From Voluntary to Mandatory: How New ESG Rules Are Changing Corporate Accountability

For years, Environmental, Social and Governance (ESG) targets sat comfortably in the realm of good intentions. Companies could choose to publish sustainability reports or align with climate goals, but there was little legal weight behind those commitments. That era is ending. In 2025, a wave of new regulation across the UK and EU is transforming ESG from a voluntary exercise into a mandatory framework for accountability. 

Earlier this year, the UK’s Financial Conduct Authority (FCA) updated its Sustainability Disclosure and Labelling Regime, introducing a new anti-greenwashing rule that applies to all FCA-authorised firms making sustainability-related claims. The rule requires companies to ensure such claims are “fair, clear and not misleading,” strengthening transparency and investor confidence. The broader SDR framework also sets standards for investment labels, disclosure and marketing rules for UK asset managers, helping align the UK regime with global sustainability reporting initiatives such as the International Sustainability Standards Board (ISSB). 

The European Parliament debated proposals in October 2025 to broaden ESG disclosure laws. Lawmakers considered lowering the size thresholds under the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD) to firms with 1000 employees or €450 million turnover, bringing many mid-sized companies into scope. Although the draft was not yet final, it reflected the EU’s push to make sustainability reporting a binding regulatory duty rather than a voluntary exercise. 

Why the rules are tightening

The move towards mandatory ESG disclosure stems from frustration with voluntary models. Inconsistent data and vague metrics have made it hard to distinguish genuine sustainability leadership from greenwashing. A 2024 KPMG global survey found that around three-quarters of firms still feel unprepared for formal ESG assessments, highlighting how slow progress on data and systems has undermined credibility and investor trust. 

Governments are also under pressure to meet climate goals. The EU’s Green Deal Industrial Plan seeks to accelerate the clean-tech transition by boosting net-zero manufacturing and investment across member states. By linking industrial growth with climate policy, it aims to make sustainability reporting as standardised and reliable as financial disclosure. 

From compliance cost to strategic edge

Implementing these frameworks can be costly as new data systems and audits demand investment. Yet firms that treat ESG purely as regulation risk overlooking its strategic value. 

Transparent reporting builds investor confidence, lowers financing costs and attracts long-term capital. Research suggests companies with stronger ESG practices enjoy lower borrowing spreads and better access to finance. Internally, better ESG processes expose inefficiencies in resource use and supply-chain oversight, turning compliance into resilience.

Governance at the centre

Perhaps the most significant change lies in governance. Under both UK and EU frameworks, boards of directors are now legally responsible for the accuracy of sustainability disclosures which must also undergo independent assurance under the EU’s Corporate Sustainability Reporting Directive. ESG oversight is no longer a communications exercise but a central part of corporate governance and risk management. 

Audit committees increasingly seek sustainability expertise and executive pay is starting to link to climate, diversity and conduct targets. This reflects a growing convergence between financial and non-financial reporting as firms recognise that profitability and environmental integrity are interconnected. 

Stronger accountability also raises the stakes. Misleading or unverified claims can now trigger regulatory sanctions and reputational damage. In many ways, this mirrors earlier financial-reporting reforms only this time, the focus is on sustainability data and human-rights due diligence. 

Looking ahead

Mandatory ESG reporting won’t solve every issue overnight and implementation will vary across sectors. Yet the trend is clear: voluntary promises are giving way to enforceable standards built on transparency and governance. 

Firms that integrate ESG into core strategy may gain credibility and capital whereas those that delay could face growing regulatory and reputational risk. 

For analysts and policymakers alike, one lesson stands out: ESG is no longer a soft add-on - it’s becoming a defining measure of long-term corporate value.