By Chad Spitler, CEO and Founder, Third Economy, January 2025
In a year where ESG faced some of its biggest headwinds yet, it’s easy to feel like investments in corporate sustainability are shrinking.
But despite what vocal critics might say, sustainability innovation continues to expand for corporations, reflecting the complex interplay of regulatory, market, and societal forces at work.
The sustainability landscape remains dynamic and driven by various factors beyond just U.S. federal regulation.
In honor of our new calendar year, we wanted to provide our 8 biggest insights on the year ahead - from the sustainability factors that are likely to shape corporate reporting to our feelings on sustainable innovation.
Whether you're a business leader, an investor, or a sustainability professional, we hope these insights are helpful.
We believe that 2025 is going to be a year for sustainable innovation for companies and consumers at large. With expected cuts to corporate taxes with the incoming administration, companies may have cash at hand to put to work. Clean energy innovation presents significant opportunities for corporate sustainability in 2025, driven by technological advancements, market demands and global regulations. This includes a push for companies to overhaul their product design, to create greener energy solutions (i.e. storage for big data needs, like artificial intelligence), and to invest in more bio-based materials for industries like construction, healthcare, and the automotive sector.
We believe that these developments will not just shape how companies report on sustainability but fundamentally alter how they compete in the global marketplace.
The European Union's Corporate Sustainability Reporting Directive (CSRD) will collect its first reports in January 2025, marking a significant milestone in global sustainability reporting. This directive will impact approximately 50,000 companies in Europe and trickle down to other global large cap businesses in the U.S. over the new few years.
Why is this significant? Despite delays in U.S. climate disclosure rules, sustainability reporting remains driven by regulatory bodies globally - which will affect parent companies and upstream suppliers. Having a handle on your primary environmental data and climate footprint will be key.
While federal regulations may face delays, state-level climate reporting initiatives will continue to gain momentum in 2025.
The result? It may be a few years of reporting complexity for those operating across states and jurisdictions.
Despite ongoing anti-ESG rhetoric, investors will continue to drive sustainability from a financial perspective, maintaining their focus on ESG factors.
Beyond using sustainability to measure opportunity and mitigate risk, we expect the investor community to leverage sustainability in a few other ways in 2025:
To raise capital and remain globally competitive, sustainability reporting will continue to grow and become more integrated into larger corporate strategies.
In 2025 (similar to 2016), we expect companies to experience increased consumer pressure around sustainability – largely driven by values-based consumerism and the potential for higher prices from global policy changes.
What does that mean in practice?
We expect consumers to have more airtime in 2025 than 2024 and your company should be prepared.
In response to an uncertain economic environment, boards, management teams and oversight groups are likely to emphasize strong governance practices and risk management tactics to mitigate volatility.
We expect professionals to prioritize the following:
As a new administration prepares to take office this month, companies and investors are already starting to reposition and even pull-back on certain ESG initiatives. In the first few weeks of 2025, we have already seen this in action from companies like Meta and McDonald’s, who both rolled back DEI commitments this month, as well as from Walmart last November.
We expect there to be an amplified discussion on DEI and “S” initiatives in 2025, though not all negative, necessarily. Recent statements from companies like Costco and Apple highlight their own confidence in the financial value of DEI commitments, despite select shareholder challenges.
So what can we expect broadly from these early 2025 stories? Companies will either stand strong on their existing commitments, reposition their initiatives, or pull back on their “S” investments entirely in 2025 – depending upon sector, specific stakeholder groups and belief systems.
Stakeholder engagement will continue to be key to navigating your own “S” strategy.
Finally, to prepare for coming regulation in key states like California, companies will need to engage their value chains to meet regulatory requirements, particularly for Scope 3 reporting and climate transition planning.
The ripple effect of legislation like CA's SB 219 will impact suppliers outside of California and outside of the law’s revenue thresholds, effectively forcing companies to begin measuring their climate related risk, even if they are small.
The short-term effect is that thousands of companies will need to begin collecting data that they have never had to before. The long-term benefit is our system will have better visibility into climate-related risk and its effect on our economy.
The trends we're seeing in 2025 reflect a broader shift towards integrating sustainability into core business functions, driven by both the carrot of revenue opportunity and the stick of coming regulation.
Our biggest recommendation for 2025: explore how sustainability can create financial value for your various stakeholder groups and strategic priorities.
If we can be helpful as you consider how these insights will affect your business, please don’t hesitate to reach out.
Disclaimer: The information provided does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available are for general informational purposes only.
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