Analyst Insight: As the trade compliance landscape continues to expand and evolve, the ESG regulatory framework is becoming more complex, creating compliance challenges for businesses of all sizes and across multiple industries. Companies must navigate the current political ESG minefield in the U.S. while continuing to invest in sustainability, accountability and transparency initiatives to comply with increasingly stringent data disclosure requirements, and to satisfy customer and investor preferences for responsible corporate behavior and ESG-centric organizations.

The current administration’s pivot away from environmental regulations and climate-focused policies is complicating the national ESG discussion, and creating a fragmented regulatory landscape driven by pro- and anti- ESG stances at the state and municipal level. For example, New York introduced legislation that requires corporations to disclose greenhouse gas emissions, and Minnesota recently established a carbon-free electricity standard in support of its goal to provide 100% carbon-free electricity by 2040. In contrast, Florida and Texas are taking a hard line against ESG policies, limiting or prohibiting ESG considerations in investment decisions at state and local levels. 

Meanwhile, outside the U.S., ESG requirements are transitioning from voluntary to legally mandated, highlighting the growing importance of ESG factors in supplier selection and global trade practices. For example, the European Commission rolled out the European Union Forced Labour Regulation and the Corporate Sustainability Reporting Directive (CSRD), driving the need for comprehensive ESG data collection and reporting. 

Similarly, Asian countries are leaning into ESG policies and sustainability to future-proof their economies, evidenced by Hong Kong’s net-zero transition planning and the sustainability disclosure standards of Taiwan and Japan. India, in particular, has set out a complex ESG regulatory program, characterized by stringent ESG disclosure requirements, greater climate-risk management regulatory oversight, and fragmented regional nuances that unfortunately can lead to transparency issues and inconsistent application of rules for companies conducting business in India.

A recent Descartes survey examining global trade challenges reflects the regional differences across ESG priorities, with a greater than average percentage of Asian companies reporting ESG compliance as a top challenge impacting their international trade operations. While 40% of survey respondents overall ranked ESG compliance as the third-most-pressing challenge (tied with geopolitical instability), more Asian companies viewed it as a serious operational challenge: 57% of Indian companies, 48% of Japanese companies and 41% of Chinese companies. 

Similarly, France (50%) and the Nordic countries (43%) felt ESG compliance was a pressing challenge, while Argentina (22%), Brazil (30%) and Canada (21%) were less concerned about the issue. In the U.S., 40% of companies felt ESG compliance was a significant challenge impacting their global trade operations — an indication that despite political headwinds at home, companies recognize that mastering ESG compliance is needed to stay competitive in global markets that have become increasingly focused on sustainability. 

Notably, while companies across multiple industries reported various challenges impacting their global trade operations — including tariffs and trade barriers, supply chain disruptions, and geopolitical instability — respondents from finance and insurance (46%) and software and technology (47%) ranked ESG compliance as their second-most-pressing operational challenge.

Complying with rapidly evolving ESG regulations can be a complex yet imperative challenge for companies at all stages of growth. According to the Descartes Supply Chain Intelligence Benchmark Survey 2024, mid- to large-size organizations — 44%-47% of companies with 501 to 50,000 employees, compared to 40% overall — ranked ESG compliance as their top international trade challenge, likely because they recognize that non-compliance could impede long-term growth. 

Smaller companies were less concerned about ESG compliance (27%) and more focused on growing the business; however, they will need to take ESG considerations into account in their strategic planning if they want to successfully scale up their operations. 

While ESG legislation is still in the developing stage in many countries, most companies surveyed understand the importance of building an ESG dimension into their business, either following industry trends (46%) or becoming early adopters (48%) of ESG compliance strategies. Indeed, as regulatory requirements and customer-driven demands for ESG compliance increase, companies involved in international trade need to prioritize integrating ESG compliance into their operations. By focusing on enhancing due diligence with end-to-end visibility of trade partners and the supply chain, businesses can mitigate risk while ensuring resilience and sustainability moving forward.