Despite growing anti-ESG sentiment in the U.S., policymakers globally will be stepping up the fight against greenwashing in the year ahead, according to a new report from ISS ESG.
That means a growing risk of regulatory action to hold companies accountable for ESG-related claims, the responsible investment arm of proxy advisory firm Institutional Shareholder Services (ISS) said in the report released Tuesday.
“Supervisory authorities are starting to intervene in cases of greenwashing, imposing fines and other penalties on companies with sustainability-related actions or communications that do not reflect their underlying sustainability profiles,” the report said.
The increased focus on combating greenwashing is coming amid both intensified enforcement attention and ongoing policy work that targets greenwashing, it noted.
In Canada, revisions to competition legislation in 2024 that expanded protections against misleading and deceptive advertising and marketing to include unsubstantiated environmental claims is “an important regulatory development,” the report said.
Unlike recent regulatory initiatives in the U.K. and Europe, which only apply to financial industry firms, the Competition Act covers all companies, it noted. And the Canadian law targets companies’ environmental claims, but excludes other ESG factors, such as their social claims, it added.
Australian competition regulators also issued new guidance in December 2024 that targets environmental disclosure; regulators in the U.K. adopted anti-greenwashing rules; Europe’s financial regulators have issued recommendations for addressing greenwashing risks at ratings agencies and data providers; and the Monetary Authority of Singapore (MAS) issued a paper setting out recommendations for compliant disclosure by ESG investment funds, ISS noted.
The report, which lays out the top ESG-related themes for 2025 to help investors sniff out portfolio risks and opportunities, identified several other trends.
It noted that ongoing global efforts to tackle plastic pollution could increase risks to companies and investors; a shift from voluntary to mandatory requirements for companies to respect human rights; and called attention to the threat posed by the rise of energy-thirsty artificial intelligence (AI) technology to companies’ net-zero commitments.
While a review of the world’s largest tech companies indicates that they are taking “notable steps to align with net zero,” curbing emissions “remains a challenge,” the report said. “Progress against net-zero targets may require more aggressive mitigation measures in the next few years.”
“Evolving sustainability-related regulatory enforcement, as well as natural capital, human rights due diligence and continuing climate change mitigation efforts are among the major themes likely to shape the ESG investment landscape in 2025,” said Mirtha Kastrapeli, global head of natural capital and thought leadership with ISS ESG, in a release.