Just in the last year, we have heard a dozen disappointing stories of large organisations backtracking on their ESG commitments. This includes major companies in oil and gas, e-commerce and FMCG companies who have retracted their climate, plastic packaging and DEI commitments. The global economic slowdown has definitely been a significant factor, causing corporations to look at return on sustainability investments with greater scrutiny and perhaps with a lens of lower priority in the short term. At least that's the messaging (and perhaps, the hope), but some signs point to things getting worse before they get better.
Backtracking on sustainability targets can also be partly attributed to increasingly complex and confusing reporting regulations, which are creating a benchmark where more ambitious and proactive goals are not incentivised in any way. There are also issues with the practicality of some elements of ESG reporting. For example, for scope 3 emissions, obtaining reliable ESG data across vast supply chains to meet complex reporting standards on tight timelines is almost impossible. More importantly, is that level of granularity really necessary for practical decision-making? Recognising this, regulators have stepped back to make ESG reporting more practical and meaningful. India's market regulator, SEBI, deferred the new BRSR Core value-chain ESG disclosures by a year, making them voluntary only in 2026 and also limiting the scope to key suppliers covering 75 per cent of spending. Likewise, the EU postponed the rollout of its reporting rules for smaller companies and is slashing a sizeable number of data points required under its sustainability standards. This year looks like a year of adaptation for corporate sustainability.
The focus on climate resilience
The last few years have seen quite a few climate records, with each year setting new and unwanted benchmarks for the next. We experienced the longest streak of hottest months on record and the warmest day ever. Extreme weather events like the record-breaking snowfall in Seoul, rainfall floods in Central Europe, and wildfires in Bolivia, among others, wreaked havoc on lives and economies. Heatwaves, floods and hurricanes have shown the need for businesses and countries to adapt to the physical risks of climate change, while we continue to try to mitigate its effects. Expect more businesses to diversify their assets, considering the physical impacts of extreme weather. We will see more companies invest in both large and small adaptation solutions.
Rise of biodiversity finance
As per World Economic Forum estimates, almost half of the global economic output is dependent on nature. Biodiversity and nature loss consistently featured in global climate discussions. More and more companies are assessing their biodiversity impacts. The Taskforce on Nature-related Financial Disclosures (TNFD) framework and metrics have further streamlined standards to measure biodiversity loss and shown methods to prevent and lower its impact. In 2025, we will see the use of these assessments and metrics to develop biodiversity financing plans that will help achieve biodiversity regeneration goals.
Growing greenwashing concerns
As regulations on green claims tighten worldwide, there will be an increase in greenwashing where companies might claim to be sustainable without substantial changes to their operations. This might lead to scepticism about corporate sustainability claims, and they might undermine genuine efforts and confuse consumers and investors. We sense more integration within corporate sustainability, legal, compliance and audit teams to implement rigorous sustainability data verification systems and processes.
Sustainability roles within finance, legal teams
We will see sustainability roles and headcounts increasing in departments critical to sustainability efforts, such as legal and finance. Both departments are organic choices as regulations increase. Company general counsels and CFOs are showing increasing involvement in sustainability initiatives, communications, data and reporting. Roles such as an 'ESG controller' will become commonplace where they oversee data systems and processes for sustainability-related disclosures to regulatory bodies, similar to finance controllers.
Design for sustainability
Sustainable design in product development will gain momentum. It will involve design with long-term use in mind, responsible sourcing and lifecycle impact of materials. For homes, sustainable design will involve the use of materials and coatings to reduce heat stress indoors or building water catchments that double as biodiversity bubbles. Expect to see more companies and industries use sustainability as the very foundation of their product. The pullback on sustainability in the past year due to politics, economics, or practical hurdles has prompted companies to double down only on sustainability actions that have a direct business impact in the short term. We see commitment becoming more concrete and important indicators like biodiversity and physical impacts of climate change are being woven directly into business strategies. In a sense, corporate sustainability is at an inflexion point where actions might be getting fewer in number but more meaningful and honest in terms of impact. Companies that navigate this transition will likely emerge more resilient and better prepared for long-term challenges.
(Ramnath Vaidyanathan is Associate Vice President - Good & Green, Godrej)