2025 is shaping up to be a year of action as businesses and governments alike realise the need to ensure growth as well as sustainability and resilience.
Corporates and financial institutions face a potentially volatile operating space. But there are opportunities for those who can combine long-term sustainability considerations with short-term tangible value through partnership with clients, supply chains and investors.
Critical to turning plans into reality, the private sector has an increasingly clear view of the policy and regulatory agenda. After a year of electoral change, stabilising inflation and ongoing geo-political tensions, at least some government priorities are taking shape, with key measures emphasising business resilience, transparency and accountability.
As ever, technology will be a key enabler of differentiated and superior execution, supporting transition to business models that deliver sustainable growth. In 2025, we see this playing out most clearly on five fronts.
Coalitions of the willing
Both in the public and the private sectors, partnerships with close allies will be key to success in 2025. From the perspective of firms’ net zero journeys, many made progress in 2024 in mapping out their own transition path toward a low-carbon economy, as captured in The Disruption House’s ESG Indexes. But many have fought shy of taking the next steps, aware of the complexities and sensitivities involved in addressing ‘Scope 3’ greenhouse gas (GHG) emissions, i.e. those generated along supply chains. Scope 3 emissions account for as much as 90% of some firms’ overall emissions, and the incoming climate disclosure standard of the International Sustainability Standards Board (ISSB) requires Scope 3 reporting, where material. Engagement with supply chain partners will become the norm in 2025 and beyond for a wider range of sustainability themes, as incoming regulations require firms to collaborate to eliminate environmental and social harms, such as the EU Deforestation Regulation and the Corporate Sustainability Due Diligence Directive.
Setting new standards
The progress noted above in disclosing and driving toward sustainability targets will need to step up in 2025, under growing regulatory pressure. To inform action, sustainability reporting needs to be as robust and reliable as financial reporting. This is not only being driven by the ISSB’s standards, but also the International Auditing and Assurance Standards Board’s finalised International Standard on Sustainability Assurance, which will be rolled out from January, providing a critical framework for verification of sustainability disclosures. To stand up to new levels of scrutiny, sustainability-related reporting needs to be embedded in culture, policy and practice – which demands more effective use of technology and integrated systems. Both anecdotally and through our benchmarking efforts, The Disruption House sees firms seeking to track their GHG emissions on spreadsheets. Not only is use of better technology and methodologies essential for third-party assurance, it ensures disclosures can support data-driven decision making, and improves efficiency in data gathering and analysis. This is good not only for relations with regulators but supports engagement with investors and along the supply chain.
Smarter, not fewer rules
Some may raise an eyebrow at the suggestion above that we have clarity on regulators’ expectations in 2025. US policy is undoubtedly a source of uncertainty in 2025, but it can be overplayed – as can the degree of European pull-back from its green agenda. Influenced by former European Central Bank president Mario Draghi’s competitiveness report, Europe is delaying some regulations and refining others. But the Corporate Sustainability Disclosure Regulation (CSRD) is still coming into force for larger firms, paving the way for a transformation in firms’ (and stakeholders’) understanding of their sustainability footprint – with far-reaching implications. More broadly, Europe seems to be following Draghi’s prescription for smarter, clearer and more effective rules, rather than fewer. Further, CSRD sets out a path that the UK is certain to follow, including on transition planning. The UK government is already implementing recommendations from the Transition Finance Market Review, and also looks set to give the go-ahead for the green taxonomy and adoption of ISSB disclosure standards. Seen alongside the rapid roll-out of GB Energy, the National Wealth Fund and its 2030 clean energy commitments, it seems clear that Starmer government is determined that growth will be green.
Road to resilience
Increased volatility of any kind requires senior executives to pay extra attention to their business’s resilience to shocks – and how it protects its assets and interests. Continued geopolitical volatility in a connected world, notably stemming from Russia’s invasion of Ukraine, puts the emphasis squarely on operational resilience, and specifically cybersecurity. Revelations in September from the UK’s National Cyber Security Centre about a Russian digital sabotage globally since 2020 were followed by a warning last month that Russian cyber-warfare would be stepped in 2025 to weaken Nato unity. Coupled with increased regulation in the finance sector and beyond to improve operational resilience and cybersecurity, these threats underline the need for strong governance, risk management, testing and deeper partnership along the supply chain. Regulators are outlining increasingly clear expectations, via Europe’s Digital Operational Resilience Act and the UK’s Operational Resilience Framework for financial institutions, both of which enter force next year. The costs of disruption to business and damage to reputation are not immediately evident, but all businesses know that resilience fosters trust, strengthening long-term relationships with clients and partners.
Material gains
The arguments against incorporating sustainability into business strategies will look weaker in 2025. These are often framed around claims that ESG factors and metrics are not financially material, that is, not relevant to the timeliness under which business as usual is conducted. The steeply rising impact of the physical manifestations of climate change on supply chains and commodity prices is one indicator of how working assumptions are being undermined, as are the increasingly alarming calculations of central banks on GDP at risk. The shifting line between sustainability issues that are financially material (or pertinent to enterprise value) and those with only implications external to the firms that cause them is one of the reasons why CSRD required disclosures on both (so-called double materiality). Indeed, regulation can very quickly make ‘externalities’ very material, such as the introduction of carbon border adjustment mechanisms, as planned in Europe and the UK, to penalise carbon-intensive production. While monitoring regulation, corporates and financial institutions should develop their own sense of the factors most material to their sustainable growth – and targeting resources on ensuring these are not only reported but acted upon.
Beyond 2025
2024 was a of delayed decisions, with governments failing to agree decisive action on climate, nature or plastic pollution. They will reconvene, while also publishing new, detailed and sector-specific outlines for delivering on the Paris Agreement, the Global Biodiversity Framework and the UN Sustainable Development Goals.
With 2030 a critical deadline for all these targets, 2025 is also a key staging point for global efforts to reconcile economic activity with planetary boundaries. Business’s plans for growth, sustainability and resilience will need to take account of these increasingly evident priorities.
At The Disruption House, we will continue to focus on innovation and transparency to help clients transition to a sustainable future.
