Corporate Sustainability Reporting in 2025: Corporate and Investor Call to Action

The evolving trends create both challenges and opportunities for businesses and investors.

Challenges

A key challenge is the complexity of compliance. Companies have to comply with different regulatory requirements depending on their size, location and sector. This creates a highly complex compliance landscape and requires the development of sustainability strategies and reporting mechanisms to meet regulatory requirements.

Another challenge is the increasing demand for more granular data, particularly on Scope 3 emissions and supply chain impacts. Companies need to improve their data collection and management systems to meet these demands. As outlined in the SBTi proposal, companies will be required to assess and improve the traceability of their emissions-intensive activities over time. To meet this requirement significant investment in a robust data infrastructure is needed to ensure accurate and transparent emissions reporting.

Uncertainty in long-term planning is also a significant challenge. Regulatory instability, such as the varying approaches to the Inflation Reduction Act (IRA) under the Trump administration, complicates long-term sustainability planning. The Deutsche Bank report highlights that concerns about potential cuts to IRA subsidies have slowed new investment, although existing projects continue to move forward.

Finally, the need for third-party verification and assurance of sustainability claims has increased, adding both financial and operational complexity. The SBTi's proposal to require Category A companies to obtain (limited) third-party assurance on their base-year GHG emissions inventory adds another layer of cost. As more companies face similar scrutiny, the cost and complexity of these verification processes is expected to increase, further straining resources.

Opportunities

Despite changes in the regulatory landscape, green finance continues to offer significant advantages. The BIS report highlights the concept of the "greenium", a trading premium for green bonds relative to conventional bonds with otherwise identical characteristics. This premium provides a financial benefit to issuers, particularly large investment grade corporates. The report emphasizes that this greenium is most significant for issuers with higher credit ratings, allowing them to secure more favorable financing conditions in the market.

The BIS research also shows that the issuance of green bonds leads to measurable emission reductions, particularly for large emitters. Empirical evidence shows that for many companies, green bond issuance is followed by tangible progress in reducing emissions. This is particularly true in carbon-intensive sectors, where companies can use green bonds to signal their environmental commitment and demonstrate meaningful improvements in their sustainability performance.

Understanding the different regulatory requirements in different jurisdictions can enable companies to manage compliance costs more effectively. The BIS research shows a positive correlation between policy stringency and green bond issuance volumes, providing an opportunity for companies to focus their green bond issuance efforts in jurisdictions with stricter climate policies. This strategic approach allows companies to maximize the impact of their green financing while minimizing compliance costs, and positions them to capitalize on the regulatory incentives available in regions with stronger sustainability mandates.

Staying Ahead: Strategies for Corporate Leadership

In today's rapidly evolving business landscape, forward-thinking companies must adopt proactive strategies to maintain their leadership in sustainability and environmental stewardship. One of the most effective approaches is the strategic use of green bonds. BIS research shows that green bonds not only offer potential financial benefits, but are also associated with tangible emissions reductions. Particularly relevant for organizations in carbon-intensive sectors, the issuance of green bonds can have a significant impact on both financial results and sustainability objectives. The integration green bonds into their financing strategies, signals commitment to sustainability while harvesting the associated financial benefits.

Another key strategy for maintaining leadership is to improve supply chain engagement, particularly in relation to Scope 3 emissions. With the growing emphasis on supply chain sustainability and the proposed changes to the SBTi, companies must now adopt a more robust approach to engaging their suppliers. The new proposal mandates net-zero alignment targets for Tier 1 suppliers, marking a shift from voluntary to mandatory engagement.

Investing in an advanced data infrastructure is also essential to maintaining sustainability leadership. As the demand for increasingly granular and accurate sustainability data grows, companies must prioritize investment in data collection, management and verification systems. These investments will enable companies to make more informed, data-driven decisions, while ensuring transparency and enhancing the credibility of their sustainability reporting.

It is also imperative that companies diversify their sustainability initiatives to avoid over-reliance on any single strategy. For example, the growing reliance on unbundled renewable energy certificates (RECs) poses certain risks, particularly as the regulatory framework evolves. Data from CDP and Kepler Cheuvreux shows that a significant proportion of renewable energy claims in 2023 will be attributed to unbundled RECs, highlighting the need for a more diversified approach. Companies should seek to complement RECs with additional strategies to achieve comprehensive and resilient sustainability outcomes.

Finally, maintaining a dynamic relationship with standard-setting bodies such as the SBTi is critical to staying ahead of regulatory trends and aligning corporate practices with emerging sustainability standards. Active participation in consultations and discussions with these organizations provides companies with valuable insight into upcoming changes, as well as the opportunity to influence the development of future requirements. With the current SBTi consultation running until 1 June 2025, companies have a unique opportunity to shape the trajectory of global sustainability standards and solidify their position as leaders in the transition to a low-carbon economy.

Call to Action: Leading in an Era of Transition

The core drivers of sustainability - climate change, resource scarcity and social inequality - remain urgent, regardless of the changing regulatory landscape.

First, companies need to maintain ambitious targets. Even as regulatory requirements evolve, the scientific imperatives behind climate targets remain unchanged. The WMO's State of the Global Climate 2024 report underscores the growing urgency of this challenge, confirming that 2024 is likely to be the first year to exceed 1.5°C above pre-industrial levels, with CO₂ concentrations reaching 420 parts per million - the highest in 800,000 years. Such data reinforce the need for continued progress towards ambitious environmental goals, regardless of external regulatory pressures.

Equally important is a commitment to transparency. In an environment where regulatory frameworks can fluctuate, clear and transparent reporting is essential. Transparency not only builds trust with investors, customers and other stakeholders, but also drives long-term market value. For example, the EU Platform on Sustainable Finance reports that taxonomy-aligned capital expenditure (CapEx) by large listed European companies will reach €250 billion in 2023, a 34% increase on the previous year, indicating a clear and growing market interest in sustainability investments rooted in transparency.

Companies should also integrate sustainability considerations into their governance structures. By embedding sustainability into board-level decision-making, companies can ensure that these critical issues receive consistent attention, regardless of the changing regulatory landscape. This governance shift ensures that sustainability is not just a regulatory checkbox, but a core element of corporate strategy and resilience.

Finally, cross-sector collaboration is essential. Industry-wide initiatives can establish common standards and best practices that transcend regulatory boundaries, providing companies with guidance and cohesion in an otherwise fragmented regulatory environment. Such collaborative efforts are critical to aligning diverse stakeholders around common sustainability goals and ensuring that progress remains steady despite regulatory changes.

The corporate sustainability leaders of tomorrow will be those who see the current transition as an opportunity to reaffirm, not diminish, their commitments. By continuing to focus on material sustainability issues, communicating transparently with stakeholders and innovating in sustainable practices, companies can navigate current uncertainties and emerge as long-term leaders. In a world of shifting standards, the ultimate goal remains clear: to create businesses that deliver sustainable value while addressing the pressing environmental and social challenges of our time.Corporate Sustainability Reporting in 2025: