Multinational employers recalibrate ESG across diverging regimes

The EU is rethinking its approach to sustainability regulation, with competitiveness now taking priority over climate ambition. As the FT reports, centre-right MEPs have joined forces with the far right to weaken core corporate sustainability reporting requirements. The vote marks the clearest signal yet that the EU’s political focus is moving away from climate ambition towards deregulation. We’ll speak to a sustainable finance expert about the global trends and what it means for multinational employers.

This isn’t just a Brussels political story. What we’re seeing is a broader reassessment by governments of how far ESG regulation should go, how much it costs business, and whether it’s gone too far, too fast. For HR professionals, that matters because ESG has become tightly bound up with workforce issues, from labour standards and supply-chain responsibility to health and safety and corporate culture. And for multinational employers in particular, the challenge isn’t simply deregulation. It’s divergence, with different jurisdictions now moving at different speeds, and in different directions.

As the FT highlights, the parliamentary vote itself was politically significant. For the first time, the centre-right European People’s Party knowingly relied on far-right support to push through legislation aimed at cutting red tape. The reforms narrow the scope of sustainability reporting, scrap mandatory green transition plans, and significantly reduce the number of companies caught — all justified in the name of boosting European competitiveness. Supporters argue this is a pragmatic correction. Critics say it signals the collapse of the cordon sanitaire that once limited far-right influence over EU policymaking. Either way, the direction of travel is clear: sustainability regulation is being simplified, slowed, and selectively rolled back.

And this isn’t happening in isolation. The UK, which has been slower to implement some of these rules, is reassessing its pace. The US is pausing at federal level, while some states continue to push ahead. For global employers, that creates a far more complex compliance landscape.

So, given the noticeable change in how governments across the world are talking about ESG, what’s behind the shift? I put that question to climate and sustainability expert James Hay:

James Hay: “So I think one really important thing to address is the fact that this ESG backlash is a realisation of competitiveness and the potential trade off with sustainability in many governments around the world. Many lay the blame for this backlash at the feet of the new Trump administration but, in reality, the EU was thinking about sustainability and business well before the last election. The European Commission President commissioned a competitive report from Mario Draghi, who is an ex-Prime Minister of Italy and ex-President of the European Central Bank and, essentially, he found that European businesses were really burdened in a number of different areas but one that's relevant to my area is, of course, in relation to sustainability regulation. So this is not just about the new US administration, it’s something really about the EU and the UK recognising that there is a trade-off between sustainability and business.”

Joe Glavina: “What has the UK’s response been to this, James?”

James Hay: “The UK is a little bit further behind, for example, the EU, in relation to sustainability and regulations. So although there hasn't been as much of a pullback on sustainability, this is because some of those regulations haven't in fact come into effect yet. So this has given the UK an opportunity, essentially, to learn from the EU, to identify mistakes, and to implement a more proportionate response. However, as the UK is implementing some of these regulations, what we're identifying is that there's been a bit of a slow roll by the new Labour government in relation to some of its sustainability commitments in the Manifesto, and this is really because they're currently focusing on their growth agenda.”

Joe Glavina: “How different is the regulatory picture internationally? What does this mean for multinational employers?”

James Hay: “There's a bit of a regulatory divergence around the world. Obviously, the EU led the way, and then the UK is following up behind, and the US is definitely pausing a lot of sustainability initiatives, although that will be at the federal level. Certainly at the state level, there's still governments that are pushing forward with their sustainability agenda. This creates, clearly, a challenging business environment for multinationals who are having to comply with very different regulations in different jurisdictions. I suppose one pragmatic approach to that could be looking for essentially the highest common denominator, looking for a framework, or a sustainability strategy, that would comply broadly across different regimes, and then to identify where uplifts are required under more tightly regulated environments, such as in Europe.”

Joe Glavina: “So what’s the practical takeaway from all of this, James.”
 
James Hay: “One of my key messages here is that you can't just pause all of your sustainability initiatives. Yes, there is a simplification when it comes to sustainability regulations in relation to some of the reporting that you're doing, or in relation to some of the due diligence that you're carrying out when looking at your suppliers. However, sustainability isn't just about reporting due diligence. There are a lot of laws and regulations that relate to employees and how businesses function that have been around for decades. We call them sustainability now, but things like health and safety laws are issues that companies have been dealing with for a long time. So even though there's a pullback in some of these more modern regulations, that underlying foundation of good employment practices remains.”

James Hay is already working with a number of employers on the practical implications of these changes, including the challenges facing multinational organisations. If you would like help in this area then please do contact James – his details are on the screen for you.