10 KEY ESG TRENDS FOR 2025
Insights and Actions
As we reflect on 2024 and the evolving ESG landscape, a number of trends are emerging that will significantly impact companies, investors, and the regulatory environment in the year to come. 2025 is a crossroads for the global ESG community. In light of the recent finance deal reached at COP29, which can be seen as a downpayment, we must double down on our efforts to crowd-in private finance to mobilize the trillions needed for a just transition towards an equitable, renewables-based economy.
We started the year with meeting companies and investors that were struggling to understand what the EU Taxonomy meant for them, either from a CSRD or a SFDR perspective.
And, while intense for most, we made progress. For many the process is now under way. We have experienced that new tools and methodologies are being developed and have helped, and these will be further strengthened in the near future, which will benefit the wider eco-system.
We also spoke with emerging market players that are in need of capacity building to fill the gap for ESG financing opportunities. A clear sign, that in some parts of the business and financial system, we are still stuck in the status quo.
Here are the key insights from our ESG screenings:
1. Global Regulatory Momentum
The global ESG regulatory landscape is evolving rapidly. India is developing its own ESG taxonomy targeting the 1,000 largest Indian companies, directly impacting approximately 10 million employees.
South Africa has introduced an ESG taxonomy for publicly listed and government-owned companies, setting an example of leadership among emerging markets. This initiative holds the promise of addressing the SDG financing gap by attracting sustainable investments while fostering continued capacity building in the region.
Meanwhile, the EU is leading the ESG landscape. With the introduction of the double materiality requirements and the need for reporting on companies’ positive and negative impact on the communities they operate in, both from an environmental and social perspective, the market is in a rapid transformation.
We have early indications that European companies outside the EU are often less advanced in this work, highlighting the need for capacity building and alignment with EU frameworks. It is a matter of staying relevant and in competition with peers.
2. Investor Hesitation Around SFDR Article 8/9 Classification
The Sustainable Finance Disclosure Regulation (SFDR) has indeed had a significant impact on the European Union's investment landscape since its implementation. Article 8 and Article 9 funds have become a substantial portion of the EU's total fund assets.
What we also see is that funds are being designed to follow SFDR Article 8/9 requirements but are often not officially classified due to the administrative burden. This demonstrates that fund managers value the principles of these classifications, but are reluctant to take on the operational and administrative challenges.
The trend highlights the need for simplified processes, while maintaining ESG integrity. It also highlights the need for continued scrutiny and refinement of the SFDR framework to ensure it effectively guides investors towards genuinely sustainable investments.
3. Alignment of Risk and Valuation with EU Taxonomy
ESG factors are becoming more mainstream for investors and we predict that from 2025 onwards, risk and valuation are increasingly aligning with the EU Taxonomy, driving greater transparency in how ESG factors influence business performance.
However, there is still a lack of conclusive data to establish a direct correlation between a strong ESG profile and higher valuations. While leading in ESG remains a strategic priority, more robust evidence is required to fully substantiate its financial impact. Nonetheless, it is clear that investors are actively seeking out companies with strong ESG profiles, recognizing the long-term value and risk mitigation they offer.
One element, assessing boards and executives' knowledge on ESG may assist with gaining insight into how the companies are compliant with regulation and can stay competitive in a rapidly competitive market.
This space should be watched in 2025, as much data will be accessible and provide more insight into the correlation between risk and valuation.
4. Human Rights Take Center Stage in ESG
Human rights have become a central focus in the ESG taxonomy, driven by rising global awareness, regulatory pressures, and shifting stakeholder expectations. As consumers and investors demand more ethical business practices, companies must address human rights across their operations and supply chains to remain compliant and competitive.
Human rights are increasingly viewed as integral to social sustainability, and businesses that prioritize them not only reduce risk but also enhance long-term value and appeal to responsible investors. This growing focus on human rights has become a core element of sustainable business practices.
The increased focus on human rights will have to open up for new types of partnerships in the European supply chain to ensure that suppliers are compliant. Here foundations in emerging markets can play a significant role to assist European companies in their stakeholder management and with developing best practices and translating cultural values into establishing strong supplier agreements. This will feel complicated to some and be a common sense practice for others.
5. Supply Chain Collaboration and Leadership
Many European companies have sought to reduce reliance on distant supply chains due to the disruptions caused by the COVID pandemic. This includes reshoring or nearshoring to suppliers in Europe. However, this trend varies by industry and company size. For example, industries with highly complex supply chains or those reliant on cost efficiencies, like textiles, continue to depend on suppliers in emerging markets.
European companies are leading efforts to develop reliable ESG data from their supply chains. This trend highlights the importance of working closely with suppliers—particularly in regions with less mature ESG standards—to ensure transparency and accountability.
There is a growing recognition across value chains that robust supplier data enhances customer value and builds trust. Companies increasingly view comprehensive and reliable ESG profiles as not just a compliance necessity but a strategic differentiator.
By improving transparency and accountability throughout their operations, these businesses can better meet stakeholder expectations, mitigate risks, and position themselves competitively in markets where sustainability is a key driver of decision-making.
Building these partnerships is still a work in progress, but they will be crucial for companies to deliver credible ESG data. This may also affect the structure in tender processes because established and therefore trusted suppliers will have more value long term then a short term focus on price only.
6. Renewable Energy and Clean Tech Must Address Social KPIs
Renewable energy and clean tech companies can no longer focus exclusively on the environmental benefits of their products. The Corporate Sustainability Reporting Directive (CSRD) and double materiality requirements demand a broader perspective, compelling these companies to address social Key Performance Indicators (KPIs) such as human rights, labor policies, and diversity in management and board, not only within their organizations but throughout their supply chains.
These social dimensions are increasingly scrutinized by investors, regulators, and stakeholders, highlighting their interconnectedness with environmental goals. Adopting a holistic approach to sustainability—integrating environmental and social considerations—will be essential for maintaining both credibility and compliance in the evolving ESG landscape.
7. The Lifescience ESG Plug-and-Play Advantage
The life science sector is widely regarded as one of the most advanced industries, known for adhering to some of the most stringent regulatory standards in safety and workflow processes. Our ESG screenings reveal that this strong foundation positions the industry well to adapt seamlessly to the new CSRD reporting requirements. Lifescience teams tend to have a solid understanding of the processes needed to meet these demands.
In a way, the EU Taxonomy is asking all European industries to adopt the same rigorous workflows that the life science sector has long embraced. This presents a particular challenge for smaller SMEs, especially those acting as suppliers.
However, over the next two years, we anticipate significant alignment of processes across industries, supported by more accessible digital tools for SMEs. The life science sector may even play a pivotal role in driving this accessibility, setting an example for others to follow.
8. The Textile Industry – Does History Play a Role?
Across Europe, the textile industry is among the first to face the challenges of the new CSRD regulations. In Denmark, we have observed two distinct perspectives within the textile sector when it comes to adapting to these new demands.
The Newcomers Many companies established from the 1980s and onward, particularly SMEs, appear to be grappling with the complexities of CSRD. Concepts like double materiality and managing partnerships across tier 1-2-3 suppliers can seem daunting. Public opinion often reflects the sentiment that these requirements pose a significant challenge for smaller players in the industry.
On the other hand, we see a different story from companies rooted in Denmark's historical textile hub around the town Ikast. This region was once the backbone of Denmark’s textile supply chain, with local wool farmers bringing their wool for processing and later importing cotton for production. This structure thrived until the 1980s-90s, when production shifted to Asia.
What is remarkable is how these companies carried their Danish values, particularly labor law principles, into their outsourced operations. Today, many of their facilities in Asia are certified, their suppliers are screened upon onboarding, and their own factories prioritize fair working conditions. As a result, the risks in their supply chains are significantly minimized. They are more or less fluent in the tier 1-2-3 conversation.
A Culture of Responsibility We have been deeply impressed by the structured and no-nonsense approach these often family-owned businesses take with their suppliers. Conversations with these companies frequently center on values like responsibility and trust, rather than purely price, sustainability or “being green.” For them, it is about doing the right thing—perhaps the double materiality in practice is not as new as you might think?
9. Double Materiality and Sustainability-Driven Companies
The best-performing companies recognize and strategically address their double materiality impact, balancing the effects of sustainability on their financial performance with their broader societal and environmental footprint.
These leaders typically fall into two categories: established companies with a long-standing commitment to sustainability and newer firms designed with sustainability embedded in their operations and values from the outset. What sets them apart is a purpose-driven yet pragmatic approach—achieving business success while actively contributing to the well-being of society and the protection of the environment. This balance of purpose and practicality ensures their resilience and relevance in a rapidly evolving market, and makes them very attractive for their stakeholders.
10. Purpose-Driven Leadership Across Sectors
This trend spans diverse sectors, from second-generation family-owned businesses to fast-growing startups, all led by owners who take a proactive and responsible approach to their products, customers,society, and planet. What we see is that it is not an excuse to be a mature company that is not “born green”,to not have the ability to transform and be innovative to meet and go beyond regulatory requirements.
These leaders are driven by a common-sense understanding that sustainability is essential for long-term business success, operational resilience, and meeting stakeholder expectations.
The characteristic of the best companies we have screened this year is that there is a correlation between solid focus on sustainability and a high degree of internal innovation on all levels in the companies.
They actively pursue innovative solutions to enhance their offerings, minimize environmental impact, and create positive contributions to their communities. By embedding sustainability into their core strategies, these companies position themselves as forward-thinking and resilient in an ever-changing market landscape.
We have noted that, maybe the best performing companies from an ESG perspective, are the ones with the smallest marketing budget.
And one could ask; is that why we as consumers are told over and over again that something is not possible when in fact many companies have found solutions and know the impossible is possible!
Summary:
As we approach 2025, these trends will continue to redefine the ESG landscape, emphasizing the need for companies to deeply understand and enhance their sustainability profiles. Staying competitive and maintaining trust within value chains will require strategic action and robust data-driven insights.
Companies are finding their way in the new regulatory landscape. In 2024, the largest companies became more agile in regards to ESG reporting and have a better understanding of what they will ask their suppliers in regards to data and transparency. For small businesses that are operating as suppliers, there is now value in being in a large corporation’s value chain, hence they can assist with data insight from further down the line of the value chain.
The EU Taxonomy may work better than its reputation, and a transformation is underway in Europe that has already started to affect suppliers in China, Asia and other emerging markets. We did not get the strongest deal from COP29 this year, but we got one. The game is on, the ball is rolling and the transformation is faster than what you would expect.
So companies even welcome the change that the EU taxonomy is enforcing, hence they hope it will give them a competitive advantage since this is how they have done and understood their business for some for generations.
At Nordic Impact Lab, we are committed to supporting businesses in navigating this evolving and complex terrain. With an easy and accessible methodology equipping businesses and investors to achieve meaningful progress in their ESG initiatives. Together, we can drive ESG innovation and prepare for a more sustainable and resilient future backed by data insights. Open and accessible for all.
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