The public conversation about ESG has shifted. Political scrutiny, regulatory simplification, and changing investor approaches have led some companies to reconsider sustainability commitments and disclosure. But a narrower regulatory mandate or less frequent use of the term “ESG” does not eliminate a company’s exposure to climate disruption, workforce challenges, supplier requirements, or shareholder and customer information needs.
These considerations continue to influence business decisions. Asset owners incorporate sustainability factors into investment strategies; certain shareholders consider material risks when engaging with companies or voting on directors; corporate customers request supplier data; and regulatory disclosure obligations remain in place. Expectations vary, however, and not every investor or stakeholder is seeking more reporting.
For boards and management, the risk is treating the reduced prominence of an ESG label as evidence that the underlying expectations have disappeared. The response is not necessarily to expand sustainability efforts or scale them back, but to determine which issues are financially or operationally material, who relies on the information, and how changes to commitments or disclosures could affect investors, customers, regulatory compliance, and long-term value
Sustainability considerations remain part of institutional investment analysis, although their weight and application vary. FTSE Russell’s 2026 survey of 402 asset owners in 24 countries found that 84% incorporate sustainability considerations into investment strategies, compared with 73% in 2025. Corporate reporting and disclosure quality emerged as the leading barrier to greater adoption. While these findings signal continued interest, they do not mean all investors apply the same criteria or voting policies.
Companies should distinguish among the different channels of investor influence: security selection and portfolio construction, risk assessment, stewardship engagement, votes on directors and other management resolutions, and votes on shareholder proposals. An investor may assess climate or human capital risks in valuation or engagement without necessarily supporting a related shareholder proposal. Similarly, a fund’s proxy vote does not necessarily reflect how an active portfolio manager evaluates an investment. For companies, the more meaningful question is how their own shareholders evaluate ESG risks and opportunities, and how those considerations influence investment and voting decisions.
Investors continue to hold boards accountable for material sustainability risks. In its 2025 responsible investment report, Norges Bank Investment Management disclosed votes against at least one director at 35 companies with heightened sustainability risks, including 28 involving material failures in environmental oversight, management, or disclosure, and seven involving social risks.
The 2026 U.S. proxy season, however, reveals a more nuanced picture of investor support for ESG shareholder proposals. ISS reported average support of 9.7% for environmental and social shareholder proposals as of June 30, down from 10.6% at the same point in 2025. Excluding anti-ESG proposals, average support for pro-environmental and social proposals rose modestly from 14.3% to 15.2%. No environmental or social proposal had received majority support as of that date. While support for ESG shareholder proposals remains low, this should not be conflated with an absence of risk-based investment analysis or engagement.
Institutional policies also differ, including within firms. In 2026, Vanguard established separate investment stewardship teams for funds managed by its two U.S. investment advisers. BlackRock similarly distinguishes stewardship for index and active assets and provides different voting options for eligible clients, including a separate climate and decarbonization program for in-scope mandates. Meanwhile, Allianz Global Investors‘ 2026 voting policy continues to address material sustainability risks alongside governance and board accountability. Companies should therefore assess the policies, voting records, and engagement priorities of their actual shareholders to identify which ESG issues matter most to investors and where disclosures should be focused.
Sustainability Expectations Also Have Commercial and Regulatory Consequences
ESG expectations extend beyond capital markets. Major customers may require suppliers to provide information on emissions, resource use, and labor practices to support their own sustainability objectives, procurement decisions, and reporting obligations. These requirements can extend to companies that fall outside the scope of sustainability reporting regulations. In 2025, more than 270 major buyers requested disclosures from approximately 45,000 suppliers through CDP’s Supply Chain program.
Microsoft’s Supplier Code of Conduct provides a concrete example, requiring suppliers to disclose emissions data and implement reduction plans, with specific targets, timelines, and any applicable assurance requirements established through supplier contracts or other written communications. Other customer requests may address product-level environmental data, water use, workplace safety, or labor standards. For an affected supplier, the ability to substantiate its practices can be important to maintaining key customer relationships, not merely an annual reporting exercise.
Regulatory requirements, meanwhile, continue to evolve and differ by jurisdiction. California’s Air Resources Board confirms that November 10, 2026, is the first deadline for covered entities to report Scope 1 and Scope 2 greenhouse gas emissions under SB 253, while enforcement of SB 261, which requires climate-related financial risk reporting, remains paused under a court injunction. The European Union’s 2026 simplification legislation narrowed the scope of the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).
The distinction between regulatory obligations, contractual requirements, and voluntary investor-facing disclosure matters. Companies may fall outside certain reporting requirements while continuing to face sustainability-related requests from major customers and investors. Understanding which requirements carry significant business implications can help companies prioritize their efforts and determine how best to respond.
From Disclosure to Business Decisions
The value of sustainability reporting lies not in the volume of disclosure, but in the relevance, reliability, and usefulness of the information. Effective reporting provides a credible account of material business risks and performance while supporting informed management decisions.
Investors, customers, and regulators often request overlapping information in different formats. For example, a credible emissions inventory can support regulatory filings, customer requests, and investor communications. Managing these requests separately can create unnecessary duplication, inconsistencies, and additional reporting costs.
Addressing this requires a coordinated approach across business functions. By assessing material issues, existing data, public commitments, and external requests, companies can establish clear data ownership, consistent methodologies, and appropriate controls. This can improve reporting quality while reducing duplication and unnecessary effort.
But disclosure is not a substitute for performance. Where sustainability data reveal material risks in operations, workforce, supply chains, or governance, addressing them may require changes to risk controls, procurement practices, capital allocation, or board oversight, not simply different wording in a sustainability report. How companies respond to these risks, and whether their disclosures accurately reflect those efforts, can affect their credibility with investors and other stakeholders.
This integration of sustainability considerations into business decisions is increasingly reflected in corporate practices. Morgan Stanley’s 2026 survey of 300 corporate sustainability decision-makers found that 62% viewed sustainability as both a source of value creation and a risk management consideration, up from 35% in 2025. Separately, 63% reported incorporating sustainability criteria into key decisions, including capital expenditure, research and development budgets, and M&A, up from 51%. Board-level responsibility also increased from 42% to 62%.
The implications vary by industry and business model. Physical climate risks may affect operating costs and asset availability; workforce management may influence retention, safety, and productivity; and supplier practices may affect operational continuity and compliance. Management and boards should evaluate these exposures using the same discipline applied to other enterprise risks, considering their likelihood, magnitude, mitigation strategies, and financial consequences.
Ultimately, sustainability disclosures should reflect how companies identify, manage, and address material risks and opportunities as part of broader business decisions.
What Management and Boards Should Do Now
The right response is company-specific. Before expanding, scaling back, or withdrawing commitments and disclosures, management and boards should understand who relies on them, the risks and obligations they address, and the potential business consequences. Four priorities follow:
1. Map the decision-makers: Identify relevant investment managers and voting teams within the company’s shareholder base, as well as major customers and applicable regulators. Understand where sustainability considerations affect investment decisions, director voting, procurement, or compliance, and where expectations differ.
2. Assess material risks, obligations, and existing commitments: Review business exposures, regulatory and contractual requirements, external commitments, and available data. Distinguish disclosure gaps from substantive weaknesses in operations, controls, or oversight.
3. Prioritize based on business impact: Evaluate the potential implications for financial performance, operations, shareholder support, and commercial relationships. Focus resources on addressing material risks, strengthening disclosures, and improving performance where they have the greatest strategic value.
4. Make changes deliberately and explain them credibly: Ground any changes to sustainability commitments or disclosures in a clear business rationale and supporting evidence. Explain the reasons for those changes while maintaining a consistent account of material risks, management’s actions, and board oversight.
Shifting ESG politics and terminology should not be mistaken for a change in underlying business risks and stakeholder requirements. Sustainability considerations continue to influence investment and voting decisions, commercial relationships, and regulatory obligations, although their relevance varies by company and stakeholder. Companies that look beyond the ESG debate and focus on what matters to their business will be better positioned to manage material risks, maintain credibility, and protect long-term value.
Publisher: Source link
