July 31, 2025

 Priti Sisodia

law departments compliance best practices trends

Environmental, Social, and Governance (ESG) principles are no longer a matter of corporate goodwill. Around the world, headline-grabbing multi-million-dollar penalties have made clear that regulators will hold businesses to the ESG commitments they make. And it’s not just companies with obvious emissions or other manufacturing impacts that should be concerned. Regulators have made clear that matters such as greenwashing apply to service providers just as much as any other business – with a case in point being April’s news of German authorities issuing a 25 million euros (US$29MM) fine to a Deutsche-bank subsidiary for overstating its claims about ESG leadership.

The stark reality is that the legal, financial, and reputational risks of inadequate ESG integration are substantial and will only increase – and there are no shortcuts when it comes to ESG. Why, then – with the importance of clear and accurate sustainability statements so clear – is it so hard to get it right? Four factors stand out:

1. Regulatory Complexity: Navigating the Evolving Landscape

For global companies, ESG compliance means aligning with multiple frameworks simultaneously. Reporting regulations now include:

• The European Union’s Corporate Sustainability Reporting Directive (CSRD), Corporate Sustainability Due Diligence Directive (CSDDD), and EU Taxonomy, the Green Claims Directive, and Sustainable Finance Disclosure Regulation (SFDR)
• The US’s Federal Trade Commission’s (FTC) ESG and Securities and Exchange Commission’s (SEC) ESG disclosure requirements
• The UK’s Competition and Markets Authority (CMA) regulations
• The Australian Competition & Consumer Commission (ACCC) strictures

Additionally, regulators may scrutinise ESG claims and activity according to standards promulgated by international non-governmental organisations (e.g., the International Sustainability Standards Board’s IFRS Sustainability Standards and the World Federation of Advertisers’ Global Guidance on Environmental Claims).

Detailed reporting, transparency, and risk mitigation are musts but sometimes companies get lost in the mishmash of regulatory regimes and fail to consider the bigger picture.

2. Data Collection and Reporting: The Struggle for Accuracy and Transparency

Gathering, validating, and reporting ESG data is intensely time-consuming – even more so when companies must contend with:

• Fragmented data systems across departments
• Lack of standardised reporting metrics
• Difficulty in tracking supplier ESG performance
• Lack of a reliable dashboard with real-time updates

3. Supply Chain Due Diligence: Managing Risks Beyond Corporate Walls

As ESG obligations extend beyond internal operations, businesses are now accountable for supplier ESG performance including Scope 3 emissions ethical sourcing, and, double materiality considerations that span both financial and environmental impact. For global companies, this adds multiple layers of complexity especially when managing operations across different regulatory jurisdictions.

4. Investor Expectations: Balancing Profitability and Sustainability

Investors increasingly demand transparency and measurable impact. However, at least in the short to mid-term, these efforts often come with a price tag and the risk-reward calculus is often not clear.

‘Too Long, Didn’t Read’: Two Crucial Points

The overriding takeaway is two-fold:

First, piecemeal efforts that focus on the minimum required to ‘pass’ regulatory or shareholder scrutiny will only exacerbate these problems by embedding blind spots and errors of judgment.

Second, successful sustainability strategies are holistic and rely heavily on support across all levels of the business. Winning that support requires a clear and impactful vision and purpose, and that means making sure passion projects don’t give way to the administrative burden of regulatory compliance.

The Wisdom of Obtaining Assistance

ESG projects are ripe with opportunity to collaborate with external providers. With their help, you can do this in several ways:

1. By Task – It often makes sense to hand off repeatable work that requires limited strategic oversight, such as value chain surveys or implementing policies like Know Your Customer.
2. By Specific Topic/Area of Expertise – Your team may have the Social and Governance work fully under control but lack the expertise or experience to tackle the Environmental reporting.
3. By Stakeholder Group – Instead of adding value-chain transparency to your already lengthy to-do list, you can carve this out and unbundle. This means having total visibility into your current value-chain activities and getting future performance baked in via contracts lifecycle management (CLM), to help minimise the effort required from your team.
4. By Software Gap – External providers often are indispensable in bridging compliance gaps, streamlining reporting, and providing expert sustainability insights through specialised ESG data, verification, and automation tools that boost efficiency.

Remember: ESG matters are increasingly high-stakes and will only get more so. Knowing what you do well and where you need support is the silver bullet that helps you to stay on course.