Corporate Sustainability in the Age of Regulatory Fatigue: Navigating the Policy Fog

Corporate sustainability is not dead, but the regulatory frameworks that once drove the adoption of sustainable business practices are loosening. In the US and Europe, political backlash, regulatory fatigue, and overly complex compliance requirements are pushing regulators to retreat from their previous positions.

Today, companies find themselves in a gray area: they are expected to self-regulate, yet lack clear guidance to determine which jurisdictions will stay the course. This trend could underminethe sustainability progress made over the past five years。

Regulatory retreat comes at a cost to companies

Globally, regulatory rules are hanging by a thread. In the US, the Republican-led Securities and Exchange Commission (SEC) haswithdrawn its proposed ESG and climate disclosure rules, seeking to distance itself from the regulations set by the previous administration.

Meanwhile, in the European Union,regulators are proposing to scale backwhat was once the world's most ambitious sustainable policy agenda. Policymakers have proposed cutting key provisions of the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). Evenrecent reform proposals for the EU's Carbon Border Adjustment Mechanism (CBAM), though touted as simplification, could also weaken accountability. The regulatory debate is still evolving, but the direction is clear—fewer burdensome requirements are seen as the better option.

The assumption that companies will fill the regulatory gap on their own is pure wishful thinking.

Policy rollbacks are creating chaos and fragmentation. Companies are forced to guess which rules will remain and which will change. Without consistent rules, meeting diverse expectations becomes more complex and costly.

Self-regulation struggles to deliver real impact

The idea that voluntary action alone can drive meaningful sustainability progress does not hold up. History shows that self-regulation advances slowly and often stops at isolated success stories rather than systemic change. At best, it rewards those already leading; at worst, it creates an illusion of progress while real risks are overlooked.

Take the UK, for example,the Joint Committee on Human Rightsfound that goods produced using forced labor are still being sold to UK consumers, showing that voluntary supply chain due diligence has not achieved the desired results.

Even the most committed leaders cannot do it all alone. Companies need fair, consistent rules that reward genuine effort and protect them from erosion by competitors who cut corners. Without such structure, sustainability will devolve into a race to the bottom rather than a path to resilience.

Bad regulation is as harmful as no regulation

The biggest problem facing sustainability leaders today is that too many regulatory mandates focus only on compliance itself, not on sustainability outcomes. These mandates treat all companies the same, ignoring their individual progress or maturity. Such regulation also overlooks innovations already in use, drowning teams in repetitive reporting while offering little clear guidance or reward.

Far from supporting change, these rules hinder it.

Even well-intentioned companies are hitting a wall. In fact, only13% of companiesare on track to meet the compliance deadlines for four major regulations: the EU's CSRD and CBAM, California Senate Bill 253 (the Climate Corporate Data Accountability Act), and Canada's Modern Slavery Act.

When efforts go unrecognized and penalties keep piling up, going the extra mile for net-zero and decarbonization goals no longer makes business sense. The focus shifts from impact to survival, and momentum stalls.

Fix the system, not rewrite the standards

The answer lies in jurisdictions adopting smarter regulatory approaches.

Smart rules both raise the bar for sustainability expectations and make compliance easier. They align incentives, respect innovation, and reflect how modern businesses actually operate.

For example, companies using artificial intelligence to track emissions, monitor supply chains, and identify key risks for regulatory compliance should not be buried in paperwork. They should be recognized and rewarded. Regulatory frameworks should integrate with the AI tools companies are already using, and policies should flexibly adapt to businesses at different stages of maturity.

Smarter regulation means rules that:

• Reward measurable outcomes, not just ticking compliance boxes.
• Recognize innovation, especially tools that enhance transparency and efficiency.
• Provide flexibility based on company size, structure, and resources.
• Streamline reporting by harmonizing frameworks and eliminating duplication.

Companies are not asking regulators to ease oversight, but to make rules sensible and help them focus on real outcomes.

Companies are still leading, but cannot go it alone

Despite the political noise, many companies have not abandoned sustainable compliance—they have just stopped shouting about it. In fact, an EcoVadis survey shows that nearlyone-third of executivessay they are increasing sustainable business investments while reducing public communication.

Another 8% of respondents say they have stopped publicly discussing their commitments but are still investing and staying on track with their plans. Sustainability efforts are quietly advancing behind the scenes through supplier engagement, emissions tracking, and investments in technology that supports long-term goals.

But even the most advanced companies cannot bear the full burden alone forever. Without smart and consistent policies, the system will eventually collapse under its own complexity.

This is not about appearances; it is about actual operations. Sustainability remains a key strategy for managing risk, staying competitive, and maintaining supply chain resilience. But when rules are unclear or constantly shifting, momentum slows and trust erodes.