Regulatory “upheaval” sees ESG policies on hold, walked back

Investors are actively monitoring companies and their environmental, social and governance (ESG) policies, as several “global giants” have either paused or withdrawn their sustainability commitments amid ongoing regulatory uncertainty.

According to Zenith Investment Partners’ Head of Responsible Investment & Real Assets, Dugald Higgins, this “retreat” could impact corporate reputations and financial risk management in the long-term, as global investors still believe ESG factors to be critical to their investment decision-making.

Higgins said Microsoft, Unilever, BP and Walmart are only some of the companies to have recently retracted their ESG policies as well as their involvement in voluntary climate initiatives, such as the Net Zero Asset Managers initiative (now currently suspended) and the Net Zero Banking Alliance.

“This trend is occurring against a backdrop of regulatory upheaval, as companies are caught in a volatile ESG policy landscape with shifting mandates across key global markets,” he said.

“In the United States, the Securities and Exchange Commission (SEC) recently dropped its defence of mandatory climate disclosure rules, following an initial push to remove them under the Trump administration. Meanwhile, in the European Union, the newly released Omnibus package has significantly reduced the scope of ESG reporting requirements.”

Australia is experiencing similar conditions with the upcoming election and as several companies have suffered the repercussions of ‘greenwashing’ scandals with investors.

“In Australia, climate reporting has taken a step forward with the Australian Securities and Investments Commission (ASIC) launching new regulatory guidance on sustainability disclosures. However, political uncertainty looms as the Coalition have indicated that, if elected, it would seek to abolish these measures.

“Businesses are facing a regulatory rollercoaster. This inconsistency is making companies wary of overcommitting to sustainability targets that may be difficult to maintain under changing political and economic conditions.

“Ultimately, investors need information, and we’ve seen this play out in Australia in the past, with ESG related scandals at AMP, Crown, and Rio Tinto, and more recently with Wisetech and Mineral Resources.

“While some firms are withdrawing from high-profile ESG initiatives, investor demand for ESG & sustainability data continues to grow. Businesses that fail to disclose material ESG risks could find themselves at a disadvantage in the long run.”

Higgins said while this “greenhushing” trend won’t spell the end of ESG reporting, it will likely guide companies to focus on implementing a more “strategic and selective” approach rather than making broad commitments.

“The reality is that ESG considerations are now deeply embedded in the investment process,” he said. 

“Ignoring these factors doesn’t make them go away. Whether or not the information is there doesn’t remove the risks.

“While regulatory uncertainty may slow ESG progress, companies that integrate decision making around ESG and sustainability into their core strategy, rather than treat it as a PR exercise, will future proof their business and investor appeal.”