Evaluating the Latest Global Developments in ESG: Legal and Compliance Risks in Focus

Introduction

In an era of increasing stakeholder scrutiny, Environmental, Social, and Governance (ESG) factors have become more than just buzzwords — they are now business imperatives. One of the most rapidly evolving facets of ESG is the legal and compliance landscape. From mandatory disclosures to anti-greenwashing laws, global regulators are tightening the reins. This article explores the latest developments worldwide, focusing on how legal and compliance risks are becoming central to ESG strategies.

1. The Expanding Scope of ESG Regulations

At its core, ESG compliance now requires companies to navigate a maze of new regulations, reporting mandates, and due diligence obligations. Some key developments include:

• European Union:

  • The Corporate Sustainability Reporting Directive (CSRD), which came into effect in January 2024, mandates detailed ESG disclosures for over 50,000 companies.

  • The Corporate Sustainability Due Diligence Directive (CSDDD) requires firms to identify and mitigate human rights and environmental risks across their supply chains.

    
    

• United States:

  • The SEC’s Climate Disclosure Rule, finalized in early 2024, compels public companies to report material climate-related risks and emissions — especially Scope 1 and 2.

  • The Department of Justice (DOJ) has prioritized ESG-related fraud and greenwashing as enforcement priorities.

    
    

• Asia-Pacific:

  • Japan’s TCFD-aligned disclosures have become mandatory for prime-listed companies.

  • China continues to integrate ESG into its capital market systems, with new guidelines for green finance and environmental risk disclosures.

2. Greenwashing and Legal Liability

As ESG claims become mainstream, greenwashing — the act of misleading stakeholders about sustainability practices — is under intense regulatory scrutiny.

• Regulators are stepping in:

  • The EU Green Claims Directive (approved in 2024) requires companies to substantiate environmental claims with scientific evidence.

  • In the U.S., the Federal Trade Commission (FTC) is revising its Green Guides to prevent deceptive environmental marketing.

    
    

• Litigation on the rise:

  • Shareholders and NGOs are increasingly filing lawsuits against companies for misleading ESG claims.

  • Notable case: In 2024, a major oil company faced a class-action lawsuit for failing to align its sustainability claims with its actual emissions trajectory.

3. Third-Party Risk and Supply Chain Compliance

Legal ESG risks now extend far beyond a company’s own operations:

• Supply chain due diligence is becoming mandatory in the EU and Germany (under the German Supply Chain Act).

• Companies must ensure suppliers comply with labor laws, environmental standards, and human rights norms — or face legal consequences themselves.

• Failure to conduct proper due diligence can result in fines, civil liability, and reputational harm.

  
  
  
  

4. The Role of Governance in ESG Risk

The Governance pillar plays a pivotal role in assessing how companies manage legal and compliance risks:

• Board oversight of ESG compliance is now a fiduciary duty in many jurisdictions.

• Companies are expected to have internal controls, whistleblower systems, anti-bribery policies, and ESG-linked executive compensation.

• Regulators are looking for substance over form — not just policies, but actual performance and enforcement.

  
  

5. Implications for Investors and Companies

• Investors are demanding ESG transparency and are increasingly integrating legal risk assessments into their due diligence processes.

• Companies must build ESG compliance into their enterprise risk management (ERM) systems.

• Firms that fail to adapt face regulatory investigations, divestments, and loss of access to capital.

  
  

Conclusion

Legal and compliance risks are no longer peripheral to ESG — they are central. The global regulatory environment is moving rapidly, and companies must be proactive, not reactive. The winners in this new era will be those that not only comply with ESG regulations but also embed integrity, transparency, and accountability into their business DNA.