Environmental, social and governance (ESG) principles continued to gain momentum in 2024, shaping corporate strategies, regulatory frameworks, and stakeholder expectations worldwide. This year saw significant advancements in regulations, technological integration, and metrics standardization.

However, these developments were accompanied by challenges, such as data inconsistencies, rising costs, geopolitical tensions, and legal disputes. Regional disparities in ESG adoption became increasingly evident, with the EU pressing forward with robust ESG frameworks while the United States grappled with significant political resistance and legal challenges.

Let's compare and contrast the paths ESG has taken in the two regions this past year, and how those differences will likely shape the outlook for ESG in the U.S. and the EU in 2025 and beyond.

1. Strengthening ESG Regulations and Standards

Regulatory frameworks around ESG became increasingly stringent in 2024, reflecting global efforts to align business practices with sustainability goals.

• European Union Leadership : The EU solidified its position as a global leader in ESG regulation by pressing forward with the Corporate Sustainability Reporting Directive (CSRD). This directive mandates extensive disclosures, including Scope 1, 2, and 3 greenhouse gas emissions, biodiversity impacts, sustainability impacts, ecosystem restoration initiatives, and social responsibility. Under the directive, covered EU and non-EU companies are required to disclose adverse environment and human rights impacts and are required to develop climate change mitigation plans. Despite economic uncertainties, the EU maintained its commitment to advancing ESG, signaling that sustainability is non-negotiable in its policy agenda.
• U.S. SEC Climate Disclosure Rule : In contrast to the EU's firm regulatory approach, the U.S. faced significant pushback as the Securities and Exchange Commission (SEC) finalized its climate disclosure rules. While the rules mandated reporting on emissions, climate risks, and certain diversity metrics, they immediately sparked lawsuits from business groups and Republican-led states, reflecting deep polarization over ESG and climate disclosures in the U.S. regulatory environment.
• Emerging Markets Stepping Up : Emerging economies began to play a larger role in ESG regulation. Brazil strengthened anti-deforestation laws to preserve the Amazon and protect biodiversity, while India introduced tax incentives for renewable energy, biodiversity restoration projects, and waste management technologies. These actions signaled a growing global consensus on the importance of ESG integration.

2. Technological Integration into ESG Strategies

Technology continued to play a transformative role in advancing ESG objectives in 2024, with new tools enhancing data collection, analysis and reporting.

• AI for Predictive Insights : Artificial intelligence (AI) became a critical tool for analyzing vast datasets, identifying inefficiencies, and predicting risks. AI also enabled companies to model potential climate impacts on their operations, helping them prepare for and mitigate risks.
• Blockchain for Transparency : Blockchain technology gained traction for verifying ESG claims such as ethical sourcing, carbon offsets, and supply chain traceability. By creating immutable digital records, blockchain reduces risk of fraud and greenwashing, increasing trust among stakeholders.
• IoT for Real-Time Monitoring : Internet of Things (IoT) devices provided granular, real-time data on emissions, water usage, energy consumption, and biodiversity monitoring in industrial and agricultural areas. These insights allowed companies to track progress against their ESG targets and optimize resource efficiency.
• Carbon Accounting Innovations : Advanced platforms for tracking carbon footprints, including Scope 3 emissions, allowed companies to measure and manage their impact more accurately. These tools were especially critical for organizations aiming to meet net-zero commitments.
• Collaborative Digital Platforms : Platforms connecting suppliers, regulators, and companies facilitated seamless data sharing and collective problem-solving, improving the accuracy and comprehensiveness of ESG reporting.

3. Evolving Metrics and Reporting Practices

Efforts to standardize ESG metrics accelerated in 2024, addressing inconsistencies that had long hindered comparability and credibility. However, regional differences in regulatory priorities became increasingly evident, particularly in the treatment of materiality.

• Global Standards Harmonization : The International Sustainability Standards Board (ISSB) continued its efforts to consolidate frameworks from the Global Reporting Initiative (GRI), Sustainability Accounting Standards Board (SASB), and Task Force on Climate-Related Financial Disclosures (TCFD). The ISSB's standards primarily focus on enterprise value, aligning materiality definitions with financial impact. This approach has gained traction globally but there continue to be issues with the interoperability of ISSB and EU materiality requirements.
• Double Materiality in the EU : The CSRD stands out for its explicit inclusion of double materiality. Under this framework, companies must disclose not only how sustainability issues affect their financial performance, but also how their operations effect society and the environment. This dual lens distinguishes the EU's approach from the U.S. and ISSB standards, which prioritize enterprise value. The EU's emphasis on double materiality reflects its commitment to holistic sustainability reporting, requiring companies to assess and disclose biodiversity impacts, deforestation risks, and social equity initiatives alongside financial risks.
• U.S. Proposals on Materiality : The SEC's proposed climate disclosure rules, which are currently subject to multiple challenges, focused narrowly on financial materiality, requiring companies to report on climate risks that are likely to affect their bottom line or investor decision-making. Unlike the EU's broader approach, these requirements stop short of mandating disclosures about societal or environmental impacts unless they pose a direct financial risk. This divergence highlights the more cautious and financially focused ESG trajectory in the U.S.

4. Enhanced Focus on Social and Governance Pillars

While environmental concerns have historically dominated ESG priorities, 2024 saw heightened emphasis on the social and governance dimensions. However, this shift also brought new challenges, particularly in the U.S., where support for diversity, equity and inclusion (DEI) initiatives has given rise to risk of significant backlash.

• Social Responsibility : Companies faced growing pressure to demonstrate their commitment to DEI, with workforce diversity metrics, pay equity initiatives, and ethical labor practices becoming central components of ESG strategies. Many businesses also increased investments in community development, funding local education, healthcare, biodiversity protection, and infrastructure projects. However, in the U.S., DEI programs faced pushback from political groups and legal challenges, with critics alleging reverse discrimination and questioning the legality of certain workplace practices. Most recently, in a 9-8 en banc ruling in Alliance for Fair Board Recruitment v. Securities and Exchange Commission, No. 21-60626-CV0, the U.S. Court of Appeals for the Fifth Circuit struck down the SEC's approval of Nasdaq's board diversity rules. Some U.S. companies are pulling back from their prior DEI commitments, and some of the businesses that continue to support DEI initiatives are changing how they talk about diversity.
• Governance Reforms : Investors and stakeholders demanded greater accountability in corporate governance. Companies responded by enhancing board diversity, aligning executive compensation with ESG performance, and strengthening anti-corruption policies. Despite this progress, the political climate in the U.S. created challenges for companies trying to balance governance reforms with backlash against broader ESG priorities, including DEI.
• Human Rights Due Diligence : High-risk sectors like apparel and electronics saw expanded adoption of human rights due diligence frameworks to address risks such as forced labor and unsafe working conditions. These efforts were often driven by regulations like the EU's supply chain due diligence directive, which required companies to take a more active role in ensuring ethical sourcing. In the U.S., human rights efforts were less centralized, as federal regulation and oversight is limited and state-level laws created inconsistent requirements for companies.
• Stakeholder-Driven Leadership : Executive decisions increasingly reflected stakeholder interests, with sustainability and equity objectives incorporated into strategic goals. Leadership accountability was emphasized through performance-linked compensation. However, navigating polarized stakeholder views on ESG - particularly in regions where DEI and governance reforms were contested - became a growing challenge for corporate leaders.

5. ESG-Related Litigation in 2024

Litigation became a defining feature of ESG developments in 2024, as stakeholders used legal avenues to address perceived failures in sustainability and governance. Key categories included:

• Challenges to ESG Regulations : In the U.S., the SEC's climate disclosure rules became a flashpoint in the broader cultural and political battle over ESG. Lawsuits from business groups and Republican-led states accused the agency of regulatory overreach, framing ESG as an imposition on free-market principles. The proposed rule has been stayed pending decision on the consolidated cases by the U.S. Court of Appeals for the Eight Circuit, and many believe it is likely to be rescinded by the Trump administration. This pushback contrasted starkly with the EU, where similar measures have faced little resistance and are broadly accepted as necessary for global sustainability goals.
• Global Climate Litigation: Across the globe, governments, corporations, and financial institutions faced lawsuits for failing to meet climate commitments or exacerbating environmental harm. Island nations pursued international litigation against major emitters, claiming damages from rising sea levels. On Dec. 2, 2024, landmark public hearings on that case began in Hague before the International Court of Justice (ICJ) on United Nations member states' legal obligations under international law with respect to climate change.

On completion of the process, the ICJ will issue an advisory opinion, which will clarify U.N. states' legal obligations under international law and the consequences for breaching them.

The U.S. has seen an increase in adversarial climate litigation. State and municipal governments filed lawsuits against fossil fuel companies, alleging decades of deception and demanding compensation for climate-related damages. Legal actions also targeted manufacturers of single-use plastics for environmental harm, pushing for accountability and cleanup costs.

• DEI Litigation : DEI programs in the U.S. faced legal scrutiny, with plaintiffs alleging reverse discrimination in hiring practices and workplace policies. These cases were fueled by U.S. Supreme Court's 2023 decision in Students for Fair Admissions, Inc. v. President and Fellows of Harvard College, striking down affirmative action in college admissions. In response to these lawsuits and broader societal resistance, some companies scaled back or restructured their DEI programs to emphasize merit-based systems while avoiding explicit references to race or gender.
• Greenwashing Allegations : Companies faced a growing number of lawsuits for overstating sustainability achievements, such as carbon neutrality or ethical sourcing, without verifiable evidence. Disputes over fraudulent or unverified carbon credits and misleading product labels further highlighted weaknesses in verification systems.
• Supply Chain Accountability : Lawsuits targeted companies for human rights violations and environmental harm within their supply chains, particularly under laws like the U.S. Uyghur Forced Labor Prevention Act and EU supply chain due diligence directives, including the EU Directive on Corporate Sustainability Due Diligence and the German Supply Chain Due Diligence Law
• ESG Enforcement Actions: Federal agencies took a more active role in investigating and penalizing non-compliance with ESG regulations. The SEC initiated enforcement actions against companies for failures in climate risk disclosures and greenwashing, while the Department of Justice (DOJ) pursued cases related to environmental violations and human rights abuses in supply chains. These actions continued after the SEC disbanded its SEC Task Force, underscoring the continuing regulatory focus on accountability and transparency in corporate ESG related disclosures.

6. Investor Activism and Stakeholder Engagement

Investor activism and stakeholder engagement remained powerful forces driving ESG priorities in 2024, fostering accountability and collaboration across industries. While both the EU and U.S. experienced significant engagement, their approaches often reflected broader regional differences in ESG adoption and priorities.

• Shareholder Advocacy : Institutional investors filed resolutions addressing climate action, DEI initiatives, and governance reforms. In the EU, shareholder campaigns frequently aligned with stringent regulatory frameworks, emphasizing biodiversity preservation, emissions reduction, and social equity. By contrast, in the U.S., shareholder proposals often faced greater resistance this past year.
• Employee Engagement : Employees across sectors became vocal advocates for ESG improvements, focusing on workplace equity, pay transparency, and sustainable business practices. In the EU, employee engagement often centered on aligning corporate practices with regional social welfare and sustainability goals, whereas U.S. employee advocacy frequently encountered political or legal resistance to ESG priorities.
• Consumer Pressure : Consumers on both sides of the Atlantic demanded more ethical and sustainable products, pushing businesses to reduce greenhouse gas emissions and carbon footprints, and continuing the growing trend in recent years toward greater transparency.
• Cross-Sector Partnerships : Collaboration among businesses, NGOs, and governments tackled systemic challenges like deforestation, forced labor, and industry decarbonization. The EU excelled in leveraging public-private partnerships to advance sustainability goals, often supported by strong regulatory incentives. In the U.S., funding and tax credits provided by the Bipartisan Infrastructure Law and Inflation Reduction Act provided substantial inducements for cross-sector efforts.
• Biodiversity Activism : In both regions, activist investors prioritized biodiversity conservation, pressuring companies in industries like agriculture, mining, and forestry to adopt stricter practices. EU biodiversity activism often aligned with regulatory requirements, such as deforestation-free supply chain mandates, whereas U.S. efforts were more market-driven, reflecting stakeholder and consumer expectations rather than regulatory mandates.

7. Challenges in ESG Implementation

Despite progress, implementing ESG principles remains a complex undertaking, with persistent challenges that hinder progress:

• Data Gaps and Inconsistencies : Collecting reliable and consistent data from global supply chains remains a significant challenge, particularly for small and medium-sized suppliers with limited resources. The emphasis on Scope 3 emissions in the EU and ISSB standards has further exposed these data collection gaps.
• High Costs of Sustainability : Transitioning to renewable energy, implementing traceability technologies, and meeting compliance standards often require substantial financial investment. The EU's stringent double materiality requirements have increased compliance costs for multinational corporations, while U.S. firms face uncertainties due to fragmented regulatory landscapes.
• Geopolitical Risks : Geopolitical factors exacerbated the divergence between ESG approaches in the U.S. and EU. The EU, focused on building ESG resilience in supply chains, emphasized cross-border cooperation on issues such as deforestation and biodiversity. In the U.S., political tensions around ESG fostered uncertainty, as state and federal governments sent mixed signals to corporations regarding compliance expectations.
• Greenwashing Risks : In the EU, greenwashing risks prompted stricter regulatory oversight and enforcement to ensure credibility in ESG claims. The U.S. regulatory environment, marked by increased litigation and growing enforcement actions by agencies like the SEC, has created a challenging landscape for companies seeking to balance ambitious sustainability goals with compliance demands.
• Measurement and Benchmarking Challenges : The absence of globally harmonized metrics for key ESG indicators, including biodiversity impacts, deforestation rates, and Scope 3 emissions, complicates efforts to evaluate and report progress. The EU's double materiality approach has set a high bar, contrasting with the ISSB's narrower enterprise value focus and the contested U.S. financial materiality framework.
• Regulatory Fragmentation : Companies operating in multiple jurisdictions must navigate diverging ESG frameworks, such as the EU's CSRD, ISSB's global standards, and the U.S.'s state-level ESG mandates. This patchwork of regulations complicates compliance strategies and increases operational complexity and costs.
• Climate Change Disruptions : Extreme weather events, resource scarcity, biodiversity degradation, and rising energy prices exacerbate supply chain vulnerabilities, making it harder for companies to maintain ESG commitments.
• Resistance from Suppliers : Smaller suppliers often resist ESG requirements due to limited awareness, financial constraints, or perceived burdens, slowing down overall progress.
• Consumer Price Sensitivity : Balancing the higher costs of sustainable practices with consumer demand for affordable products presents an ongoing dilemma, especially in competitive markets like fast fashion and consumer electronics.
• Misalignment of Stakeholder Expectations : Conflicting expectations among investors, regulators, employees, and consumers created challenges for companies in implementing ESG principles. Investors emphasized financial returns and compliance with emerging regulations, while consumers often prioritized visible sustainability actions, such as plastic reduction or ethical sourcing. Balancing these diverse priorities required significant strategic alignment and resource allocation.
• Challenges in ESG Talent Development : Companies faced a shortage of qualified professionals with expertise in sustainability reporting, carbon accounting, and biodiversity conservation. Smaller firms, in particular, struggled to attract or develop the talent needed to navigate evolving regulatory requirements.

8. Outlook for ESG in 2025 and Beyond

The future of ESG will be shaped by transformative trends and evolving priorities.

• Global Standards Alignment : The EU is likely to lead efforts to harmonize ESG reporting frameworks globally, with its double materiality approach setting a precedent. However, resistance to federal ESG mandates may limit the U.S.' influence in shaping these standards, leaving multinational companies caught between competing expectations.
• Regulatory Expansion : Regulatory expansion will continue to reflect regional disparities. The EU will push stricter ESG and climate measures, including mandatory biodiversity preservation, deforestation tracking, and double materiality reporting. In contrast, the U.S. regulatory outlook will remain fragmented. The new administration in the U.S. has pledged to scale back federal ESG and climate-related requirements, creating a divided landscape; some states are advancing ESG-friendly policies, while others actively resist or are expected to roll back ESG-related mandates.
• Technological Advancements : Continued innovation in AI, blockchain, and IoT will improve ESG data collection, reporting, and decision-making. There will be challenges navigating the rapidly evolving patchwork of laws regulating AI around the world. However, these technologies will enable cross-border compliance and improve comparability of ESG performance metrics and will also help companies navigate the complex requirements of double materiality in the EU and financial materiality in other jurisdictions.
• Climate Resilience : Companies will complement decarbonization efforts with adaptation strategies, including climate risk modeling, resource efficiency, and enhanced supply chain resilience. This will become increasingly important as climate litigation and extreme weather events rise.
• Nature-Based Solutions : Reforestation, habitat restoration, biodiversity conservation initiatives, and agroforestry partnerships will gain traction as businesses address biodiversity loss and ecosystem health. The EU's focus on biodiversity in its CSRD may inspire similar initiatives in other regions.
• Inclusive Growth Strategies : Businesses will continue to support living wages, workforce development, and opportunities for underrepresented groups, but will change the way they communicate regarding those efforts in response to heightened scrutiny over DEI policies.
• Decarbonizing Supply Chains : Efforts to address Scope 3 emissions will remain a critical focus, with companies working closely with suppliers to meet shared sustainability goals. The EU's robust disclosure mandates will likely shape global best practices in this area.
• Role of Voluntary Initiatives in Bridging Gaps : Voluntary initiatives and industry coalitions will play an increasing role in advancing ESG goals, particularly in regions where regulatory frameworks are less developed. Collaborative efforts, such as industry-specific decarbonization targets and voluntary biodiversity commitments, could act as stopgaps to bridge gaps in policy enforcement and harmonization.
• Expanding the Focus on Circular Economy Models : Circular economy models, emphasizing resource efficiency, waste reduction, and product lifecycle management, are expected to gain prominence as businesses seek innovative ways to meet sustainability goals. These models will be especially relevant in industries with significant material footprints, such as manufacturing and retail.
• The Convergence of ESG and Financial Performance : The integration of ESG metrics into financial performance assessments likely will continue to deepen, with credit rating agencies, banks, and insurers increasingly factoring ESG risks into their evaluations. This shift will drive greater accountability as companies are incentivized to align their sustainability goals with financial resilience.

The developments in ESG during 2024 illustrate its growing importance as a framework for addressing global challenges. From enhanced regulations and technological innovations to expanded litigation and stakeholder engagement, ESG has become a focal point for businesses and societies alike.

While regions like the EU are setting high standards, others, like the U.S., are struggling with political resistance. Despite these challenges, ESG remains a powerful tool for creating long-term value, resilience, and equity. The future of ESG depends on continued collaboration, innovation, and accountability to achieve its transformative potential.

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