Sustainable Finance Regulatory Outlook: How to Prepare for 2025

Whether driven by regulation or market forces, ESG and sustainable finance are here to stay. While political headwinds in the U.S. may create uncertainty, investor demand, global regulations, and economic realities continue to push ESG forward. “Even with shifting regulations, the market will continue to demand sustainability-related data,” said Thomas Willman. Companies and financial institutions must focus on materiality, transparency, and compliance adaptability to navigate evolving ESG regulations. With heightened scrutiny on transition finance, greenwashing risks, and financial disclosure requirements, businesses that proactively strengthen their sustainability strategies will be best positioned for long-term success.

Political headwinds are creating a fragmented regulatory environment, with federal ESG rules facing potential rollbacks while states like California, New York, and Colorado introduce their own reporting mandates. This patchwork of regulations increases compliance complexity, forcing businesses to adapt to multiple standards. As David Carlin noted, “All of these states stepping up means that it's going to be very hard to be a major business and actually do anything of real impact in the U.S. without being ensnared in these laws.” Companies should focus on staying flexible and aligning with global ESG reporting standards to ensure long-term compliance.

Financial institutions must demonstrate clear accountability in their transition finance strategies, ensuring that investments in high-emission industries contribute to genuine decarbonization. Regulators are increasing scrutiny, requiring firms to align with science-based targets and transparent disclosure frameworks. “There’s more of a focus on what these commitments actually mean,” David Carlin explained. Companies should proactively refine their transition finance strategies, ensuring that financing supports credible, measurable sustainability goals.

As greenwashing litigation rises, regulators and investors are demanding clear, verifiable ESG data to ensure sustainability claims are credible. “Another key trend is the need to hedge against political risk and the policy uncertainty that comes with it,” said Claudia Marin. “This is closely tied to the rise in greenwashing litigation, which we saw escalate in 2024 and expect to continue in 2025. To mitigate these risks, companies must rely on more robust and reliable ESG data.” Regulations like the SEC’s Names Rule and EU fund classification rules now require firms to substantiate ESG claims with standardized, explainable metrics to avoid legal, financial, and reputational risks.

Financial materiality refers to ESG factors that directly impact a company’s risk and return, rather than broad ethical considerations. This shift is shaping sustainable finance regulations like the EU’s SFDR, the UK’s SDR, and evolving U.S. policies, which now emphasize financially relevant ESG risks over voluntary commitments. “We've had a lot of discussion about the importance of financial materiality, and that's becoming a real buzzword in the investment community,” said Tom Willman. Investors and regulators are increasingly demanding data-backed, materiality-focused ESG reporting, meaning companies must prove how sustainability risks—like climate transition, supply chain resilience, and regulatory costs—affect financial performance.