Amid political upheaval, economic pressures, and a growing trend of deregulation, a narrative has emerged portraying corporate sustainability and ESG as yesterday’s agenda. This view misses the point. Corporate sustainability is a core strategic competence essential for resilience, innovation, and long-term value creation—not a compliance checkbox or a fading trend.
Climate science, market dynamics, and global risk assessments demand corporate action and accountability even as policy signals weaken. Whether or not regulation holds, stepping back from ambitious corporate sustainability would be gravely misguided: The rationale is more compelling than ever—grounded in evidence, reinforced by a changing business environment, and increasingly upheld through litigation that fills gaps where regulation falters. As businesses navigate an increasingly complex and interconnected world, the strategic importance of corporate sustainability is only accelerating.
Under pressure: How geopolitics and economics are recasting Europe’s sustainability agenda
After an intense period of regulatory expansion in corporate sustainability, the EU is now under pressure to ease its approach. Economic challenges, geopolitical instability, and shifts in political leadership are reshaping the policy landscape and creating headwinds for the EU’s ambitious sustainability agenda.
Last autumn, Mario Draghi’s competitiveness report[1] concluded that Europe’s growth model is “fading fast” and that high energy prices, sluggish innovation, and soaring tariffs have left the continent squeezed between the United States and China. Among several structural challenges, the report pointed to excessive and fragmented regulation as one significant factor undermining the competitiveness of European companies. Following the report, EU leaders called for a “simplification revolution” in the Budapest Declaration in November 2024. The European Commission responded with its Competitiveness Compass in early 2025, pledging to reduce administrative burdens by 25% for all businesses and 35% for SMEs.[2] As part of this effort, the Commission unveiled the far-reaching Sustainability Omnibus package, proposing significant cutbacks to the new Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).[3]
Meanwhile, across the Atlantic, ESG has been treated as a political punching bag for quite some time, with the pace of the backlash still accelerating. The current U.S. administration’s anti-ESG actions have included revoking billions in clean energy and transportation funding, withdrawing from the Paris Climate Accord, and issuing executive orders to dismantle federal diversity, equity, and inclusion (DEI) programs while pressuring private companies to do the same. More importantly, this anti-ESG push is not confined to U.S. domestic policy; political pressure is also being heavily exerted on EU sustainability legislation, such as the CSRD and the CSDDD, through trade negotiations and lobbying efforts aimed at reducing their impact on U.S. companies or even scrapping them altogether. Recent examples show the scale of this push: in July, the joint statement on EU–U.S. trade framework agreement included commitments by the EU to ease the impact of the CSRD and CSDDD on U.S. companies, while U.S. oil giant ExxonMobil has overtly led one of the most forceful lobbying campaigns to dilute and roll back key provisions of the CSDDD.[4][5]
Overall, rising geopolitical tensions and a more volatile global landscape have brought security issues and inward-looking policies to the forefront of public and political discourse, often overshadowing sustainability as a strategic priority.
Racing toward deregulation: Unpacking the risks of the EU Sustainability Omnibus
When publishing the Sustainability Omnibus in February, the European Commission maintained that it was staying the course with the European Green Deal objectives while making regulation more pragmatic and simpler. By October, however, the Commission President’s language had shifted toward a more openly deregulatory tone.[6]
Under the Sustainability Omnibus, the Commission proposes to remove around 80% of companies from the scope of mandatory reporting under the CSRD and to limit reporting requirements for those that remain. In terms of the CSDDD, the package would narrow human rights and environmental due diligence to a company’s direct suppliers, relax requirements for climate transition plans, and delete the EU-wide civil liability regime, among other cutbacks.
Since its publication in February, the legislative process on the Sustainability Omnibus has moved with notable speed, with the ambitious aim of finalizing it by the end of 2025. The Council (representing EU member states) in June positioned itself to push for even deeper cuts, proposing, for example, to exclude 90% of companies from the CSRD obligations and 70% from the CSDDD. The European Parliament, deeply divided over the direction of the reforms, followed on 13 November with a dramatic vote where deregulatory forces prevailed. The Parliament’s adopted negotiation position now goes partly even further than the Council’s, deleting mandatory climate transition plans altogether and raising applicability thresholds for reporting even higher. This sets the stage for trilogue negotiations between the European Parliament and the Council, with the Commission acting as facilitator, where a notably high level of deregulation is expected, as lawmakers race to agree on a final text before year-end.
While the drive for genuine simplification is understandable and broadly welcomed, what is now on the table goes far beyond that. The proposals risk dismantling core elements of the sustainability framework rather than clarifying implementation, wielding the axe with undue haste instead of careful regulatory streamlining. They would shift the due diligence process away from international standards such as the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises, which companies at the forefront of sustainability have followed for years. That would be a step backward and lead to further fragmentation. Moreover, relaxing the rules on climate transition plans or even abandoning them altogether is starkly at odds with the urgency of climate action and the need for credible pathways to meet global targets. Eliminating harmonized EU-level civil liability creates legal uncertainty for companies and makes it more difficult for victims to pursue compensation claims.
On the other side of vocal calls for deregulation, many prominent companies, investors, and financial institutions have publicly urged EU lawmakers to maintain the integrity of the CSRD and the CSDDD. In August, more than 100 companies, investors, and financial institutions— such as Nokia, Ingka Group (IKEA), Nestlé, Unilever, Maersk, Nordea, and BNP Paribas—signed an open statement defending the core elements of corporate sustainability regulation. The statement emphasized that strong sustainability laws support competitiveness and growth, while driving long-term value creation and returns for investors. It also noted that companies implementing EU sustainability rules are likely to be more resilient, better prepared for sustainability-related challenges and opportunities, and more capable of communicating these factors to investors and other financial stakeholders.[7]
Concerns have also emerged from the financial sector, highlighting the economic risks of weakening sustainability regulation. In May, the European Central Bank publicly warned against weakening the CSRD and the CSDDD. It emphasized that robust sustainability frameworks are essential for preventing investment decisions based on incomplete information and for ensuring that sustainability-related risks are properly considered. The ECB further cautioned that the absence of such information could create systemic risks that threaten financial stability.[8]
Academic voices have echoed these concerns, pointing to the lack of a strong evidence base behind the proposals and urging greater integration of scientific research into the legislative process. Scholars warn that key provisions of the Sustainability Omnibus risk overlooking climate science, weakening transition planning, and undermining regulatory consistency, among other things. They further caution that the Omnibus may breach core EU law principles, such as the principle of proportionality and the principle of non-regression, exposing the Union to challenges in national and EU courts, which could trigger years of legal uncertainty.[9]
Moreover, the accelerated pace of the Sustainability Omnibus has raised questions about transparency and due process also by institutional oversight. In May, the EU Ombudswoman launched an inquiry into whether the Commission had breached its own Better Regulation Guidelines by bypassing a public consultation and impact assessment.[10] The Commission defended its approach by citing the urgency of the situation and the non-binding nature of the guidelines, arguing that a proportional application was justified in light of economic, geopolitical, and implementation pressures.[11]
Why climate and economic evidence warn against rolling back sustainability regulation
While daily politics are currently driving a rollback of sustainability regulation, climate and economic evidence point in the opposite direction. This autumn, scientists confirmed that seven of the nine planetary boundaries—the ecological thresholds that define a safe operating space for humanity—have now been breached. [12] This follows 2024 having been the hottest year on record, with global temperatures exceeding 1.5°C above pre-industrial levels for extended periods.[13] These developments are not abstract; they signal intensifying climate instability with direct economic consequences. Extreme weather events are already disrupting production and supply chains, distorting pricing mechanisms, and contributing to inflation across sectors.
Recent developments illustrate the tangibility of this transformation. Drought conditions have severely constrained global shipping through the Panama Canal, disrupting trade flows and increasing transport costs.[14] In the food industry, cocoa prices surged by 300% in early 2024 following extreme heatwaves in West Africa. Similarly, coffee and olive oil markets have recently seen sharp price spikes driven by droughts in Brazil and Vietnam during the 2023–2024 growing seasons, and by prolonged heat stress in Spain that halved olive yields in 2023.[15] Meanwhile, on the real estate front, properties in high-risk areas are undergoing asset revaluation. In California and Florida, escalating wildfire and hurricane risks have made insurance increasingly expensive or unavailable, eroding property values.[16] Moreover, a recent analysis by Bloomberg indicates that physical climate risk is now increasingly priced into the cost of capital, as firms exposed to environmental hazards face higher financing premiums, making climate resilience a material factor in both asset valuation and corporate financing.[17]
As demonstrated by the above examples, climate-related disruptions are reshaping core business fundamentals. When infrastructure fails, harvests collapse, or properties become uninsurable, the consequences ripple through supply networks and directly impact corporate bottom lines. These are not distant projections but unfolding business realities. They highlight how climate-related disruptions translate into financial and operational risks, making robust sustainability regulation not just an environmental goal but a cornerstone for economic stability.
How courts and litigators are forming the direction of corporate accountability
While politicians debate deregulation, courts are increasingly stepping in to reinforce climate obligations and corporate accountability for environmental harms and human rights violations. Legal institutions are beginning to define the boundaries of climate responsibility—both for states and private actors.
In July, the International Court of Justice issued a landmark advisory opinion confirming that states have a duty to prevent foreseeable climate harm and to safeguard human rights affected by climate change. The opinion also clarified that states are obligated to regulate the activities of companies and other private actors to ensure compliance with these obligations.
At the same time, litigation against companies is expanding across sectors, with courts more willing to scrutinize environmental practices, climate-related disclosures, and social impacts of corporate activity. Key decisions in cases like Milieudefensie v. Shell[18] and Lliuya v. RWE[19], even where plaintiffs did not fully prevail, have helped establish that companies can, in principle, be held liable for climate-related harm and have a duty to contribute to mitigation efforts.
Moreover, courts are not only assessing the corporate accountability for emissions but also examining how companies communicate their climate claims. A recent example from this October is the ruling by a French court, which found that the French oil giant TotalEnergies had misled consumers in its advertising by giving the impression that it is part of the solution to climate change despite continuing to promote and sell more fossil fuels.[20] The decision signals growing judicial intolerance for greenwashing and sets a precedent for stricter scrutiny of corporate climate messaging and its alignment with environmental standards.
In addition to cases regarding climate, environment, and greenwashing, human rights risks in business operations are increasingly coming under legal scrutiny, especially in the context of conflict areas and high-risk sectors like oil and mining—even in jurisdictions far from where the harm occurred. A prominent example is the ongoing criminal trial in Sweden concerning alleged complicity in war crimes linked to Lundin Oil’s operations in Sudan in the early 2000s. Widely described as Sweden’s longest and most significant criminal trial, it underscores how legal systems are beginning to address serious human rights violations tied to corporate activity.
Litigation has indeed become a new avenue to advance corporate accountability for climate action and responsible business conduct, and is increasingly finding innovative pathways even in the absence of clear rules.
Corporate sustainability as a strategic capability: Building resilience and future advantage
The current backlash against ESG and corporate sustainability has reignited conversations about its role in corporate strategy. Rather than focusing on short-term profit maximization, corporate sustainability reflects a broader framework grounded in long-term value creation. Corporate sustainability, in this context, is not an extracurricular activity but rather a strategic capability focused on managing risks, driving innovation, fostering trust, and building competitiveness and long-term resilience in an increasingly volatile and rapidly changing world.
In practice, this strategic capability translates into tangible benefits: ESG considerations can help firms prepare for transition risks like regulatory shifts and supply chain disruptions, attract capital and talent through access to green financing and purpose-driven workers, and open up new markets in areas such as the circular economy and clean technologies. Companies are already tapping into sustainable business opportunities like waste-to-resource models and closed-loop production systems, and a plethora of innovative ventures are waiting to be unlocked through developing creative solutions to today's massive sustainability challenges. On the more traditional side, ESG considerations can help drive cost savings through material optimization and circular economy practices, whereas comprehensive value chain mapping helps identify previously overlooked risks in existing operating models.
Yet some may still question whether there is room for sustainability ambition in a world reshaped by trade wars and armed conflict. While geopolitical and economic uncertainty are reshaping the operating environment in ways that would be naive to ignore, casting aside sustainability initiatives on the grounds of security or competitiveness reflects oversimplified reasoning.
Firstly, sustainability and security are fundamentally intertwined: Climate change and inequitable social practices fuel instability, meaning that neglecting these issues threatens our collective security, including the business environment. Second, climate change, resource scarcity, and increasing awareness of social inequities are already creating market pressures that favor companies with sustainable practices—from supply chain resilience to regulatory compliance, to investor preferences, client demands, and societal trust.
Considering the above, setting sustainable corporate practices in opposition to either security or competitiveness is both misguided and myopic in a world already pushed beyond its planetary boundaries.
Navigating uncertainty and looking ahead
In times of regulatory turbulence, sustainability should be seen as a strategic marathon requiring long-term thinking, clear priorities, and resilience. Loosening compliance frameworks does not diminish the need for ambition; if anything, it makes strategic clarity more critical. Companies must assess this shifting landscape not only through compliance but also through competitiveness, risk management, and stakeholder trust.
Passive observation is no longer enough. Businesses that actively interpret and anticipate emerging norms—and engage in shaping them—will be better positioned to manage impacts and seize opportunities. Proactive involvement during legislative drafting is increasingly advised, as it enables companies to share operational experience and practical realities, helping shape rules that are both ambitious and workable.
Economic pressures make prioritization essential. Not everything can be achieved at once, and trade-offs are inevitable: meeting emission reduction targets, for instance, may require major investments or supply chain changes. Transparency and open dialogue with diverse stakeholder groups in shaping and explaining these decisions are essential to achieving outcomes that withstand scrutiny. Companies that maintain sustainability ambition will outperform those who cut corners in the long run.
Political uncertainty and its ripple effects on regulation are unlikely to disappear anytime soon. Yet, in the face of planetary realities, companies that invest in sustainable and responsible practices will be better positioned to manage risks and seize opportunities. The UN Global Compact–Accenture CEO Study 2025, based on responses from over 1,900 CEOs across 128 countries, reinforces this: 99% intend to maintain or increase sustainability commitments despite economic and geopolitical headwinds, with a strong focus on initiatives that deliver measurable business value.[21] Nordic companies, with their strong governance traditions and deep-rooted sustainability focus, are exceptionally well placed to lead by aligning competitiveness with sustainability.
In the coming years, regulatory frameworks are expected to fluctuate and evolve, and litigation is likely to become an increasingly innovative and pressing avenue for challenging unsustainable corporate conduct. At the same time, the gap will continue to widen between firms that embed sustainability as a strategy and those that treat it as a checkbox.
About Riikka Kuha:
Riikka is a counsel of Corporate Sustainability and ESG, Foreign Direct Investment (FDI), and Corporate Advisory at Hannes Snellman.
She specialises in the fast-evolving field of corporate sustainability and environmental, social, and governance (ESG) law, with a special focus on corporate governance and compliance, commercial contracts, ESG due diligence, and supply chain risk assessment. She advises clients on navigating and staying ahead of the rapidly increasing ESG compliance obligations and recommendations and on incorporating sustainability into corporate strategies, policies, and operations. Moreover, she has extensive experience in both domestic and cross-border M&A transactions and corporate law, and she regularly advises clients on foreign direct investment (FDI) screening processes.
Riikka coordinates the firm’s cross-practice ESG activities, ensuring a cohesive approach in the multifaceted and interlinked ESG legal landscape. Additionally, Riikka is a frequent lecturer at external and internal events and education programmes on topics related to corporate sustainability and ESG.
Sources:
[1] https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en#paragraph_47059
[2] https://commission.europa.eu/topics/eu-competitiveness/competitiveness-compass_en
[4] https://policy.trade.ec.europa.eu/news/joint-statement-united-states-european-union-framework-agreement-reciprocal-fair-and-balanced-trade-2025-08-21_en
[5] https://www.somo.nl/how-big-oil-kills-sustainability-and-climate-legislation/. Three of four Exxon’s lobbying goals are currently fully or strongly included in the Commission’s Sustainability Omnibus proposal and Council’s negotiation position: Scrapping mandatory climate transition plans, scrapping EU-wide civil liability, and limiting due diligence to direct suppliers.
[7] https://www.eurosif.org/wp-content/uploads/2025/06/Joint-statement-Omnibus.pdf
[8] https://www.ecb.europa.eu/pub/pdf/legal/ecb.leg_con_2025_10.en.pdf?330cb335ad9426cd4a64dbe4021597f1
[9]https://docs.google.com/forms/d/1FRc74u8LqbxE2ex7PduFeLCZxL_4QPGjQmPGyamJmxY/viewform?edit_requested=true; and https://media.business-humanrights.org/media/documents/1762756670459.pdf
[10] https://www.ombudsman.europa.eu/en/news-document/en/205297
[11] https://www.ombudsman.europa.eu/pdf/en/211281
[13] https://climate.copernicus.eu/copernicus-2024-first-year-exceed-15degc-above-pre-industrial-level
[14] https://log-hub.com/how-panama-canal-disruptions-are-shaping-global-supply-chains/
[15] https://iopscience.iop.org/article/10.1088/1748-9326/ade45f/pdf
[16] https://www.hbs.edu/bigs/climate-change-upending-homeowners-insurance
[18] https://www.climatecasechart.com/document/milieudefensie-et-al-v-royal-dutch-shell-plc_c3e4?q=shell
[19] https://www.climatecasechart.com/document/luciano-lliuya-v-rwe-ag_dd33?q=Lliuya
[20] https://cdn.greenpeace.fr/site/uploads/2025/10/Decision-Total-Greenwashing.pdf
[21] https://unglobalcompact.org/library/6295
Commercial partnership:
·
5 min read
Amid political upheaval, economic pressures, and a growing trend of deregulation, a narrative has emerged portraying corporate sustainability and ESG as yesterday’s agenda. This view misses the point. Corporate sustainability is a core strategic competence essential for resilience, innovation, and long-term value creation—not a compliance checkbox or a fading trend.
Climate science, market dynamics, and global risk assessments demand corporate action and accountability even as policy signals weaken. Whether or not regulation holds, stepping back from ambitious corporate sustainability would be gravely misguided: The rationale is more compelling than ever—grounded in evidence, reinforced by a changing business environment, and increasingly upheld through litigation that fills gaps where regulation falters. As businesses navigate an increasingly complex and interconnected world, the strategic importance of corporate sustainability is only accelerating.
Under pressure: How geopolitics and economics are recasting Europe’s sustainability agenda
After an intense period of regulatory expansion in corporate sustainability, the EU is now under pressure to ease its approach. Economic challenges, geopolitical instability, and shifts in political leadership are reshaping the policy landscape and creating headwinds for the EU’s ambitious sustainability agenda.
Last autumn, Mario Draghi’s competitiveness report[1] concluded that Europe’s growth model is “fading fast” and that high energy prices, sluggish innovation, and soaring tariffs have left the continent squeezed between the United States and China. Among several structural challenges, the report pointed to excessive and fragmented regulation as one significant factor undermining the competitiveness of European companies. Following the report, EU leaders called for a “simplification revolution” in the Budapest Declaration in November 2024. The European Commission responded with its Competitiveness Compass in early 2025, pledging to reduce administrative burdens by 25% for all businesses and 35% for SMEs.[2] As part of this effort, the Commission unveiled the far-reaching Sustainability Omnibus package, proposing significant cutbacks to the new Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD).[3]
Meanwhile, across the Atlantic, ESG has been treated as a political punching bag for quite some time, with the pace of the backlash still accelerating. The current U.S. administration’s anti-ESG actions have included revoking billions in clean energy and transportation funding, withdrawing from the Paris Climate Accord, and issuing executive orders to dismantle federal diversity, equity, and inclusion (DEI) programs while pressuring private companies to do the same. More importantly, this anti-ESG push is not confined to U.S. domestic policy; political pressure is also being heavily exerted on EU sustainability legislation, such as the CSRD and the CSDDD, through trade negotiations and lobbying efforts aimed at reducing their impact on U.S. companies or even scrapping them altogether. Recent examples show the scale of this push: in July, the joint statement on EU–U.S. trade framework agreement included commitments by the EU to ease the impact of the CSRD and CSDDD on U.S. companies, while U.S. oil giant ExxonMobil has overtly led one of the most forceful lobbying campaigns to dilute and roll back key provisions of the CSDDD.[4][5]
Overall, rising geopolitical tensions and a more volatile global landscape have brought security issues and inward-looking policies to the forefront of public and political discourse, often overshadowing sustainability as a strategic priority.
Racing toward deregulation: Unpacking the risks of the EU Sustainability Omnibus
When publishing the Sustainability Omnibus in February, the European Commission maintained that it was staying the course with the European Green Deal objectives while making regulation more pragmatic and simpler. By October, however, the Commission President’s language had shifted toward a more openly deregulatory tone.[6]
Under the Sustainability Omnibus, the Commission proposes to remove around 80% of companies from the scope of mandatory reporting under the CSRD and to limit reporting requirements for those that remain. In terms of the CSDDD, the package would narrow human rights and environmental due diligence to a company’s direct suppliers, relax requirements for climate transition plans, and delete the EU-wide civil liability regime, among other cutbacks.
Since its publication in February, the legislative process on the Sustainability Omnibus has moved with notable speed, with the ambitious aim of finalizing it by the end of 2025. The Council (representing EU member states) in June positioned itself to push for even deeper cuts, proposing, for example, to exclude 90% of companies from the CSRD obligations and 70% from the CSDDD. The European Parliament, deeply divided over the direction of the reforms, followed on 13 November with a dramatic vote where deregulatory forces prevailed. The Parliament’s adopted negotiation position now goes partly even further than the Council’s, deleting mandatory climate transition plans altogether and raising applicability thresholds for reporting even higher. This sets the stage for trilogue negotiations between the European Parliament and the Council, with the Commission acting as facilitator, where a notably high level of deregulation is expected, as lawmakers race to agree on a final text before year-end.
While the drive for genuine simplification is understandable and broadly welcomed, what is now on the table goes far beyond that. The proposals risk dismantling core elements of the sustainability framework rather than clarifying implementation, wielding the axe with undue haste instead of careful regulatory streamlining. They would shift the due diligence process away from international standards such as the UN Guiding Principles on Business and Human Rights (UNGPs) and the OECD Guidelines for Multinational Enterprises, which companies at the forefront of sustainability have followed for years. That would be a step backward and lead to further fragmentation. Moreover, relaxing the rules on climate transition plans or even abandoning them altogether is starkly at odds with the urgency of climate action and the need for credible pathways to meet global targets. Eliminating harmonized EU-level civil liability creates legal uncertainty for companies and makes it more difficult for victims to pursue compensation claims.
On the other side of vocal calls for deregulation, many prominent companies, investors, and financial institutions have publicly urged EU lawmakers to maintain the integrity of the CSRD and the CSDDD. In August, more than 100 companies, investors, and financial institutions— such as Nokia, Ingka Group (IKEA), Nestlé, Unilever, Maersk, Nordea, and BNP Paribas—signed an open statement defending the core elements of corporate sustainability regulation. The statement emphasized that strong sustainability laws support competitiveness and growth, while driving long-term value creation and returns for investors. It also noted that companies implementing EU sustainability rules are likely to be more resilient, better prepared for sustainability-related challenges and opportunities, and more capable of communicating these factors to investors and other financial stakeholders.[7]
Concerns have also emerged from the financial sector, highlighting the economic risks of weakening sustainability regulation. In May, the European Central Bank publicly warned against weakening the CSRD and the CSDDD. It emphasized that robust sustainability frameworks are essential for preventing investment decisions based on incomplete information and for ensuring that sustainability-related risks are properly considered. The ECB further cautioned that the absence of such information could create systemic risks that threaten financial stability.[8]
Academic voices have echoed these concerns, pointing to the lack of a strong evidence base behind the proposals and urging greater integration of scientific research into the legislative process. Scholars warn that key provisions of the Sustainability Omnibus risk overlooking climate science, weakening transition planning, and undermining regulatory consistency, among other things. They further caution that the Omnibus may breach core EU law principles, such as the principle of proportionality and the principle of non-regression, exposing the Union to challenges in national and EU courts, which could trigger years of legal uncertainty.[9]
Moreover, the accelerated pace of the Sustainability Omnibus has raised questions about transparency and due process also by institutional oversight. In May, the EU Ombudswoman launched an inquiry into whether the Commission had breached its own Better Regulation Guidelines by bypassing a public consultation and impact assessment.[10] The Commission defended its approach by citing the urgency of the situation and the non-binding nature of the guidelines, arguing that a proportional application was justified in light of economic, geopolitical, and implementation pressures.[11]
Why climate and economic evidence warn against rolling back sustainability regulation
While daily politics are currently driving a rollback of sustainability regulation, climate and economic evidence point in the opposite direction. This autumn, scientists confirmed that seven of the nine planetary boundaries—the ecological thresholds that define a safe operating space for humanity—have now been breached. [12] This follows 2024 having been the hottest year on record, with global temperatures exceeding 1.5°C above pre-industrial levels for extended periods.[13] These developments are not abstract; they signal intensifying climate instability with direct economic consequences. Extreme weather events are already disrupting production and supply chains, distorting pricing mechanisms, and contributing to inflation across sectors.
Recent developments illustrate the tangibility of this transformation. Drought conditions have severely constrained global shipping through the Panama Canal, disrupting trade flows and increasing transport costs.[14] In the food industry, cocoa prices surged by 300% in early 2024 following extreme heatwaves in West Africa. Similarly, coffee and olive oil markets have recently seen sharp price spikes driven by droughts in Brazil and Vietnam during the 2023–2024 growing seasons, and by prolonged heat stress in Spain that halved olive yields in 2023.[15] Meanwhile, on the real estate front, properties in high-risk areas are undergoing asset revaluation. In California and Florida, escalating wildfire and hurricane risks have made insurance increasingly expensive or unavailable, eroding property values.[16] Moreover, a recent analysis by Bloomberg indicates that physical climate risk is now increasingly priced into the cost of capital, as firms exposed to environmental hazards face higher financing premiums, making climate resilience a material factor in both asset valuation and corporate financing.[17]
As demonstrated by the above examples, climate-related disruptions are reshaping core business fundamentals. When infrastructure fails, harvests collapse, or properties become uninsurable, the consequences ripple through supply networks and directly impact corporate bottom lines. These are not distant projections but unfolding business realities. They highlight how climate-related disruptions translate into financial and operational risks, making robust sustainability regulation not just an environmental goal but a cornerstone for economic stability.
How courts and litigators are forming the direction of corporate accountability
While politicians debate deregulation, courts are increasingly stepping in to reinforce climate obligations and corporate accountability for environmental harms and human rights violations. Legal institutions are beginning to define the boundaries of climate responsibility—both for states and private actors.
In July, the International Court of Justice issued a landmark advisory opinion confirming that states have a duty to prevent foreseeable climate harm and to safeguard human rights affected by climate change. The opinion also clarified that states are obligated to regulate the activities of companies and other private actors to ensure compliance with these obligations.
At the same time, litigation against companies is expanding across sectors, with courts more willing to scrutinize environmental practices, climate-related disclosures, and social impacts of corporate activity. Key decisions in cases like Milieudefensie v. Shell[18] and Lliuya v. RWE[19], even where plaintiffs did not fully prevail, have helped establish that companies can, in principle, be held liable for climate-related harm and have a duty to contribute to mitigation efforts.
Moreover, courts are not only assessing the corporate accountability for emissions but also examining how companies communicate their climate claims. A recent example from this October is the ruling by a French court, which found that the French oil giant TotalEnergies had misled consumers in its advertising by giving the impression that it is part of the solution to climate change despite continuing to promote and sell more fossil fuels.[20] The decision signals growing judicial intolerance for greenwashing and sets a precedent for stricter scrutiny of corporate climate messaging and its alignment with environmental standards.
In addition to cases regarding climate, environment, and greenwashing, human rights risks in business operations are increasingly coming under legal scrutiny, especially in the context of conflict areas and high-risk sectors like oil and mining—even in jurisdictions far from where the harm occurred. A prominent example is the ongoing criminal trial in Sweden concerning alleged complicity in war crimes linked to Lundin Oil’s operations in Sudan in the early 2000s. Widely described as Sweden’s longest and most significant criminal trial, it underscores how legal systems are beginning to address serious human rights violations tied to corporate activity.
Litigation has indeed become a new avenue to advance corporate accountability for climate action and responsible business conduct, and is increasingly finding innovative pathways even in the absence of clear rules.
Corporate sustainability as a strategic capability: Building resilience and future advantage
The current backlash against ESG and corporate sustainability has reignited conversations about its role in corporate strategy. Rather than focusing on short-term profit maximization, corporate sustainability reflects a broader framework grounded in long-term value creation. Corporate sustainability, in this context, is not an extracurricular activity but rather a strategic capability focused on managing risks, driving innovation, fostering trust, and building competitiveness and long-term resilience in an increasingly volatile and rapidly changing world.
In practice, this strategic capability translates into tangible benefits: ESG considerations can help firms prepare for transition risks like regulatory shifts and supply chain disruptions, attract capital and talent through access to green financing and purpose-driven workers, and open up new markets in areas such as the circular economy and clean technologies. Companies are already tapping into sustainable business opportunities like waste-to-resource models and closed-loop production systems, and a plethora of innovative ventures are waiting to be unlocked through developing creative solutions to today's massive sustainability challenges. On the more traditional side, ESG considerations can help drive cost savings through material optimization and circular economy practices, whereas comprehensive value chain mapping helps identify previously overlooked risks in existing operating models.
Yet some may still question whether there is room for sustainability ambition in a world reshaped by trade wars and armed conflict. While geopolitical and economic uncertainty are reshaping the operating environment in ways that would be naive to ignore, casting aside sustainability initiatives on the grounds of security or competitiveness reflects oversimplified reasoning.
Firstly, sustainability and security are fundamentally intertwined: Climate change and inequitable social practices fuel instability, meaning that neglecting these issues threatens our collective security, including the business environment. Second, climate change, resource scarcity, and increasing awareness of social inequities are already creating market pressures that favor companies with sustainable practices—from supply chain resilience to regulatory compliance, to investor preferences, client demands, and societal trust.
Considering the above, setting sustainable corporate practices in opposition to either security or competitiveness is both misguided and myopic in a world already pushed beyond its planetary boundaries.
Navigating uncertainty and looking ahead
In times of regulatory turbulence, sustainability should be seen as a strategic marathon requiring long-term thinking, clear priorities, and resilience. Loosening compliance frameworks does not diminish the need for ambition; if anything, it makes strategic clarity more critical. Companies must assess this shifting landscape not only through compliance but also through competitiveness, risk management, and stakeholder trust.
Passive observation is no longer enough. Businesses that actively interpret and anticipate emerging norms—and engage in shaping them—will be better positioned to manage impacts and seize opportunities. Proactive involvement during legislative drafting is increasingly advised, as it enables companies to share operational experience and practical realities, helping shape rules that are both ambitious and workable.
Economic pressures make prioritization essential. Not everything can be achieved at once, and trade-offs are inevitable: meeting emission reduction targets, for instance, may require major investments or supply chain changes. Transparency and open dialogue with diverse stakeholder groups in shaping and explaining these decisions are essential to achieving outcomes that withstand scrutiny. Companies that maintain sustainability ambition will outperform those who cut corners in the long run.
Political uncertainty and its ripple effects on regulation are unlikely to disappear anytime soon. Yet, in the face of planetary realities, companies that invest in sustainable and responsible practices will be better positioned to manage risks and seize opportunities. The UN Global Compact–Accenture CEO Study 2025, based on responses from over 1,900 CEOs across 128 countries, reinforces this: 99% intend to maintain or increase sustainability commitments despite economic and geopolitical headwinds, with a strong focus on initiatives that deliver measurable business value.[21] Nordic companies, with their strong governance traditions and deep-rooted sustainability focus, are exceptionally well placed to lead by aligning competitiveness with sustainability.
In the coming years, regulatory frameworks are expected to fluctuate and evolve, and litigation is likely to become an increasingly innovative and pressing avenue for challenging unsustainable corporate conduct. At the same time, the gap will continue to widen between firms that embed sustainability as a strategy and those that treat it as a checkbox.
About Riikka Kuha:
Riikka is a counsel of Corporate Sustainability and ESG, Foreign Direct Investment (FDI), and Corporate Advisory at Hannes Snellman.
She specialises in the fast-evolving field of corporate sustainability and environmental, social, and governance (ESG) law, with a special focus on corporate governance and compliance, commercial contracts, ESG due diligence, and supply chain risk assessment. She advises clients on navigating and staying ahead of the rapidly increasing ESG compliance obligations and recommendations and on incorporating sustainability into corporate strategies, policies, and operations. Moreover, she has extensive experience in both domestic and cross-border M&A transactions and corporate law, and she regularly advises clients on foreign direct investment (FDI) screening processes.
Riikka coordinates the firm’s cross-practice ESG activities, ensuring a cohesive approach in the multifaceted and interlinked ESG legal landscape. Additionally, Riikka is a frequent lecturer at external and internal events and education programmes on topics related to corporate sustainability and ESG.
Sources:
[1] https://commission.europa.eu/topics/eu-competitiveness/draghi-report_en#paragraph_47059
[2] https://commission.europa.eu/topics/eu-competitiveness/competitiveness-compass_en
[4] https://policy.trade.ec.europa.eu/news/joint-statement-united-states-european-union-framework-agreement-reciprocal-fair-and-balanced-trade-2025-08-21_en
[5] https://www.somo.nl/how-big-oil-kills-sustainability-and-climate-legislation/. Three of four Exxon’s lobbying goals are currently fully or strongly included in the Commission’s Sustainability Omnibus proposal and Council’s negotiation position: Scrapping mandatory climate transition plans, scrapping EU-wide civil liability, and limiting due diligence to direct suppliers.
[7] https://www.eurosif.org/wp-content/uploads/2025/06/Joint-statement-Omnibus.pdf
[8] https://www.ecb.europa.eu/pub/pdf/legal/ecb.leg_con_2025_10.en.pdf?330cb335ad9426cd4a64dbe4021597f1
[9]https://docs.google.com/forms/d/1FRc74u8LqbxE2ex7PduFeLCZxL_4QPGjQmPGyamJmxY/viewform?edit_requested=true; and https://media.business-humanrights.org/media/documents/1762756670459.pdf
[10] https://www.ombudsman.europa.eu/en/news-document/en/205297
[11] https://www.ombudsman.europa.eu/pdf/en/211281
[13] https://climate.copernicus.eu/copernicus-2024-first-year-exceed-15degc-above-pre-industrial-level
[14] https://log-hub.com/how-panama-canal-disruptions-are-shaping-global-supply-chains/
[15] https://iopscience.iop.org/article/10.1088/1748-9326/ade45f/pdf
[16] https://www.hbs.edu/bigs/climate-change-upending-homeowners-insurance
[18] https://www.climatecasechart.com/document/milieudefensie-et-al-v-royal-dutch-shell-plc_c3e4?q=shell
[19] https://www.climatecasechart.com/document/luciano-lliuya-v-rwe-ag_dd33?q=Lliuya
[20] https://cdn.greenpeace.fr/site/uploads/2025/10/Decision-Total-Greenwashing.pdf
[21] https://unglobalcompact.org/library/6295
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