading into 2025 is that it will be a tough year for investors and business leaders who follow environmental, social and governance, or ESG, criteria.

After all, the past year saw considerable backlash against ESG led by officials in fossil fuel-producing states, and voters just elected a president who has called climate change a “scam” and pledged to undo clean-energy incentives.

With headwinds like that, one might expect executives and fund managers to pull away from ESG. But a trio of recent reports on ESG plans by corporate leaders and investors shows little sign of retreat from sustainability and climate goals.

“Actually, we’ve been seeing more the opposite,” Marcy Twete, CEO of sustainability consulting firm Veerless, told Newsweek. A new report from Veerless said that state leadership, international regulatory requirements and growing demand for sustainability from younger consumers will move ESG forward.

Twete said smaller companies she works with find competitive advantages in ESG practices, especially if they are suppliers to larger companies with ambitious climate goals. Many larger companies, she said, now consider ESG policies part of their core decisions on material risk and business opportunity.

“In the big corporate world, there’s been this movement of sustainability from a ‘nice to have’ to a ‘must do,'” Twete said, adding that more companies will have to meet climate-related financial reporting requirements in 2025 if they do business in Europe, and similar requirements are pending in California.

That view is reflected in a survey of executives released this month by the financial reporting software company Workiva. The survey of roughly 1,600 company leaders found 85 percent of executives said they will move forward with climate disclosures regardless of recent election results or political developments.

Workiva found most respondents agreed that such transparency and disclosure “helps them identify performance gaps that enhance financial growth opportunities.”

A third report released this month explored ESG attitudes among major investors.

“I don’t see a retrenchment when it comes to any of our investors,” Maria Lettini, CEO of the US Sustainable Investment Forum, told Newsweek. The US SIF is a capital markets network that pioneered sustainable investing for the capital markets nearly 40 years ago and just issued its 15th report on U.S. sustainable investing trends. The report found 73 percent of respondents said they expect the sustainable investment market to grow in 2025 and the following year.

“We do not think that this approach is going away,” Lettini said.

The US SIF analysis of Securities and Exchange Commission records found $6.5 trillion, or about 12 percent of the total U.S. market, was specifically identified or marketed as sustainable or ESG investment.

Coming changes at the SEC in 2025 will substantially influence ESG investing and reporting. An SEC initiative this year to expand reporting requirements related to climate change risks and emissions drew more comments than any in the commission’s history. The new regulation was postponed pending legal challenges, and most market observers expect that as the commission’s makeup changes under the Trump administration, the rule will be dropped.

However, Lettini said, many companies are already including climate-related impacts in their financial reporting and will continue to do so.

“There’s no turning back on the fact that we’re seeing extreme weather events and physical risk increasing,” she said.

State-level regulations and new rules for companies doing business in the European Union will become more important in the near term, Twete said.

Beginning in 2025, companies listed in the EU or that have a subsidiary there will have to follow the Corporate Sustainability Reporting Directive, and California is developing a similar disclosure rule.

“Any business that’s doing business in California knows that they’re going to be subject to these kinds of compliance asks,” Twete said.

Other sustainable business groups argue that the massive capital flows triggered by climate policies have already launched major projects for EVs, batteries and renewable energy, and companies will not simply walk away from those investments.

“I find it hard to believe that all of that is somehow going to disappear,” Ceres CEO Mindy Lubber told Newsweek last month. “I just think that momentum is unstoppable.”

Clean tech and renewable energy options are also reaching tipping points in the marketplace that will make them an irresistible option for many businesses, a point that climate investor Tom Steyer made in his July interview with Newsweek.

“People don’t understand that renewables are much cheaper than fossil fuels and that that advantage is growing dramatically every year,” Steyer said.

Another emerging ESG trend in 2024 likely to continue in the coming year has to do with the relationship between some major companies and the industry and trade groups they belong to, and whether those groups hold similar views on sustainability.

Both Microsoft and Unilever issued reports this year that identified “misalignment” between their climate and sustainability goals and the actions by industry and trade groups where those companies are members.

Unilever reported that of the 27 associations, eight are “misaligned with Unilever in one or more of our priority policy areas.”

In its report, Microsoft said that “we will redouble efforts to engage with the trade association to drive closer alignment in their advocacy for a more sustainable future.”

That kind of corporate leadership on sustainability could become more important as companies and trade groups engage with competing climate policy agendas at the federal and state levels. Donald Trump has pledged to unwind environmental regulations while states such as California, Illinois, Massachusetts and New York push for more climate action.

Twete said she hears from many corporate leaders who want stability and predictability from the regulatory landscape in order to make long-term business plans and investments. The type of reversals on climate policy that Trump campaigned on might not hold much appeal for them if they bring more disruption than opportunity.

“We can’t afford to have this pendulum swing all the way back again,” she said.