Top ESG priorities for 2025: What companies need to focus on in sustainability

Introduction

In 2025, ESG (Environmental, Social, and Governance) will be more crucial than ever, with new sustainability reporting regulations coming online, customer and market expectations for data transparency around certain sustainability metrics increasing, and climate-related risks heightening. Getting your ESG priorities in order will be critical to ensuring you make the most of your sustainability program and build a sustainable competitive advantage.

In 2025, we will see the first phases of sustainability reporting regulations kick in, with the first phase of Corporate Sustainability Reporting Directive (CSRD) reporting and companies starting to collect data to report to California’s climate reporting rule. This year also marks the halfway point toward many companies’ ambitious emissions reduction and interim goals by 2030. Stakeholders will expect companies to report their progress toward these goals.

In this article, we outline five ESG priorities for companies in 2025 and how to ensure you are prepared to make the most out of your ESG program. Acting today will allow you to hit the ground running and be ahead of the game as the year progresses.

Why Make ESG a Priority in 2025

Every year, ESG climbs the priority ladder of the C-suite. 2025 is the first year many companies will be impacted by sustainability regulations, further increasing pressure from stakeholders to be transparent and perform well on ESG.

Here are three reasons 2025 will be a pivotal year for corporate sustainability:

• Sustainability Regulations Kick-In: New regulations will be implemented around the world. The largest will be the CSRD, which companies will begin complying with in 2025. By 2030, the CSRD will impact more than 50,000 EU and non-EU companies. US companies will also have to start preparing for their first sustainability reporting compliance with California’s SB 219, which will require more than 10,000 US companies operating in California to report climate risks and emissions. But this is just the tip of the iceberg. More than 30 other jurisdictions are starting to implement their sustainability reporting regulations, mainly in line with the International Sustainability Standards Board (ISSB) from 2025 onwards.
• Stakeholder Pressure Accelerates: We’ve seen the number of companies requesting sustainability data from their suppliers increase steadily over the past decade. For example, the number of companies requesting emissions data through the Carbon Disclosure Project (CDP) has grown from 6,500 in 2014 to more than 75,000 in 2024. The focus of these data requests will mostly still be climate, but other sustainability issues, like biodiversity and social issues, are becoming more common in data requests.
• Sustainability Risks Accumulate: 2024 was the hottest year ever, and we saw widespread extreme weather events, wildfires, and other risks related to ecological degradation. In addition to the physical risks of climate change becoming more severe and frequent, the risks associated with transitioning to a low-carbon sustainable economy are also accumulating. Risks to brand reputation and legal risks will continue in 2025 and therefore, mitigating these risks and finding opportunities should be a priority in 2025.

Given these sustainability trends, 2025 will be a crucial year for companies to ensure their sustainability efforts are progressing toward compliant reporting and reducing their impact. Prepare your organization by prioritizing the following:

1. Adherence to the changing regulatory landscape

In 2025, sustainability reporting will become mandatory for thousands of companies. The following regulations will kick in next year:

• Corporate Sustainability Reporting Directive (CSRD): In 2025, more than 10,000 EU companies and a few hundred non-EU companies will be required to report to the CSRD. This is the most extensive sustainability reporting regulation globally. It requires companies to report on more than 1,000 data points on a double materiality basis and receive limited assurance. The regulation will eventually expand to more than 50,000 global companies and even more in their supply chains. Consider proactively reviewing what best practices these initial companies are using to ensure compliance in the future.

In addition to the CSRD, other EU rules, such as the Carbon Border Adjustment Mechanism (CBAM) and the Ecodesign for Sustainable Products Regulation (ESPR), will require companies producing certain products to measure and report the emissions and other environmental factors related to the products they sell on the EU market.

• California Climate Rule: In 2025, more than 5,000 US companies operating in California will have to start collecting verified Scope 1, 2, and 3 emissions data, and 10,000 US companies will have to assess climate risks to begin reporting in 2026. In addition to California’s climate rules, three other states (New York, Washington, and Illinois) have similar regulations based on California regulations. These are at different stages of the legislative process and may not be implemented until 2027 or after, but they are worth considering for companies who do business in these states.
• International Sustainability Standards Board (ISSB)-aligned Regulations: Beginning in 2025, more than 30 jurisdictions will start to implement ISSB-aligned reporting mandates. For example, companies will have to begin ISSB-aligned reporting in the UK, Australia, and Japan in 2025. Some US companies with significant operations in these countries could be impacted. The best way to prepare for these upcoming regulations is first to determine whether you are impacted by them and then gain an in-depth understanding of what they require. An excellent place to start would be to ensure your reporting is aligned with the ISSB’s standards. More than 30 jurisdictions have based their regulations on those standards, and every other regulation is made interoperable with them.

2. Monitor increasing supply chain pressures, especially from large companies

While many companies will not be directly impacted by the above regulations, some aspects of the rules mean that those affected will have to ask their suppliers for data. Over the last five years, supply chain pressure has been the fastest-growing driver of sustainability. We expect these new regulations and their requirements to report on things like Scope 3 will supercharge supply chain pressure.

Much of the pressure will come from data requests from CDP or EcoVadis. These two sustainability reporting and scoring frameworks have grown exponentially in recent years, a trend likely to continue.

• EcoVadis: In 2024, 1,300 of the world’s largest companies requested data from over 100,000 companies through EcoVadis.  Companies responding to these requests for data could be eligible for preferential treatment from those requesting data.
• CDP: In 2024, more than 75,000 companies requested data through the CDP questionnaire, which will reach closer to 100,000 in 2025. Historically, only around 50% of companies answered these data requests to CDP. Those who prepare and answer can build a competitive advantage over others who do not.

The focus of supply chain pressure will come from large companies gathering Scope 3 data. To prepare for this, companies need to start by measuring their Scope 1 and 2 emissions, which are what most companies request. For other aspects of supply chain pressure, like other environmental and social metrics, sustainability target setting, or specific mitigation actions, the best way to prepare is to look at where your largest customers focus on sustainability and work toward helping them achieve their goals to position your company in good standing.

Even for those companies that are not receiving data requests in 2025, the expansion of requests will eventually grow, and it is best to have a proactive approach rather than reactive. Proactive companies that have already collected data and are reporting their sustainability data to a reporting framework will benefit from a competitive advantage.

3. Prepare for more climate risk and increased focus on greenhouse gas (GHG) emissions management

2025 is the halfway point for many companies’ interim emissions reduction targets, meaning their progress and ability to meet these goals will be scrutinized. Some may be struggling to meet these ambitious goals and will look to their supply chains (where most companies’ emissions are emitted, e.g. Scope 3) for help. The focus on emissions reductions and climate risk reporting will focus on three primary areas in 2025:

• Net-Zero Targets and Carbon Reduction Goals:
  • Companies’ emissions reduction targets will be more scrutinized than ever in 2025. The best way to show that you have a valid and achievable goal backed by science is to get it approved by the Science Based Targets Initiative (SBTi).
  • As part of setting a science-based emissions reduction target, you must set an interim 2030 target. 2025 will be a key year for companies to show they are well on their way to meeting these goals.
  • If companies are not meeting these targets, they may begin to request or, in some cases, require their suppliers to set an SBTi-aligned goal.

• Scope 3 Measurements:
• Scope 3 accounts for the majority of companies’ emissions, yet in 2024, only 38% of companies measured it.
  • As companies focus on Scope 3 in 2025, smaller suppliers to large companies should expect to receive more data requests.
• Climate Risk Management:
  • As physical climate risks accelerate into 2025 and beyond, companies will increasingly examine their supply chains to ensure continuity and detect potential disruptions. They will ask their suppliers to report their climate risks.
  • Climate risks also include transitional risks, such as reputational and legal risks, which will be further amplified in 2025.

Companies can best prepare for climate risk, emissions reporting, and SBTi-aligned targets by familiarizing themselves with the standards and frameworks and engaging stakeholders to understand their expectations. If necessary, they can then start collecting Scope 1 and 2 emissions data and assessing climate risks before setting science-based emissions reduction targets.

4. A Deepening Focus on Other Aspects of Sustainability

Companies are beginning to address issues beyond climate change. In 2025, many will prioritize other aspects of sustainability and expect other companies in their value chain to do the same. The focus areas for 2025 will fall into the two following buckets.

• Social Issues: From 2019 to 2023, the number of S&P 500 companies reporting on social issues increased from 5.3% to 82.6%. There has been a similar increase in social reporting in smaller companies. This growing number of companies reporting on social issues can be traced to mounting scrutiny of labor practices within the workplace and in global supply chains.

To prepare to act on social issues, your company should ensure it has robust, transparent due diligence processes to evaluate its supply chain for human rights abuses and exploitation.

• Biodiversity and Nature: In 2024, the number of companies reporting through the nature-related reporting framework, the Taskforce on Nature-related Financial Disclosures (TNFD), increased to more than 500, and CDP announced the number of companies reporting biodiversity factors increased by 43%.

As nature-based reporting matures in 2025, the focus on nature-based solutions and reporting will accelerate. To prepare for this new corporate priority, familiarize yourself with the TNFD and other biodiversity reporting standards and frameworks and talk to your customers, investors, and other stakeholders to determine whether they will prioritize nature and biodiversity in 2025 and beyond.

5. ESG data integrity and accuracy

A critical part of many of the reporting regulations coming into play in 2025 is assurance, beginning with limited assurance for CSRD and the CA climate rules. Companies will have to start implementing robust data governance and integrity protocols to ensure their reporting is audit-ready for compliance purposes. The threat of greenwashing also pushes companies to be more diligent about the accuracy of their ESG data.

As concerns about data accuracy and integrity grow, companies will emphasize the need for transparent and auditable data from their suppliers. Companies that are open and can share data with their customers, investors, and other stakeholders, which is backed by assurance from a certified CPA, will build stronger relationships, trust, and a competitive advantage in 2025.

To make sure your data is ready for the increased level of scrutiny in 2025, you can prepare by taking the following steps:

• Ensure Data Integrity and Quality: It will be essential to designate a role for someone who can compile all the data in a central location and implement company structures and processes. A central data hub where all the different data points can be stored will ensure that data and any supporting metadata and documentation are stored safely and easily accessible for auditing.
• Engaging with Stakeholders: Working with suppliers and other internal and external stakeholders throughout the process will ensure that you receive data on time and in the correct form for reporting and assurance.
• Work with a CPA: Working with a CPA certified to conduct ESG data assurances as early in the process as possible will help you determine whether your data processes are rigorous enough to pass assurances and help you fill in any assurance gaps before a full audit is conducted.

Conclusion

In some cases, 2025 will be the year that sustainability reporting moves from a voluntary action to a mandatory one. Many of the companies impacted by these regulations will push their compliance pressures down the supply chain. The result will be more companies than ever acting and reporting on a broader set of sustainability issues and ensuring their data is accurate and auditable.

However your ESG prioritization looks in 2025, Elliott Davis can help you navigate the complexities of new regulations, stakeholder pressure, and growing sustainability-related risks and ensure your ESG data is treated with the same rigor as your financial data.

Contact us below to get started.

The information provided in this communication is of a general nature and should not be considered professional advice. You should not act upon the information provided without obtaining specific professional advice. The information above is subject to change.