The End of ESG as a Reporting Exercise

Environmental, Social, and Governance (ESG) is a framework used by investors and businesses to evaluate an organisation’s sustainability and ethical impact and assess long-term resilience, corporate accountability and societal value. The first wave of ESG was built on a simple idea: disclose more information and better business behaviour would follow.

Companies responded enthusiastically. Sustainability reports grew longer and more sophisticated, often running to dozens of pages packed with metrics, targets and commitments. ESG ratings agencies multiplied, while frameworks such as the Global Reporting Initiative (GRI), ISSB standards and the EU’s Corporate Sustainability Reporting Directive (CSRD) expanded the reporting landscape. Recent research suggests that corporate sustainability reports now average more than 80 pages in length, highlighting the sheer scale of the disclosure boom.

However, a growing number of regulators, investors and governance experts are now questioning whether this flood of information has delivered meaningful change. Many organisations have become highly skilled at measuring and communicating ESG performance without necessarily reducing emissions, improving labour standards or strengthening governance. This phenomenon might be called “ESG inflation” – the accumulation of ever more disclosures, data points and narratives without equivalent real-world intervention.

Transparency remains valuable. However, reporting a problem is not the same as solving it. As ESG enters its next phase, stakeholders increasingly want evidence of action, not simply evidence of disclosure.

Why Regulators No Longer Trust Disclosure Alone

The regulatory mood around ESG has now hardened considerably. A series of high-profile greenwashing controversies convinced policymakers that glossy sustainability reports and ambitious net-zero pledges are not enough. Regulators increasingly want companies to substantiate claims with verifiable evidence and demonstrate that risks are being actively managed rather than merely described.

In the UK, the Financial Conduct Authority’s (FCA) anti-greenwashing rule, which came into force in 2024, requires sustainability-related claims to be fair, clear and not misleading. Firms must be able to support marketing statements with credible evidence, creating a much higher compliance bar than in the past.

Meanwhile, the European Union is pushing even further. The CSRD expands reporting obligations, while the Corporate Sustainability Due Diligence Directive (CSDDD) shifts attention towards the environmental and human rights impacts companies create through their operations and value chains. Businesses are expected to identify, prevent and address adverse impacts, not simply disclose them.

The direction of travel is unmistakable. Regulators are moving away from asking companies to “Tell us what you know” and towards demanding, “Prove what you have done”. In modern ESG compliance, evidence increasingly matters more than aspiration.

The Supply Chain Problem Nobody Has Solved

Most ESG risks do not originate in corporate headquarters. They lurk deep within global supply chains, often several steps removed from the companies ultimately held accountable for them. A manufacturer may know its direct suppliers well, yet have little visibility into the subcontractors, labour providers and raw-material producers further down the chain.

This creates a significant compliance challenge. Concerns over forced labour in regions linked to cotton production, allegations of human-rights abuses in parts of the mining sector and environmental damage associated with critical minerals have demonstrated how risks can emerge far beyond Tier 1 suppliers. Many firms can produce detailed emissions data for their offices and factories, yet struggle to identify what is happening several tiers deeper in their supply networks.

Technology is helping to close this gap. Companies are increasingly deploying artificial intelligence to screen suppliers for risk indicators, while satellite imagery is being used to monitor deforestation and environmental degradation in near real time. The EU’s Digital Product Passport initiative aims to improve transparency by tracking product information throughout a product’s lifecycle. Blockchain-based traceability systems are also being tested to verify sourcing claims and improve accountability. Yet technology is not a silver bullet. Data remains fragmented, suppliers may resist scrutiny and risks evolve constantly. Due diligence is becoming more achievable, but it remains one of ESG’s most stubborn challenges.

The Data Crisis Behind ESG Compliance

Data quality is its biggest credibility problem. Organisations now collect vast quantities of sustainability information, yet much of it remains incomplete, inconsistent or difficult to verify. A multinational company may receive carbon emissions data from hundreds of suppliers, all using different methodologies and reporting standards. The result is a compliance headache and a growing risk of inaccurate reporting.

The problem is compounded by conflicting ESG ratings. Research by the Organisation for Economic Co-operation and Development (OECD) has highlighted significant divergence between major ESG rating providers, meaning the same company can receive markedly different assessments depending on who is measuring it. This raises uncomfortable questions about reliability and comparability.

Many firms are spending millions gathering ESG data without being fully confident of its accuracy. As regulatory scrutiny intensifies under frameworks such as the EU’s CSRD, poor-quality information is becoming a serious business risk. Increasingly, the competitive advantage may lie not in ESG performance alone but in ESG data integrity.

Forward-looking organisations are responding with independent assurance, real-time monitoring technologies and continuous verification models linked directly to enterprise risk management systems. It is clear, ESG data can create compliance failures, damage reputations and undermine stakeholder trust just as quickly as poor environmental or social performance itself.

The Boardroom Reckoning

ESG is increasingly becoming less of a sustainability issue and more of a governance issue. Boards are discovering that environmental and social risks can no longer be delegated to a specialist reporting team tucked away in corporate affairs. Regulators, investors and courts increasingly expect directors to demonstrate active oversight of ESG-related risks and their potential impact on business performance.

Recent legal developments have sharpened this reality. In the UK, the Financial Reporting Council’s Corporate Governance Code emphasises effective risk management and internal controls, while institutional investors are placing greater scrutiny on how boards oversee climate, supply chain and human rights risks. Across Europe, due diligence legislation is reinforcing the expectation that senior leaders understand and manage ESG risks throughout their organisations.

Many companies still treat ESG as a reporting exercise. Yet the most advanced organisations are embedding ESG into procurement decisions, legal reviews, internal audit programmes, enterprise risk frameworks and strategic planning. Some have begun integrating sustainability oversight directly into risk committees rather than maintaining separate ESG structures.

This reflects a broader shift in thinking. The future ESG leader may not be a sustainability specialist at all. Increasingly, the role resembles that of a chief risk officer, focused on identifying threats, verifying controls and ensuring the business can withstand growing regulatory and stakeholder scrutiny.

From Transparency to Proof

The ESG debate has certainly entered a new phase. Disclosure remains necessary and reporting remains important, but neither is sufficient on its own. European and UK businesses are increasingly expected to demonstrate continuous due diligence across their operations and supply chains, not merely publish annual sustainability updates. Companies that can verify supplier practices, monitor environmental impacts in real time and integrate ESG risks into mainstream governance will be better positioned for the future. The winners of the next decade may not be those with the most polished reports. They are likely to be the organisations that can produce credible evidence showing where their risks lie, what action they have taken and how they can prove the results.

And what about you…?

  • How confident are you that your organisation could provide evidence of ESG due diligence if challenged by regulators, investors or customers tomorrow, rather than simply producing reports and policies?
  • Do your board and senior management team view ESG primarily as a reporting requirement or as a core risk-management and governance responsibility?