Climate-related insights will shape ESG and sustainability

THE future of Environmental, Social and Governance (ESG) considerations and sustainability practices is increasingly promising, reflecting a paradigm shift in how businesses, investors and society approach climate change, and its associated challenges. As we navigate this evolving landscape, several critical climate-related insights are emerging that will shape the future of ESG and sustainability initiatives. Here are five key insights to consider in 2025:

– Consequences for inaction among business leaders: The top 20 global polluters — all in the fossil fuel industry — contributed 35 percent of all energy-related carbon dioxide (CO2) and methane worldwide, according to the Climate Accountability Institute. As climate change intensifies and its impact becomes more evident, business leaders who fail to act on sustainability will increasingly face significant consequences. Stakeholders, including investors, consumers and employees, are holding companies accountable for their ESG performance.

Companies that neglect to integrate sustainability into their core strategies risk damaging their reputations, losing competitive advantage and facing financial repercussions. The demand for responsible business practices is growing, and organizations must recognize that inaction is no longer a viable option. Those who proactively embrace sustainability will position themselves favorably in the marketplace, while complacent businesses may find themselves struggling to survive.

– The shift toward carbon offsetting: Carbon offsetting refers to “making up for” the emissions of greenhouse gases like CO2. It has emerged as an essential component of corporate sustainability strategies. As organizations strive to reduce their carbon footprints, many are investing in projects that capture or prevent the release of CO2, such as reforestation or renewable energy initiatives.

However, the effectiveness of carbon offsetting relies on rigorous standards and transparency. Companies must ensure that their offsetting initiatives are credible and impactful. As the market for carbon offsets matures, businesses will need to navigate regulatory frameworks and verify claims to avoid accusations of “greenwashing,” and to genuinely contribute to climate mitigation.

– The rise of “climate positive” over “net zero”: The concept of “climate positive” is gaining traction as companies seek to go beyond simply achieving net-zero emissions. While “net zero” implies balancing emissions produced with emissions removed, climate-positive organizations aim to achieve a net reduction in greenhouse gases (GHG). This ambitious goal requires them to actively contribute to the restoration and revitalization of ecosystems, neutralizing GHG’s impact while providing environmental benefits. As this concept becomes more mainstream, businesses will be encouraged to adopt more aggressive climate strategies that demonstrate genuine leadership and commitment to long-term sustainability.

Call for authenticity

– Disclosure of climate risks as an organizational responsibility: An increasing number of regulatory bodies and stakeholders demand that organizations disclose their climate-related risks and their impact on operations. The Task Force on Climate-related Financial Disclosures has propelled this conversation forward, urging companies to provide transparent assessments of how climate change could affect their financial performance and long-term strategies.

Companies that prioritize meaningful disclosures comply with regulatory requirements and enhance their credibility and foster trust among stakeholders. By actively sharing their climate risks and mitigation strategies, they can better prepare for the uncertainties posed by climate change while aligning with broader sustainability goals.

– Consequences of greenwashing: As ESG and sustainability practices become integral to corporate strategies, the risk of greenwashing — the practice of making misleading claims about environmental benefits — grows. Stakeholders are becoming increasingly discerning and savvy, able to identify and challenge companies that falsely promote their sustainability efforts or exaggerate their environmental credentials. Regulatory scrutiny around greenwashing is intensifying, with authorities taking steps to penalize such practices.

Companies must, therefore, ensure that their marketing and communications align with their actual practices and commitments. Demonstrating genuine sustainability efforts and verifying claims through third-party assessments will be essential to maintaining credibility in a landscape that prioritizes transparency.

The future of ESG and sustainability is characterized by heightened expectations for accountability, innovation and collaboration. The abovementioned emerging climate-related insights will significantly influence how organizations navigate this complex landscape.

As the demand for responsible and sustainable practices increases, businesses that proactively embrace these insights thrive and contribute to a more sustainable and equitable future for generations to come. The path forward is full of challenges, but it also holds unprecedented opportunities for those willing to lead in sustainability and climate action.

The author is the founder and chief strategic advisor of the Young Environmental Forum and a director of Climate Tracker Asia Inc. He completed a climate change and development course at the University of East Anglia (UK) and an executive program on sustainability leadership at Yale University (USA). You can email [email protected].