Over eight in 1o 82% of European investors and 84% of corporates do not feel fully prepared for upcoming ESG regulations, according to a report S-RM, a global intelligence and cyber security consultancy.

The ESG Report 2024 is based on S-RM research and a survey conducted by Coleman Parkes between 4 December 2023 and 9 January 2024. Respondents comprised: 550 senior ESG decision makers with corporate organisations plus 200 senior ESG decision makers within investment firms. Investors were asked to comment on the businesses within their portfolios, rather than their own organisations.

Investors and corporates are trying to come to terms with significant regulations and legislation coming from the EU, namely the Corporate Sustainability Reporting Directive (CSRD) – with eligible companies starting reporting in January 2025 – and the Corporate Sustainability Due Diligence Directive (CSDDD) – which was formally adopted by the European Parliament in April – among other domestic legislation related to human rights and supply chains.

Many are struggling to incorporate these regulations into their daily operations and long-term strategies. In fact, 74% of companies believe that they are not fully mature in handling ESG issues.

In-house teams are already overstretched and the additional burden is fuelling greater uncertainty. These teams are likely to still be developing the necessary frameworks to meet the incoming requirements and concerns surrounding ESG maturity are prompting companies to entirely rethink their strategies.

Environmental issues within ESG continue to be the primary focus for companies and investors, who are dedicating 39% and 42% of their resources here, respectively.

While the environment is widely acknowledged, there’s a notable lack of corporate awareness surrounding social issues. Around one quarter of both investors (24%) and corporates (26%) noted there was little or no awareness of social issues or challenges in their industry. The incoming legislation and regulations are clear on the importance on these issues, meaning a better balance and understanding across all ESG aspects is a must.

With teams scrambling to meet increased reporting requirements, investors and corporates are prioritising the demands of today over potential problems. The Global Reporting Initiative (GRI) and the arrival of the double materiality assessment in the CSRD have largely driven this trend. The current focus on these obligations is coming at the expense of longer-term objectives, like net-zero strategies.

Natalie Stafford, director and head of ESG at S-RM, said: “At S-RM, we recognise how crucial social factors are in shaping effective investment behaviour. Our recent report shows a significant gap in readiness for new social regulations among both investors and companies, who are concerned about how to adapt. We’re seeing social issues climb higher on priority lists driven by stricter regulations, market trends, and the real-world impacts of social challenges.”

“Despite some views that interest in ESG is taking a hit, our data reveals that nearly 40% of firms plan to boost their spending on social efforts. Investors are naturally influenced by the actions of the companies they are interested in investing in or already doing so. Looking ahead, we expect to see more investment in social projects, especially over the next few years.”