The stakes surrounding sustainability have never been higher.
Over 2024 and the first part of 2025, private practice lawyers and in-house counsel grappled with the increased corporate, regulatory, and political scrutiny surrounding ESG policies and activities. Anticipating the introduction of the Corporate Sustainability Reporting Directive (CSRD) and Corporate Sustainability Due Diligence Directive (CSDDD), legal teams were increasingly called upon to chart the scope and application of these regulations and navigate how policies, targets, and statements could best satisfy new requirements.
Increasing regulatory focus in the sustainability space went hand-in-hand with an increase in the maturity of the actors involved, changing the nature of legal work. As Sarah Haugvad Andresen at Arntzen de Besche explains, ‘We have seen a shift from preventive compliance-based work to a more mature market which is giving rise to more disputes and risk management concerns’.
Owing to the nature of major European corporates – which reach global stakeholders, fall in scope of cross-border and extraterritorial regulation, and which are impacted by policy decisions including tariff borders – private practice and in-house lawyers must maintain a broad oversight of the sustainability horizon and take an holistic view of the emerging risks. As Linklaters’ Victor Louvet notes, ‘we must remain cognisant of developments outside the EU. You can’t simply limit advice to EU requirements when clients operate internationally’.
However, legal challenges emerge due to a lack of global cohesion between regulatory regimes, corporate cultures, and trade and supply chain policies. To Hogan Lovells’ Sebastian Gräler, moving forward, ‘the conflict between different regulations across jurisdictions will be a key issue’.
An impact can be felt across each aspect of ESG. On an environmental level, companies required to publish against EU regulation like the CSRD and CSDDD will likely be active in jurisdictions which either require more partial reporting, or which currently set no reporting requirements. Social policies, including European best practice regarding DEI, are opening companies up to scrutiny, particularly in the US. Amid these processes, corporate governance becomes particularly tricky where activist stakeholders either seek to push companies further along their green development, or scrutinise corporate ESG behaviour as potentially violating antitrust laws and conflicting with the fiduciary duty to prioritise financial returns.
Risk and reward
In this unsteady regulatory, political, and cultural landscape, legal teams must be able to find a solid footing. ‘Crucially’, Louvet argues, ‘we must maintain position-neutral guidance – our role isn’t to judge the morality of ESG strategies but to clearly outline risks’.
Owing to legal teams’ longstanding expert roles in helping clients navigate risk landscapes, framing ESG as a vital modern risk allows private practice and in-house lawyers to take up a key role in embedding sustainability throughout corporate activities. In this way, through combining a focus on regulatory risk and climate need, legal teams are also well-placed to communicate the importance of faithfully adopting green best practice.
As Anna Kuusniemi-Laine at Castrén & Snellman explains, ‘Frankly, when we talk about risks for a company, why should it matter whether it’s called an ESG risk or something else? It’s still a financial risk and ignoring it doesn’t make sense’.
Taking into perspective how certain geographies approach ESG issues, Kuusniemi-Laine argues that ‘it is also a question of how we frame these issues’ and ‘using terms which are apolitical’ helps counsel to translate the importance of sustainability considerations in hesitant environments.
Despite these challenges, Gräler doesn’t foresee ‘a fundamental shift in the overall goals, at least in Europe. Climate neutrality targets will remain, and human rights and environmental standards will continue to rise’.
However, anticipating more enforcement and regulatory action, Gräler argues ‘it is crucial to integrate ESG into your overall strategy. That way, you’ll be ready to respond effectively to these changes’.
How can in-house legal teams best integrate sustainability into corporate strategy? To Line Berg Madsen at Kromann Reumert, ‘It is about tying sustainability together as a cross-sectional discipline, bringing together legal, sustainability, the C-suite, the board, and operational people.
‘Then it’s about creating more detailed governance, with a specific arena which houses the necessary tools: policies, action plans, contracts, risk and litigation mitigation. Once you establish the overall governance side – including responsibility and oversight – you are better-placed for reporting and implementation’.
Underscoring the important impact a well-organised and holistic ESG structure can create, Haugvad Andresen suggests that ‘companies which have already invested heavily in building ESG systems are starting to see it give them a competitive advantage’.
Building materiality
Yet regulatory vacillations are, in certain ways, engendering uncertainties as to the advantages to be gained. ‘The Omnibus package is – on an unprecedented scale – simplifying and deregulating ESG regulations before they’ve even fully come into force’, Berg Madsen notes.
Noting the extent to which companies moved to integrate CSRD and CSDDD before their postponement and alteration under the Omnibus process, Louvet identifies ‘growing client frustration about the compliance costs they’ve already incurred to align with current requirements, only to face the prospect of a complete regulatory revamp by the end of the year’.
Importantly, Haugvad Andresen notes that regulatory uncertainty creates ‘unpredictability at a time when many companies are starting to take meaningful action’. On the one hand, companies which have consciously served as early adopters of sustainability reporting standards and best practice find themselves ahead of the regulatory suite; on the other hand, acknowledging significant compliance costs and the anti-ESG sentiment that exists among particular stakeholder groups, certain companies are looking to reconsider the strategy steps and investments previously considered crucial to their transition plans.
However, Louvet sees a way of reconciling these outlooks: ‘while there is frustration about costs already accrued, most view the Omnibus as welcome relief’. Despite initial strategy and competence costs, future reporting requirements will be simplified. Moreover, since certain sectors and stakeholders will continue to expect climate reporting, many companies will find ‘the effort is not wasted’.
Importantly, suggestions remain that the Omnibus package allows companies and counsel to pause for breath and appropriately navigate a more realistic way to understand ESG and sustainability in relation to their particular corporate cultures and requirements and embed it into their operations like any other business need.
Berg Madsen thus suggests that in-house counsel and companies should ‘focus on materiality and use this time to practice deploying sustainability frameworks operationally and strategically. By doing so and making it quantifiable and qualitative, sustainability impact, risk, and opportunity can be an effective decision-making tool’.
By remaining focused on the ‘more material aspects within ESG regulation’, Berg Madsen believes companies can ‘promote longer-term decisions for climate, biodiversity, and human rights purposes’ which serves as a north star to guide them during uncertainty.
Leading lights
How can private practice lawyers best place themselves to assist clients in maximising the opportunities inherent in the shifting ESG regulation? To Haugvad Andresen, ‘we need cross-sector knowledge. We need to understand clients’ suppliers, industry-specific challenges, and any potential implementation issues’.
Just as sustainability knowledge should not be isolated according to industry sectors, particular legal specialisms – whether transaction-, regulatory-, or disputes-focused – will each need to understand how ESG and climate regulation impacts their client-base and practice. By speaking consistently with clients, engaging in legal and industry sector dialogue, and bringing the entire firm along on the sustainability journey, private practice lawyers can remain attuned to new developments and play a key role in the formulation of best practice as it emerges.
By remaining on the front foot, as Kuusniemi-Laine expresses, the legal sector can ‘maintain a proactive role’ and serve a crucial dual task. ‘As lawyers, we must actively assist our clients in navigating both the regulatory landscape and the green transition that needs to happen’.
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