Market Forces Take Control As Business Risk Becomes Great Equalizer In Corporate Resilience Strategy

Forbes

17-04-2025

Large corporations are entering a period of introspection when it comes to sustainability and corporate resilience. As United States (U.S.) policy on the environment and climate-related disclosures, both domestically and abroad, continues to shift to a much lighter touch, companies will need to further take it upon themselves to manage regulatory risks related to environmental, health, safety and sustainability-related issues. Increasingly, how effectively they manage that process will be judged not by regulators, but by investors, customers and employees.
Put simply, the major resiliency risk that companies now face is more market-driven than regulatory, compared to just a few months ago. And that can change the nature of the risk. From both an operational and reputational perspective, the landscape businesses now face could even be more complicated to manage than the legislative pressures they were facing at the end of 2024.
The landscape businesses now face could even be more complicated to manage than the legislative ... More pressures they were facing at the end of 2024
Consider, for example, a new bill introduced earlier this month by a member of the Senate Banking Committee called Preventing Regulatory Overreach from Turning Essential Companies into Targets (PROTECT USA) Act of 2025. The sole purpose of the legislation is to stop U.S. companies operating in the European Union (EU) from having to comply with the Corporate Sustainability Due Diligence Directive (CSDDD). While the bill was just recently introduced and there is yet, no way of knowing if it will be successful and what the potential impact may be, its emergence creates a fascinating new wrinkle. The success of this bill alongside other efforts to deregulate, could potentially make it more difficult for multinational companies to navigate the differing jurisdictional regulatory approaches across their global operations and supply chains.
Meanwhile, as EU regulators continue to refine the Corporate Sustainability Due Diligence Directive (CSDDD), Corporate Sustainability Reporting Directive (CSRD), Carbon Border Adjustment Mechanism (CBAM) and other sustainability-related reforms as part of their Omnibus Simplification Package, many big businesses have already started to highlight the challenges that this raises. In many cases, the constant back-and-forth and associated shifts in regulatory sentiment have become more difficult to manage than the regulations themselves. In addition, many individual U.S. states have taken it upon themselves to implement new sustainability regulations to help fill the perceived void being left by federal policy.
However, in just the last few days, even this approach may be modified for those companies working in the energy sector. In an Executive Order released earlier this month, state laws and policies 'purporting to address 'climate change' or involving 'environmental, social, and governance' initiatives, 'environmental justice,' carbon or 'greenhouse gas' emissions,' have been deemed as 'fundamentally irreconcilable' with the Administration's objective, and noting that 'they should not stand.' States such as New York, California, and Vermont are specifically mentioned.
From a big business perspective – where global compliance mandates often require years of retooling and preparation – plotting a course through the current ever changing regulatory related landscape is becoming more and more of a challenge.
There is a tendency when reading headlines about sweeping changes to major regulatory initiatives to look only at the topline effects – federal regulation is loosening – and the assumption that this will make compliance less burdensome. In many ways, however, the volatility and uncertainty that emanates from this constant level of flux makes compliance more difficult to manage for global corporations. Now, instead of just complying with the high-level regulations that had traditionally governed the lion's share of their business, companies must now start to take a hyperlocal approach that scrutinizes the law of the land in each jurisdiction in which they do business to make sure they aren't falling foul of an assortment of localized requirements.
In some cases, those requirements could now stand at direct odds with others implemented in different jurisdictions, creating a real headache for global compliance teams. We're already seeing indications of that phenomenon play out in Europe where companies that operate in both the EU and the U.S. have started to alter their diversity, equity and inclusion (DEI) policies on a jurisdiction by jurisdiction basis to meet the current prevailing business needs. It will likely not be long before we could see similar strategies start to emerge around further sustainability-related compliance.
The uncertainty and constant change within the regulatory landscape leaves businesses in a tough spot. The only way for them to successfully manage their way through this is to keep focused on their bottom-line business risks and continue to take a fact-based, quantitative approach to measuring, reporting and forecasting how these risks – and opportunities – will affect their ability to thrive in the future. Markets and stakeholders are quickly becoming even more of a driver for companies than ever-changing regulatory obligations. Now is not the time for businesses to bury their heads in the sand and wait for the sustainability regulatory drama to subside. Now is the time to get the facts straight about exactly what are the material sustainability risks to their business in each jurisdiction in which they and their suppliers, operate and to be ready to address them head on in real-time as market forces dictate.
For most businesses, this is not a simple topic to navigate, and it is unlikely that many of them will want to put themselves out there as the poster children for such a currently contentious brand as sustainability' in the present business environment. Whether they broadcast it or stay silent, however, the need to clearly see the risks to their businesses, and to anticipate short- and long-term outcomes stemming from those risks, has never been greater. The markets demand it.