GLOBAL

Trend #1: Expansion of ESG regulations

In 2025 ESG regulations will evolve beyond disclosure, driving greater accountability and integration into business practices, according to Ernst & Young and S&P. The EU’s Corporate Sustainability Reporting Directive (CSRD) is expanding to include more financial institutions, introducing mandatory digital tagging for ESG data to enhance transparency and comparability. The Corporate Sustainability Due Diligence Directive (CS3D) will require companies to actively identify, prevent and mitigate human rights and environmental risks within their supply chains, placing greater emphasis on due diligence. Meanwhile, the adoption of IFRS S1 & S2 will push companies to standardize ESG reporting globally, aligning financial disclosures with sustainability risks and performance metrics.

As regulations tighten, companies will be increasingly pushed to align ESG metrics with core business objectives, embedding sustainability into their strategies rather than treating it as an afterthought. Businesses that integrate ESG into financial planning, risk management and supply chain oversight will gain a competitive advantage by staying ahead of regulatory scrutiny and investor expectations.

Trend #2: Evolving ESG governance and rising litigation risks

The ESG landscape in 2025 is witnessing a growing focus on governance and litigation risks, with greenwashing taking center stage. Thomson Reuters highlights the surge in litigation cases tied to ESG, driven by stricter regulatory requirements like CSRD. As multinational companies prepare to report their 2025 data in early 2026, the risk of ESG-related lawsuits — covering issues like misleading net zero claims, contaminants in products and forced labor in supply chains — is expected to remain high. New disclosure requirements, such as double materiality and supply chain transparency, offer more grounds for legal action against companies failing to meet ESG standards.

Consultants like Latham & Watkins and the Anthesis Group highlight the growing scrutiny of greenwashing, driven by regulatory frameworks like the EU Green Claims Directive. As enforcement tightens and stakeholders demand greater transparency, businesses must ensure their sustainability efforts are credible and well-documented to avoid legal and reputational risks.

Trend #3: Revised focus on net zero commitments and decarbonization plans

In 2025, companies are rethinking their approach to decarbonization, shifting from ambitious but vague net zero commitments to more pragmatic, actionable strategies. External pressures also continue to mount. Morningstar Sustainalytics predicts that investors in 2025 will take a more hands-on role in the low-carbon transition, pushing beyond simply encouraging companies to set targets. Instead, they will demand tangible actions and visible progress toward meeting climate goals.

To stay ahead of growing investor and regulatory scrutiny, companies should proactively align their transition plans with emerging frameworks like the CSRD, Transition Plan Taskforce (TPT) Disclosure Framework and IFRS S1 & S2 standards. With mandatory disclosure requirements expanding, organizations that integrate clear, measurable decarbonization strategies into their reporting will enhance transparency, comparability, and investor confidence.

Trend #4: AI as a double-edged tool in ESG

Artificial Intelligence (AI) is revolutionizing the ESG landscape by streamlining data collection, enhancing reporting accuracy and enabling emissions tracking. For example, Economist Impact highlights AI’s role in transforming food systems, from monitoring crop health to optimizing distribution and reducing waste, which directly supports sustainability goals.

Meanwhile, AI’s rapid growth presents significant challenges. The ERM Sustainability Institute warns that soaring energy demands are pushing some regions back toward fossil fuels, complicating decarbonization efforts. MSCI predicts rising regulatory scrutiny over AI’s use, particularly in handling customer data. As AI investments expand, industries must balance innovation with sustainability while ensuring transparency and accountability. To stay ahead, companies should integrate energy-efficient AI solutions and proactively address ethical risks in their governance frameworks.

Trend #5: Voluntary carbon markets revive

After a period of stagnation and scrutiny, voluntary carbon markets are regaining momentum, driven by corporate climate commitments and progress on mechanisms under the Paris Agreement. The focus on quality has intensified, with past criticisms around carbon credit integrity prompting gradual improvements in transparency and accountability. MSCI highlights that corporate climate commitments and stricter verification standards are driving this shift. Emerging demand sources, such as the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), are further fueling market revival. Additionally, progress at COP29 toward the Paris Agreement Crediting Mechanism (PACM) has set the stage for formal credit transfers between countries and companies under Article 6.

With these advancements, 2025 is shaping up to be a pivotal year for voluntary carbon markets, offering opportunities for companies to align their decarbonization goals with credible, high-quality offset strategies.

* Political shifts redefine ESG priorities in the U.S.

The incoming U.S. administration signals a shift in ESG policy, with expected federal rollbacks clashing against global momentum for stricter frameworks. According to Thomson Reuters and Skadden, anti-ESG legislation is set to accelerate, targeting climate risk regulation and diversity, equity, and inclusion (DEI) programs — reflected in companies like Meta, Amazon, Walmart, and McDonald’s scaling back DEI initiatives and financial giants (JPMorgan Chase and BlackRock) exiting climate risk groups. Federal uncertainty around the SEC’s climate disclosure rules and the Inflation Reduction Act further complicates corporate planning.

Despite this, ESG progress continues at the state level, with California advancing carbon disclosure laws, emissions standards, and building-performance regulations to address climate challenges. This growing regulatory divide between federal and state governments — and between the U.S., EU, and U.K. — poses challenges for companies operating across jurisdictions. Still, as Sustainability Magazine notes, market forces are driving companies to strengthen climate strategies, recognizing that the low-carbon transition is inevitable.

MENA

#1: Mandatory ESG reporting expands across MENA (From voluntary to mandatory: ESG reporting in MENA)

Regulators across MENA are tightening ESG reporting requirements, expanding voluntary reporting from listed companies to non-listed businesses and sectors like finance, real estate, energy, and manufacturing. UAE, Oman, Bahrain, and Qatar are leading the charge, with the UAE introducing mandatory carbon reporting for large emissors and principles of voluntary reporting for financial firms (incl. non-listed companies), Oman requiring ESG reports from 2025, and Bahrain mandating reporting for financial firms starting December 2024. Qatar is aligning with IFRS standards, while Kuwait considers making reporting mandatory. Even in Jordan, investor demand is driving more companies to adopt ESG disclosures.

The UAE has also introduced a new Measurement, Reporting, and Verification (MRV) requirement for large emitters, requiring them to track and report their greenhouse gas emissions annually, with the first reports due in 2026. Companies should adopt global frameworks like GRI and ISSB now to stay ahead of emerging regulations and strengthen their ESG leadership in the region.

#2: ESG redefines regional investments

ESG criteria are becoming more and more important in investment decisions across the MENA region. Sovereign wealth funds like Saudi Arabia’s Public Investment Fund (PIF), the UAE’s Mubadala, Oman Investment Authority, and Bahrain’s investment bodies are prioritizing projects in renewable energy, green infrastructure, clean tech, and sustainable supply chains. Major initiatives such as Saudi’s NEOM, the Red Sea Project, and the UAE’s focus on healthcare, logistics, and renewables reflect this shift towards ESG-aligned investments. Even in Qatar and Jordan, ESG is influencing capital flows, with sustainable investments in LNG, construction, tourism, water management, and renewable energy gaining traction.

At the same time, private equity and venture capital firms across the region are integrating ESG due diligence into their strategies, especially as stock exchanges increasingly mandate ESG disclosures. To attract sustainability-focused investors, companies should enhance their ESG performance, provide transparent data, and embed ESG metrics into financial reporting.

#3: Net zero momentum accelerates across MENA

Following COP28, the Middle East is positioning itself as a global sustainability leader, with net zero commitments becoming the norm, particularly in carbon-intensive sectors like oil, gas, and construction. Governments are urging companies to develop clear transition plans, focusing on emission reductions, renewable energy, and carbon capture technologies. The GCC has announced a $100 billion investment in renewable energy by 2030 to drive the adoption of renewables, nuclear, and hydrogen, aligning with international climate agreements.

In Saudi Arabia, oil and gas, and construction companies are expected to align with Vision 2030’s carbon reduction goals, with Saudi Aramco leading renewable and green hydrogen projects. The UAE is accelerating net zero initiatives in line with its 2050 target, focusing on renewables and key industries. Qatar requires carbon capture and storage in energy-intensive sectors like LNG and petrochemicals, while Kuwait’s oil and gas enterprises need roadmaps for global decarbonization. Companies across the region must set science-based carbon reduction targets and align with national sustainability goals to stay competitive.

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