Three Sustainability & ESG Trends Calling for an ESG Calibration in 2026

After more than a decade of rapid growth, ESG is entering a phase of recalibration. For corporate ESG teams, this moment is less about retreat and more about reassessment: taking stock of regulatory obligations, investor expectations, internal capacity, and business relevance. Three converging trends point toward a narrower, more disciplined, and more execution-focused approach to ESG, one that is increasingly aligned with value, risk, and governance reality.

1.       Regulation is reshaping ESG disclosure expectations and materiality

As ESG regulation increases across many jurisdictions, the most significant shift is not an expansion or contraction of ambition, but rather regulatory frameworks that draw clearer boundaries around which ESG information must be meticulously managed and reported, and which activities remain discretionary.

a)       Materiality is becoming structured and regulator-driven

Under the EU’s Corporate Sustainability Reporting Directive (CSRD), in-scope companies are required to apply a structured double-materiality approach that links sustainability impacts to financial risk and opportunity. Recent Omnibus proposals to streamline CSRD implementation reinforce this direction: while the reporting burden has been reduced, the expectation that materiality assessments are disciplined, documented, and defensible remains intact.

In parallel, the International Sustainability Standards Board (ISSB) has introduced a globally consistent framework focused on financial materiality. The UK has formally committed to adopting ISSB-aligned standards, bringing the total to 40 jurisdictions representing 60% of global GDP. In practice, this convergence points companies in one materiality-focused direction, even where local regimes differ.

By contrast, the absence of a comprehensive US federal sustainability reporting framework means many US-based companies continue to prioritise traditional financial materiality without a formal ESG overlay. For large multinationals, this divergence reinforces the need to actively calibrate ESG priorities across regulatory contexts rather than assume a single, uniform approach.

b)      Data governance increasingly defines credibility

Regulation is also raising the bar on what counts as credible ESG information. High-level commitments, qualitative narratives, and loosely defined targets are giving way to expectations around data quality, internal controls, and assurance readiness. As a result, sustainability activities that cannot be supported by traceable data or clear governance structures are losing relevance. This does not eliminate voluntary initiatives, but it does reduce their weight relative to ESG information that can withstand regulatory scrutiny.

c)       The purpose of ESG disclosure is being clarified

Perhaps most importantly, regulation is narrowing the purpose of ESG. Regulated ESG disclosure is designed to support decision-making, risk management, and accountability, not to serve as a broad platform for values-based storytelling. As ESG becomes more closely linked to defined standards of materiality, companies are recalibrating away from narratives and toward disclosures that inform how risks are identified, managed, and governed. In this context, companies need to focus on ESG’s underlying principles of resource efficiency, inclusive growth, and strong governance.

2-minute ESG Calibration self-check for teams under pressure

A short reflection to help teams review focus, priorities, and decision clarity

Download

2.       Investor language is changing, but expectations remain embedded

At first glance, pressure from ESG-focused investors appears to be easing. In 2025,   76% of sustainability-related proposals were filed in the U.S., and the scale of these US ESG proposals is declining. Additionally, major asset managers have publicly reframed their stewardship approaches. Norges Bank Investment Management (NBIM), manager of Norway’s sovereign wealth fund and an ESG pioneer, recently called for science-based climate targets to be scaled back, fearing companies will abandon goals altogether.

These shifts, however, mask important regional differences. In the United States, the investor ESG landscape has become more cautious and fragmented. High-profile moves, such as Vanguard US arm’s withdrawal from the UN Principles for Responsible Investment, stand out, and US asset managers remain focused on embedding ESG considerations within traditional risk-analysis frameworks.

In Europe, by contrast, regulatory alignment and policy signals continue to reinforce ESG integration. European asset managers face binding sustainability disclosure and product classification requirements, and some asset owners have reallocated capital away from US assets where energy transition credibility is perceived to be weaker.

Despite these differences, large institutional investors on both sides of the Atlantic continue to embed ESG data and ESG Ratings into valuation models, capital allocation decisions, and engagement strategies, reflecting the continued market relevance and signalling power of ESG Ratings. Firms such as BlackRock have reaffirmed that sustainability considerations remain part of long-term risk oversight and value assessment, even as external messaging becomes more restrained. For companies, this creates a challenging signal environment: investor expectations are less visible and less standardised, but no less consequential.

3.       ESG execution risk is rising as scope expands into operations

While some discretionary ESG activity is being deprioritised, regulatory scope is expanding into core operations. Cross-jurisdictional developments in human rights, climate transition planning, and responsible AI push ESG deeper into value chains and management systems.

This shift raises execution risk. ESG outputs increasingly depend on data quality, supplier engagement, and cross-functional governance, not only reporting teams. In this context, companies that continue to treat ESG primarily as a disclosure exercise face a growing risk of misalignment between commitments, capabilities, and stakeholder expectations.

Companies need to calibrate ESG

For many organisations, the current ESG environment is no longer defined by external ambition or framework proliferation, but by internal constraint and strategic choice. As regulatory requirements harden, investor signals fragment, and execution risk increases, companies are being forced to actively re-examine their ESG approach, taking stock of which sustainability issues are genuinely material, operationally manageable, and aligned with business strategy. This calibration is not about reducing ESG activity, but about reweighting priorities toward areas where governance, data, and decision-making can realistically move the business forward.

Get Ahead with Leaders Arena

At Leaders Arena, we have partnered with companies of all sizes to navigate ESG complexity with clarity and confidence. Whether it’s data, reporting, strategy, or implementation, we tailor every engagement to what truly matters for your business. Drawing on deep expertise, a broad partner network of sustainability-focused tech partners, and a responsive, hands-on approach, we deliver impactful and cost-effective support.

Get in touch with us at support@leadersarena.global to get ahead of the compliance curve.