Anti-ESG sentiment is on the rise, most notably in the US. However, that's not the whole story. In-House Perspective assesses what this all means for businesses and their in-house legal teams.

Over recent months a number of chief sustainability officers (CSOs) at major organisations have left their roles and many large businesses have scaled back or dropped their environment, social and governance (ESG) targets. By the end of January there had been an exodus of major US banks from the Net-Zero Banking Alliance. But what’s driving these developments isn’t entirely straightforward, and understanding it requires a thorough look at the state of play for ESG.

Understanding and refocusing

Companies now have a better understanding of the action they need to take to meet their ESG targets. When it comes to the ‘E’ of ESG, many businesses have done the relatively easy work of tackling their Scope 1 and 2 emissions. This covers their direct and indirect emissions linked to electricity consumption. However, doing so has only achieved a small reduction in their overall emissions. They’re now realising that most of their emissions fall under Scope 3, which covers those generated indirectly across the company’s entire value chain. Reducing these emissions, they’ve discovered, will be much more difficult.

The recent drive to adopt energy-hungry artificial intelligence (AI) has also increased the energy use and emissions of many companies in a way they couldn’t have anticipated when they set their original reduction targets. These additional emissions make those targets seem even further out of reach.

The year 2030 is now only five years away. The immediacy of what for many organisations is a major milestone on their path to net zero has crystallised their understanding of how far they still have to go and how difficult it’ll be for them to make further progress in such a short time frame. Companies don’t often set a very long-term strategy, for example by looking at the next 25 years to 2050. Five years to 2030, on the other hand, is a timeframe they’re used to assessing. As a result, businesses can now see what’s feasible, and perhaps more importantly, what’s not.

A better understanding of the challenge they face, and looming deadlines, has therefore led many businesses to reassess their targets for addressing the ‘E’ of ESG. These factors could also explain why organisations are reassessing their membership of alliances that aim to reduce emissions across industries or sectors. The requirements of these alliances can be onerous, and some organisations may not be able to achieve them.

According to Nicky Sinker, a carbon specialist at Auditel, a cost, procurement and carbon solutions company, ‘what we’re seeing is a shift from [organisations] signing up to lots of different alliances, which aren’t helping them drive the transformation they need,’ to businesses focusing on the concrete steps needed to meet their goals. These could be, for example, aiming to achieve just one accreditation, or investing in external consultants.

Sinker says the move away from alliances isn’t indicative of the ESG agenda being less important. Rather, she says, ‘it’s showing that the transformation is evolving, and people are questioning’ what they need to do.

Some businesses need to change internally to address the challenges of ESG. They may lack specialist experience or skillsets and could consider providing more training and education.

Gus Bartholomew, co-founder of sustainability consultancy Leafr, says some organisations are focusing on the wrong things, such as changes that are relatively easy to make and offer attractive marketing opportunities, but which have a limited impact on the company’s overall emissions. Instead, argues Bartholomew, organisations should focus their reduction efforts on the source of the majority of their emissions, which might be a more challenging task, but one that’ll make a bigger difference. For example, the main source of emissions for a logistics company is probably its transportation fleet, so it should direct its emissions reduction efforts there.

More than meets the eye

In a climate of heightened greenwashing risk, where regulators are taking a more stringent approach on addressing false or misleading green claims, the concept of ‘green hushing’ has emerged. Green hushing refers to the practice of not publicising an organisation’s sustainability targets or progress towards them, or any other similar initiatives it may be undertaking – in some cases, to avoid criticism or being accused of greenwashing. Such a practice may make it seem as though companies are doing less on ESG.

Appointing a CSO could run counter to efforts to embed ESG throughout an organisation, which many argue is critical to a successful strategy in this area. Pamela Cone, Founder and CEO at Amity Advisory ­– a sustainability, ESG and social impact consultancy – says that ‘truly successful CSOs will eventually work themselves out of a job’. She says that if a business can embed proper behaviours, metrics and purpose throughout the entire organisation, then everybody will be working towards those key performance indicators and, at that point, ‘you don’t necessarily need a CSO because it’s embedded in the culture’.

CSOs come from a range of backgrounds that don’t always cover the full scope of sustainability or ESG. They may not even have specific expertise in sustainability. In some cases, individuals may be stepping down from these roles because they’re frustrated at the lack of progress the organisation has made. Or, if the CSO is a sustainability expert, they may be headhunted. Sinker says that, as with revised targets, CSOs leaving their post, or the role being abolished by a company, doesn’t mean those individuals or companies are no longer interested in addressing sustainability issues.

Charlotte Valeur, Chief Executive of consultancy the Global Governance Group, says that despite the high-profile attacks on diversity, equity and inclusion (DE&I) programmes in the US at the beginning of 2025, which has seen some organisations dropping their budgets in this area, DE&I efforts haven’t stopped, and in many cases have been operationalised. ‘There will still be some companies that will do [DE&I] and therefore [will] attract the best talent,’ she says. Valeur believes that ‘being a big business today is not the same as being a big business 100 years ago, or even 50 years ago. It comes with a broader societal responsibility’. She adds that organisations that drop DE&I programmes will lose customers, market share and clients.

As business leaders come to appreciate the enormity of the task ahead of them, leaving high-profile alliances or revising targets may give them the space needed to develop a more realistic plan. ‘It’s not to say they’re not remaining committed […] but it’s almost a stepping back from the potential public damage’ of certain obligations, says Bartholomew.

This might therefore be a positive trend that shows business leaders are thinking seriously about the realities of the targets they’ve set or the organisations they’ve joined and are reassessing those commitments to something that’s more achievable. Taking a more realistic approach such as this could lead to greater transparency from business leaders about their work on ESG, which could in turn help mitigate greenwashing risk.

Navigating fragmented approaches

Globally, jurisdictions are taking very different approaches to ESG, which poses challenges for multinational businesses. For example, the new US administration is taking a strong anti-ESG position, while Europe has recently passed the Corporate Sustainability Due Diligence Directive (CSDDD) which, among other things, will require businesses to adopt a climate transition plan. 

Els Reynaers, Co-Chair of the IBA Environment, Health and Safety Law Committee, says businesses will ‘generally try to have a global approach’ to compliance. She says clients are increasingly keen to understand their regulatory obligations across a wide range of jurisdictions, so they have clarity on their position. ‘At some point companies move forward independently of business laws or regulations,’ says Reynaers. ‘They [make] a very pragmatic call in terms of how it’s easiest to take a more global approach.’

Fundamentally, those organisations that want to do business in the EU will have to comply with the bloc’s regulations. Michael Showalter, Membership Officer of the IBA Environment, Health and Safety Committee, says multinational companies aren’t ‘going to pull away from Europe; they’re not going to segregate their operations; they’re probably going to try to comply across the platform’.

EU regulation such as the CSDDD will affect companies outside Europe, including some in the US, because of its focus on direct business partners. Businesses will need relevant data from their direct suppliers to be able to comply. Some smaller companies are not as far along on their ESG journey and are struggling to collect the accurate measurements and reports their clients will need.

As anti-ESG sentiment in the US grows significantly under the new administration, green hushing may allow businesses to continue their work on ESG and sustainability without attracting political scrutiny for doing so. ‘Within the US, companies may be quieter about what they’re doing, but those that were truly embedding ESG in their culture, that’s not going to change,’ says Cone. Meanwhile, Sinker believes that US businesses may shift their ESG priorities in response to the new administration, and DE&I may take a backseat as a result.

The US picture is more fragmented than the headlines suggest. Some individual states are taking their own approach to ESG policy and regulation. As such, compliance state-by-state, as well as across borders, could become more challenging both for US-based and international businesses. ‘Keeping track of state-by-state regulations in the US is really going to be hard now,’ says Cone. ‘You might get accused of something in one state that is required in another.’

There’s already evidence of individual states diverging from the federal government’s position on certain ESG issues. In late January, the US Climate Alliance, a bipartisan coalition of 24 state governors, wrote to the Executive Secretary of the UN Framework Convention on Climate Change to make it clear they will ‘continue America’s work to achieve the goals of the Paris Agreement and slash climate pollution’.

California has proposed climate disclosure rules that would require US companies doing business in the state to report their Scope 1, 2 and 3 emissions and their climate-related financial risks. As such, California’s rules could shape the US market more broadly because in-scope companies will probably apply the standards set by the state across their entire business rather than taking a state-by-state approach.

At the end of 2024, New York’s governor signed its Climate Change Superfund Act into law. Under this legislation, certain fossil fuel companies with connections to the state will be required to pay into a climate superfund. The sum they’ll have to pay will be linked to their greenhouse gas emissions over an 18-year period. The state will use the funds for adaptation projects, such as infrastructure, and other related expenses. Vermont has also passed a Climate Superfund Act.

Supporting the board

Robert van Beemen, Chair of the ESG Subcommittee of the IBA Law Firm Management Committee, says it can be difficult for general counsel to get ESG issues on the board agenda, especially if they don’t have a board role. Van Beemen, who’s also a partner at DRB Group in the Hague, adds that when the company doesn’t have a CSO, ESG can become the responsibility of the general counsel (GC) because the board sees it as a legal compliance exercise and not as a business imperative.

According to Leafr’s recent report, The True State of Sustainability, 89 per cent of sustainability leaders believe their executive teams lack awareness of the regulatory risks tied to non-compliance. GCs can get the board and the executive to take note of the immediacy of ESG issues by educating directors about the range of compliance obligations the company faces, and the relatively short timeframes associated with some of those regulations. Reynaers, who’s also a partner at MV Kini in Mumbai, says GCs often come to her for an overview of applicable regulation because they know these discussions take place in the boardroom and in business teams.

Sinker says it’s important to plan ahead for regulatory compliance because it can take as much as two years to be able to comply with regulations such as the EU’s Corporate Sustainability Reporting Directive (CSRD).

GCs should ensure ESG issues are considered as part of the risk assessments boards carry out. According to Valeur, ESG issues should be on the risk registers of companies so they can evidence that they’ve considered them. ‘The legal profession can definitely give boards sound input on what to do and what to look out for [and] what to question,’ she says. They can do this by giving advice on the legal risks associated with certain decisions, which should then be included in the risk register. 

ESG presents risks beyond those associated with compliance, such as in the areas of shareholder activism, reputation, litigation, revenue and the ability to attract talent. ‘Revenue risk speaks volumes,’ says Cone.

The concept of transition risk articulates the specific challenges that inaction on ESG can pose to a business. Transition risks are those that the business will face as a result of the shift to a low-carbon economy. For example, the organisation could be left with stranded assets if it invests in products, infrastructure or services that may be subject to future regulation limiting their use, or for which demand may fall as consumers seek more environmentally-friendly alternatives. Any technology or investment that can’t be adapted to a low-carbon economy risks being stranded.

Highlighting transition risks can help make the ESG conversation one that’s about ensuring the long-term viability of the business, rather than being something that’s optional or grounded in moral judgments. Because the CSDDD mandates adoption of a transition plan for in-scope companies, it could offer a useful starting point for discussing transition risk with board directors.

Valeur highlights the important role non-executive directors (NEDs) play. As part of this role, she says NEDs should ask the executive team questions about ESG policies and their implementation to ensure they’re seamlessly incorporated into operations. GCs can support NEDs by providing resources that enable them to constructively challenge the decisions being made by the company.

Reynaers says that staying in tune with peers in different jurisdictions can help individual lawyers be solutions-orientated and enable them to drive the ESG conversation even when they’re challenged on certain aspects.

What’s happening in the US generates headlines but doesn’t represent the global picture of ESG. Many businesses know that acting on ESG issues is the right thing to do for the long-term growth and viability of the company. Reynaers says that where she’s based in India, ESG is on everyone’s lips and there’s a sense of it being an unavoidable global trend. For many business leaders, the challenge is more about choosing the right path to take to ensure the organisation will thrive over the long term.

In 2024-25 the IBA ran an ESG Accelerator Training Programme, designed to provide specialised online ESG training focused on legal practitioners across Africa. This was convened by the IBA African Regional Forum and supported by the IBA Energy, Environment, Natural Resources and Infrastructure Law Section, the IBA Business Human Rights Committee, the IBA Legal Policy & Research Unit and Webber Wentzel. Access session recordings at https://www.ibanet.org/IBA-ESG-Accelerator-Training-Programme

The IBA maintains a dedicated page on ESG at https://www.ibanet.org/esg-hub-page. Here you’ll find links to reports, guides, articles, podcasts, webinars, films and more on ESG and related areas from across the IBA.