Navigating the ESG crossfire: building and adapting sustainability strategies in a polarised world

August 2025 | SPOTLIGHT | BOARDROOM INTELLIGENCE

Financier Worldwide Magazine

August 2025 Issue

Sustainability is no longer operating in neutral territory. In Europe, for instance, regulatory uncertainty – much of it stemming from well-intentioned efforts to simplify and streamline requirements – has made the sustainability landscape increasingly nuanced.

At the same time, pressure from shareholders means that companies are being asked to articulate the business case for sustainability on its own merits. This shift requires a recalibration: from aspirational intent to demonstrable performance.

Businesses need to refine sustainability narratives, strengthen governance, embed sustainability into financial and risk functions, and manage stakeholder expectations with greater care.

A much-needed pragmatic shift by regulators and business

The European Union’s recent revision to its Carbon Border Adjustment Mechanism is a clear example of regulatory pragmatism. By introducing a 50-tonne exemption threshold, the policy removes reporting obligations for most small and medium-sized enterprises, significantly easing administrative burden.

Yet, despite this simplification, the mechanism still captures 99 percent of embedded CO2 emissions in targeted imports – raising the question: why was this targeted, mass-based approach not adopted from the outset?

While the change reduces complexity for smaller businesses, larger businesses’ operations remain firmly in scope. This reflects a broader shift: regulators are learning to balance ambition with feasibility, while companies are expected to respond with greater precision.

In this evolving context, businesses are not stepping back from sustainability, they are fine-tuning their approaches. Our 2025 survey found that only 6 percent of companies made significant changes to their sustainability strategies in response to regulatory shifts and heightened scrutiny. This suggests that most are opting for targeted refinements rather than wholesale transformation.

This recalibration highlights the delicate balance companies must strike between streamlined regulatory demands and the broader, often more ambitious, expectations of stakeholders.

From value signalling to value creation

The emphasis on aligning with business strategy, return on investment and risk management means that chief sustainability officers are increasingly expected to demonstrate how sustainability supports everything from cost savings and capital access to employee engagement and regulatory preparedness.

This shift is encouraging closer collaboration between sustainability and finance functions, with organisations developing a shared language and framework to quantify environmental, social and governance (ESG) value in ways that resonate with chief financial officers and boards.

Board oversight is evolving in parallel. According to TCB Benchmarking, companies in the S&P Europe 350 are formalising how they govern sustainability. In many cases, responsibility lies with the full board or a designated committee.

For instance, 104 companies assign oversight to the audit committee, 33 to the general board and 25 to a dedicated ESG committee. A further 45 have established a standalone sustainability committee – reflecting the growing view that ESG deserves the same governance rigour as financial and operational risks.

The logic is straightforward: if it is material, it must be measurable – and defensible.

A tighter, smarter narrative

As scrutiny intensifies, corporate storytelling is becoming more disciplined. Companies are moving away from broad, aspirational declarations and toward focused, evidence-based messaging aligned with material priorities.

The term ‘ESG’ is now used more cautiously, particularly in the US. Analysis from TCB Benchmarking and ESGAUGE shows that the share of S&P 100 companies using ‘ESG’ in report titles declined from 53 percent in 2020 to just 31 percent in 2024. In its place, terms such as ‘sustainability’, ‘responsible business’ and ‘impact’ are gaining traction, signalling a shift toward language that avoids unnecessary politicisation.

This shift reflects a more strategic approach. Companies are tailoring communications for different stakeholder groups while maintaining consistency across investor reports, regulatory filings and external messaging. In today’s landscape, clarity and coherence are as important as ambition.

Reporting with discipline, storytelling with purpose

The most credible companies operate a dual-track model for sustainability communication. One track focuses on robust, data-driven disclosures aimed at regulators, investors and ratings agencies. The other focuses on accessible, purpose-led storytelling that resonates with employees, customers, owners and communities.

Comprehensive sustainability reports remain essential, often exceeding 100 pages. Increasingly, these are complemented by formats such as executive videos, dashboards, infographics and interactive tools designed to make information easier to engage with, without losing substance.

Despite progress, many companies still struggle to communicate the full value of their sustainability work. Nearly one in four executives believe their organisations fall short – missing a key opportunity to build trust and internal alignment. In fact, just 30 percent of surveyed executives say their company communicates sustainability results and return on investment (ROI) effectively, while 22 percent rate their efforts as ineffective, ranging from ‘not very effective’ to ‘not effective at all’.

A major challenge lies in how sustainability ROI is measured and conveyed. Many organisations focus on easily quantified outcomes like energy savings, while undervaluing harder to measure intangibles such as brand strength, talent retention or employee engagement. These factors may not appear directly on the balance sheet but have a meaningful long-term impact on performance.

In addition, companies often overlook ‘submerged value’ – hidden or indirect benefits that arise from sustainability initiatives. For example, reducing material waste can lead to downstream efficiencies in warehousing, energy use, supply chain resilience and risk management, all of which generate real financial returns over time.

To truly understand and communicate the return on sustainability, companies must adopt more comprehensive measurement approaches. This includes tracking both tangible and intangible benefits and surfacing hidden value across the organisation. Doing so will not only improve internal decision making but also help external stakeholders better recognise the business case for ESG.

Embedding sustainability into business and financial decision making

CSOs today are playing a far more strategic role than in years past. Beyond compliance and reporting, they are now functioning as risk managers, growth enablers and cross-functional integrators, helping shape how sustainability fits into broader corporate strategy.

Crucially, their focus is shifting from obligation to opportunity. New frameworks are enabling companies to quantify broader value streams – from circular product innovation and supply chain resilience to employee loyalty and brand differentiation.

Yet challenges remain. Sustainability often remains siloed from core business processes. Our research shows that fewer than one in three companies have a fully integrated sustainability strategy. This disconnect can lead to missed opportunities in investment, innovation and risk management.

Bridging this gap depends on stronger collaboration across teams. Some organisations are cross-training finance and ESG professionals, embedding finance roles within sustainability teams, creating dual-reporting structures and appointing ESG controllers to oversee integration into financial reporting.

A blueprint for credible, adaptive strategy

In summary, to succeed in today’s ESG landscape, companies must move beyond compliance toward strategic coherence.

The following principles offer a practical framework: (i) align sustainability with enterprise value, resilience and growth; (ii) track how ESG performance influences behaviour, perception and outcomes, starting with proxies, and refine over time; (iii) tailor communications by audience while maintaining narrative consistency; (iv) combine structured reporting with broader storytelling, ensuring alignment between the two; and (v) use third-party assurance, specific, measurable, achievable, relevant and time-bound goals, and clear metrics to validate progress.

In a world where sustainability is increasingly important – yet often politically and commercially contested – clarity, credibility and adaptability are becoming essential attributes of effective leadership. Companies that embed these principles into their approach will have more resilient and responsible business models and be better positioned to navigate evolving expectations over time.

Anuj Saush is head of advisory and Evi Angelidou is director of advisory at The Conference Board. Mr Saush can be contacted on +32 (2) 675 5405 or by email: asaush@tcb.org. Ms Angelidou can be contacted on +32 (2) 675 5405 or by email: pangelidou@tcb.org.

Anuj Saush and Evi Angelidou

The Conference Board