The evolution of ESG: Mid-year reflections on trends, challenges & opportunities

Key highlights:

• • • Corporate governance has become more critical but for different reasons — The importance of corporate governance has increased significantly in 2025, driven by unexpected factors like AI adoption uncertainty, geopolitical complexity, and tariff impacts rather than just traditional ESG concerns.

    • ESG integration into core business strategy remains limited — The prediction that most companies would fully integrate ESG into their core business strategies proved overly optimistic, with only 21% of CFOs now saying their companies are working toward full integration.

    • Relying solely on non-profits and research institutions to solve the climate change problem is unrealistic — The fragmented and localized regulatory landscape necessitates increased resources from private capital and innovative business models. Large-scale impact requires building business models that can sustain and expand on these solutions.

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The Thomson Reuters Institute made several predictions in early 2025 around sustainability. And while the corporate landscape in this space continues to evolve, significant adaptations in the way companies approach environmental, social, and governance (ESG) initiatives in 2025 were initially anticipated. Early outlooks suggested an increasing importance of corporate governance and that companies were narrowing the scope of their ESG activities and giving more prioritization to embedding sustainability into their corporate business strategies.

Yet, by mid-2025, certain forecasts have altered. While companies are still moving forward with their sustainability strategies, few are taking advantage of the opportunity to use sustainability as a strategic lens for competitive advantage. In addition, many are narrowing their material impacts, risks, and opportunities to only those that are core to their business strategy and operations. In other words, they are maximizing material opportunities and mitigating material risks even as their traditional governance responsibilities are unlikely to change.

What we got right

Prediction: Material risks, opportunities & impact endure while the term “ESG” fades

The acronym ESG was always a framework to identify corporate risks and opportunities; but unfortunately, the backlash to the term has forced companies to change the language used around their sustainability strategies. This was already underway at the beginning of 2025 and is still true now.

For example, many speakers at the recent Responsible Business (RB) USA conference, sponsored by Reuters Events, highlighted their success in moving sustainability strategies forward by focusing on the material issues that can be a way to future-proof financial success. Other key takeaways included spotlighting corporate actions that are now being taken and aligning these actions with the company’s purpose.

Prediction: Corporate governance more critical in 2025

This prediction about corporate governance increasing in importance remains factual, but the reasons are different than anticipated. Uncertainty around AI adoption, additional geopolitical complexity, and the impact of tariffs are the key factors driving the importance of corporate governance in mid-2025.

That said, however, other drivers are keeping corporate governance, in particular for corporate boards, elevated in importance as well. As Helle Bank Jorgensen, CEO of Competent Boards, recently wrote: “As climate shocks intensify, artificial intelligence reshapes industries, regulations shift and stakeholder expectations evolve, directors face a new reality — that traditional oversight models are no longer sufficient.”

In addition, Jorgensen points out it’s expected by regulators, investors, and stakeholders that boards of directors will demonstrate fluency in climate and sustainability issues as they act as fiduciary stewards of companies’ strategies. She also cites more than 50 jurisdictions that have introduced requirements or expectations for directors to possess climate-related competence. This profound shift requires boards to take a much more aggressive, forward-looking orientation — one in which every operating assumption is questioned.

Prediction: Reverse of federal ESG-related regulations & rules accelerates

Six months into the year, the federal government’s efforts to roll back environmental tax credits as part of the Inflation Reduction Act from 2022 became a reality in the enactment of the One Big Beautiful Bill Act. Meanwhile, the U.S. Securities and Exchange Commission voted to cease defending its climate-risk disclosure rule in court in late March.

These actions show, as we predicted, that federal agencies are pulling back on ESG-related rules, especially around climate change. To fill this gap, pro-sustainability regulations and rules at the state and local levels may be needed. Gina McCarthy, a former White House climate advisor, told attendees of the recent RB USA conference that the real momentum and focus on climate needs to be on states, local governments, and communities as these local efforts are crucial and deserve international attention and investment.

Prediction: Growth in greenwashing litigation and industry collaboration continues

Our prediction about the growth in greenwashing litigation continuing into 2025 turned out to be accurate. Looking at greenwashing trends in 2025, we can see that the risk of greenwashing has never been higher because of increased complexity and the expansion of groups to include non-governmental organizations, employees, consumer class actions, and investors. Key areas under scrutiny include allegations of contaminants in consumer products, net zero statements, and forced labor in supply chains.

What we got wrong

Prediction: ESG integration into core business strategy would go mainstream

The prediction that the majority of companies would be fully integrating ESG into their core business strategy was a little aggressive, in retrospect. Indeed, omnibus proposals to simplify the European Union’s Corporate Sustainability Reporting Directive and the Corporate Sustainability Due Diligence Directive took shape in early 2025 and derailed the accuracy of this prediction. In fact, only 21% of CFOs now say their companies are working to fully integrate sustainability into core strategy, according to a survey conducted by accounting and advisory firm BDO. However, in that survey, ESG risk was cited among the top three concerns in financial planning with 45% of CFOs ranking it among their most pressing business risks.

In mid-2025, most companies may not be embracing ESG as a strategic lens to fundamentally transform the way they operate, despite our prediction. However, companies are developing the ability to anticipate and adapt their operational strategies to uncertain futures in response to AI and geopolitical and economic instability, and for many, climate change remains a major area of risk exposure.

To underscore that point, Philippe Cousteau, Jr., CEO and co-founder of Voyacy Ventures, a blue-tech company that’s tackling the urgent global problem of coral reef ecosystem collapse and its severe consequences, told attendees of the recent RB USA conference: “It is unfair for us to expect that non-profits and research institutions can solve this problem [by themselves]. We need to develop a business model to develop this solution on a large scale.”

Cousteau’s comments ring true across the board on climate risk and other areas of sustainability risk. Private capital and large-scale corporate initiatives are necessary components for funding these solutions.

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You can find more about the challenges around Sustainability here