The role of in-house legal teams has evolved significantly in response to the growing prominence of Environmental, Social, and Governance (ESG) considerations. As businesses face increasing regulatory scrutiny, stakeholder activism, and investor demands for sustainability, legal departments are uniquely positioned to drive ESG compliance and embed sustainable governance practices. However, the complexity of ESG frameworks, the variability of global regulations, and the challenge of integrating sustainability into corporate strategy present formidable obstacles.
This article critically analyses how in-house legal teams are navigating and enhancing ESG compliance in 2025. Drawing on interdisciplinary insights from conversations with our clients and candidates, as well as corporate law, regulatory theory, and sustainability governance, it explores the key challenges legal teams face. It offers strategic solutions to ensure compliance and long-term business resilience.
The ESG Compliance Landscape: Key Challenges
1. Regulatory Fragmentation and Complexity
ESG regulations vary significantly across jurisdictions, with overlapping frameworks such as the EU Corporate Sustainability Reporting Directive (CSRD), the U.S. SEC Climate Disclosure Rules, and emerging mandates from Asia and Latin America. Navigating this patchwork of regulations requires legal teams to stay updated on compliance obligations and ensure alignment across multiple reporting standards.
2. Data Collection and Verification Challenges
ESG compliance hinges on accurate data collection, reporting, and verification. However, companies often struggle with inconsistent metrics, lack of standardised methodologies, and difficulties in tracking supply chain emissions and social impact metrics. Ensuring data integrity is critical for mitigating greenwashing risks and maintaining regulatory credibility.
3. Integration of ESG into Corporate Strategy
Legal teams face the challenge of ensuring that ESG is not treated as a compliance checkbox but rather as a strategic imperative. This requires fostering alignment between ESG goals and corporate objectives while addressing potential conflicts between short-term profitability and long-term sustainability commitments.
4. Litigation and Reputational Risks
As ESG-related litigation rises, ranging from climate change lawsuits to human rights violations in supply chains, legal teams must anticipate and mitigate potential liability risks. Moreover, reputational damage from non-compliance or perceived inaction can significantly impact stakeholder trust and investor confidence.
5. Stakeholder Engagement and Board Accountability
In-house lawyers must navigate the increasing expectations from investors, employees, and consumers regarding corporate ESG performance. Legal departments play a pivotal role in advising boards and C-suite executives on ESG fiduciary responsibilities and disclosure obligations.
Strategic Solutions for Enhancing ESG Compliance
1. Developing a Comprehensive ESG Compliance Framework
A structured ESG compliance framework ensures that legal teams can systematically address regulatory requirements and integrate ESG considerations into corporate decision-making.
Key Actions:
- Establish an ESG compliance task force comprising legal, compliance, sustainability, and finance professionals and subject matter experts for your sector. Have the experts in the room!
- Map applicable global and regional ESG regulations to ensure comprehensive coverage, as well as anticipated future changes that might be required as companies shift production sites and/or grown in different markets internationally.
- Implement automated compliance tracking tools to monitor regulatory changes in real-time. Build on existing internal compliance frameworks.
2. Leveraging Technology for ESG Data Management
Technology solutions can enhance the accuracy and transparency of ESG data reporting, ensuring compliance and mitigating greenwashing risks.
Key Actions:
- Deploy AI-driven platforms to track carbon emissions, supply chain risks, and diversity metrics. Trial on a smaller scale first, with areas of the business which are already aware of the benefits of technology.
- Integrate blockchain technology to enhance the traceability of ESG disclosures and ensure data integrity. This is starting to become much more “the norm” in financial services.
- Adopt standardised ESG reporting frameworks, such as the Global Reporting Initiative (GRI) or the Task Force on Climate-Related Financial Disclosures (TCFD).
3. Embedding ESG into Corporate Governance
Legal teams must ensure that ESG considerations are embedded into corporate governance structures, influencing boardroom decision-making and executive accountability.
Key Actions:
- Draft and implement ESG policies that align with fiduciary duties and corporate sustainability commitments.
- Ensure ESG performance metrics are integrated into executive compensation structures.
- Provide board training on emerging ESG risks and regulatory obligations.
4. Proactively Managing ESG Litigation Risks
Legal teams must adopt proactive risk management strategies to address potential ESG-related litigation and regulatory enforcement actions.
Key Actions:
- Conduct ESG due diligence across supply chains to identify and mitigate human rights, workforce, and environmental risks.
- Develop robust ESG risk assessment protocols to detect potential liabilities before they escalate into legal disputes.
- Implement whistleblower protection mechanisms to encourage internal ESG compliance reporting.
5. Enhancing Stakeholder Engagement and Transparency
Transparent ESG disclosures and active stakeholder engagement are critical for maintaining regulatory credibility and investor confidence.
Key Actions:
- Establish cross-functional ESG working groups to foster collaboration between legal, investor relations, and sustainability teams.
- Engage with regulators, industry bodies, and advocacy groups to stay ahead of emerging ESG trends and compliance expectations.
- Publish annual ESG reports with clear, verifiable, and auditable sustainability commitments.
6. Strengthening Supply Chain ESG Compliance
Legal teams must ensure that suppliers and business partners adhere to ESG standards to mitigate reputational and legal risks.
Key Actions:
- Draft ESG-specific contractual clauses to enforce compliance across supply chains. One key recent development here is looking at upstream supply chains. Some companies are insisting on compliance from their suppliers’ suppliers.
- Conduct supplier ESG audits and enforce corrective action plans for non-compliance.
- Utilise AI-driven due diligence tools to assess ESG risks in supplier networks.
7. Advancing ESG Innovation and Thought Leadership
In-house lawyers should not only ensure compliance but also position their organisations as ESG leaders through innovation and best practices.
Key Actions:
- Advocate for industry-wide ESG standardisation and regulatory coherence.
- Support ESG-related impact investment initiatives and sustainable business model innovation.
- Collaborate with academia and NGOs to shape future ESG policy developments.
Addressing Systemic Barriers to ESG Compliance
Barrier 1: Lack of Executive Buy-In
Solution: Develop business cases demonstrating the financial and reputational benefits of ESG leadership.
Barrier 2: Inconsistent ESG Standards Across Jurisdictions
Solution: Advocate for international regulatory harmonisation and adopt universally recognised reporting frameworks.
Barrier 3: Greenwashing and Misleading ESG Claims
Solution: Implement stringent internal review processes for ESG disclosures and ensure legal oversight of sustainability claims.
Conclusion
As ESG compliance becomes a defining challenge for corporate legal teams in 2025, in-house lawyers must adopt a proactive, strategic approach to navigate this evolving landscape. By leveraging technology, embedding ESG into governance structures, enhancing transparency, and managing litigation risks, legal departments can transform ESG compliance from a regulatory burden into a competitive advantage.
The future of ESG compliance depends on the ability of in-house legal teams to drive systemic change, enforce accountability, and foster a corporate culture of sustainability. For legal scholars and PhD-level researchers, the intersection of ESG, corporate governance, and regulatory compliance offers fertile ground for further empirical and theoretical exploration.
Whilst that might not help and support the real-world challenges companies and their legal teams are facing today, the outputs coming from it should continue to address ESG compliance in the future.