The illusion of regulatory retreat: Why markets move faster than rulemakers
- Priyal Bhosale
- Mar 19
- 4 min read
There’s a sense of regulatory whiplash in the world of corporate sustainability.
In recent months, the European Union has proposed easing its Corporate Sustainability Reporting Directive (CSRD), limiting mandatory sustainability disclosures to only the largest companies—those with over 1,000 employees—exempting around 80% of previously targeted firms (WSJ). Meanwhile, across the Atlantic, the SEC is debating the scope of its climate disclosure rules, bowing to industry pushback about reporting burdens and liability risks (WSJ).
In recent months, the corporate world has witnessed what appears to be a regulatory pullback in sustainability mandates. The European Union's decision to relax its Corporate Sustainability Reporting Directive (CSRD) has reduced the number of companies required to disclose environmental impacts by 80% (Reuters). Across the Atlantic, the U.S. Securities and Exchange Commission (SEC) is reconsidering the scope of its climate disclosure rules, influenced by industry concerns over reporting burdens and potential liabilities (Jones Day).
For some businesses, these developments suggest a retreat from stringent sustainability obligations—a perceived opportunity to pause Environmental, Social, and Governance (ESG) initiatives and refocus on short-term financial goals. However, this perspective is a dangerous miscalculation.
For some businesses, this signals a retreat from sustainability mandates—a moment to hit pause on ESG initiatives, trim down reporting, and refocus on short-term financials. But this is a dangerous miscalculation.
Regulations may shift, but market expectations do not. Investors, consumers, and supply chain partners still demand transparency on climate risks and corporate sustainability commitments. If businesses assume that regulatory rollbacks mean ESG is optional, they risk finding themselves out of sync with the real forces driving the market—investor pressure, litigation risk, and supply chain expectations.
Investor and consumer pressure: Why the regulatory debate is irrelevant to the market
For companies questioning whether sustainability is still a priority for investors, the numbers speak for themselves.
At the same time, consumers are putting their money where their values are:
Consumers are willing to pay a 9.7% sustainability premium, despite cost-of-living and inflationary concerns (PwC)
85% of consumers are experiencing the disruptive effects of climate change in their daily lives and prioritising sustainability-focused consumption
72% of consumers consider clear, trustworthy sustainability information as essential when choosing products (KPMG)
54% of UK consumers are willing to boycott brands for making misleading environmental claims (KPMG)
The takeaway? Even if regulators ease up, the market will not.
Market dynamics outpace regulatory changes
While regulations may fluctuate, market expectations remain steadfast. Investors, consumers, and supply chain partners continue to demand transparency regarding climate risks and corporate sustainability commitments. Companies interpreting regulatory rollbacks as a cue to deprioritise ESG considerations risk falling out of sync with prevailing market dynamics.
UK and European investor commitment to ESG principles has not waned, despite regulatory rollbacks and a downgrade of ESG investing in the US in a post-Trump world.
The People's Pension, one of the UK's largest pension funds, withdrew £28 billion from State Street due to perceived retreats from ESG commitments, a move underscoring the ongoing importance placed on sustainability factors. Mark Condron, chair of trustees for The People’s Pension, said, “we have chosen to prioritise sustainability, active stewardship and long-term value creation” (Financial Times).
Political and social pressures continue to influence voting behaviours, underscoring the enduring importance of sustainability in investment decisions.
Resilience in uncertain markets: Why ESG leaders adapt faster
Global economic conditions are shifting rapidly. Interest rates are up, energy costs are volatile, and consumer sentiment toward sustainability is evolving. Companies that use double materiality as a strategic tool—not just a reporting framework—have proven to be more resilient in these uncertain markets.
A McKinsey study found that companies with strong ESG integration had 10% lower capital costs and outperformed peers on long-term shareholder returns (McKinsey). This isn’t about “wokeness” or politics—it’s about hard financial risk management.
ESG frontrunners recover faster from economic shocks because they are planning for long-term risks, rather than being caught off guard. They prioritise supply chain sustainability, making them less vulnerable to disruptions.
Importantly, forward-thinking companies are not waiting for regulatory mandates to drive their sustainability strategies. For instance, Unilever has integrated climate resilience into its financial models, leading to cost reductions in supply chain risks. Similarly, Ørsted's early pivot to renewable energy resulted in a substantial valuation boost, demonstrating the financial benefits of proactive ESG integration.
Align with market realities
The notion that deregulation equates to diminished importance of sustainability is an illusion. Market forces—driven by investors, consumers, and supply chain dynamics—are moving faster than regulatory bodies. Companies that recognise and adapt to these realities will not only mitigate risks but also capitalise on emerging opportunities in the sustainability landscape.
Learn more about aligning sustainability with your core growth strategy through a Double Materiality Assessment.
