Corporate responsibility assessment in 2025: a trial of ethical business conduct
In 2025, it's no longer a box-ticking exercise for companies to manage Environmental, Social, and Governance (ESG) risks – it's the new heart of sustainability, ethics, and long-term resilience. Our past articles have shown that ESG has moved from the fringes to the forefront of strategy, driven by regulations, investor pressure, and technological advancements. Despite significant progress, persisting challenges remain.
Let's dive into the current state of ESG management, discussing key trends, obstacles, and global dynamics.
Stepping Up the Game – Emerging Trends in ESG Risk Management
Cranking Up Regulations
Since 2020, the regulatory landscape for ESG has exploded. The European Union is taking the lead by introducing policies such as the Corporate Sustainability Reporting Directive (CSRD), defining sustainable economic activities via the EU Taxonomy Regulation, and complementing them with the Sustainable Finance Disclosure Regulation (SFDR). By 2025, the European Securities and Markets Authority (ESMA) is stepping up its game by directly supervising ESG rating providers.
However, regional differences and sectoral constraints make implementing these regulations a formidable task. For instance, regulators are still divided on climate-related issues, so uniform compliance remains an elusive goal.
Bye-Bye to Composite Scores, Hello, Raw Data
It's becoming less common for institutions to rely on composite ESG scores. They're now drawn to raw data that reflects the specific priorities of sectors and regions. Real-time data integration via cloud-based APIs allows companies to customize their scoring models according to their "materiality" definitions.
Data sovereignty has become a political battleground. While initiatives like the European Union's European Sustainability Reporting Standards (ESRS) are emerging, there's still significant reliance on U.S- and U.K.-based ESG providers, demonstrating that global powerhouses still hold dominance.
Time to Expand the Horizons of ESG Metrics
By 2025, the scope of ESG metrics has expanded. Critical issues like biodiversity loss, Scope 3 emissions, and mental health have climbed the rankings. Frameworks like the Task Force on Nature-related Financial Disclosures (TNFD) encourage companies to consider ecosystem threats alongside climate and social risks.
In addition, artificial intelligence (AI) has caught the attention of ESG managers. The upcoming EU Artificial Intelligence Act aims to align AI with societal values, creating an intersection between technology and governance.
Continuing Struggles – Persistent Challenges and Structural Gaps
Looking at the Same Mess Differently – Rating Disparities and Methodological Inconsistencies
Despite regulatory efforts, ESG scores remain fragmented. Correlation between major providers like MSCI, Sustainalytics, and ISS ESG ranges from 0.42 to 0.47. This inconsistency stems from variations in data sources, weighting methods, and scoring assumptions.
It's confusing for investors, and it distorts market signals. A company might be praised by one provider for its environmental performance while penalized by another for weak governance.
Greenwashing – A Persistent Threat
Greenwashing remains a concern as companies may strategically use ESG reporting to accentuate positive metrics, like carbon neutrality, while disregarding critical issues like worker rights or management shortcomings. These unscrupulous practices mislead investors and undermine the credibility of ESG as a performance metric.
Barriers to Access for the Little Guys – SMEs Left Out in the Cold
Small and medium-sized enterprises (SMEs) face many disadvantages in ESG reporting due to high compliance costs and lack of expertise. Although the Corporate Sustainability Reporting Directive (CSRD) offers favorable arrangements for small firms, many SMEs struggle to meet data depth and reporting frequency requirements.
Initiatives like the Global Opportunity Business Initiative (GOBI) ESG Environment (VSME) aim to streamline this process, but accessible feedback and affordable rating services remain in short supply.
In essence, navigating the world of ESG risk management in 2025 presents a myriad of challenges and opportunities. While regulatory pressure, technological advancements, and a greater focus on sustainability are pushing the envelope, persistent inconsistencies and access barriers continue to hamper progress. Adapting to these changes while engaging in informed, transparent, and ethical practices will be vital to success in the ESG era.
- As companies navigate ESG risk management in 2025, they face a challenging landscape that demands an understanding of expanding metrics, such as biodiversity loss, Scope 3 emissions, and mental health, alongside revised frameworks like the Task Force on Nature-related Financial Disclosures (TNFD) and the upcoming EU Artificial Intelligence Act.
- Despite the increased regulatory rigor, such as the European Union's Corporate Sustainability Reporting Directive (CSRD), Sustainable Finance Disclosure Regulation (SFDR), and Sustainable Finance Taxonomy Regulation, the fragmented ESG scoring system, characterized by rating disparities and methodological inconsistencies between major providers like MSCI, Sustainalytics, and ISS ESG, confuses investors and distorts market signals.
