ESG evolved: From compliance to competitive advantage

This article is produced in partnership with Normandin Beaudry

Discussions around ESG in North America have become increasingly polarized, unsurprisingly to most.  Debates over the relevance of equal opportunity and the urgency of climate action continue to intensify, even as other jurisdictions decisively advance with legislative measures to address these challenges. In many regions, ESG principles are being embedded into regulatory frameworks, while in others the terminology itself is being downplayed in the face of political pressure or skepticism about its effectiveness. However, it’s clear that global momentum toward sustainable investment continues to accelerate—and ignoring this reality, or retreating from it for short-term political reasons, may carry significant long-term costs.

The evolving ESG landscape: From responsibility to strategy

Across markets, ESG adoption is increasingly linked to long-term financial performance. It’s not just about doing the right thing—it’s about ensuring operational continuity in every region, reputational strength, and competitiveness in a rapidly evolving economy. Organizations that take ESG seriously are positioning themselves more effectively to attract capital, mitigate regulatory risk, and manage complex stakeholder expectations.

Global momentum

While North America is questioning the value of ESG, over 60 countries—including members of the EU, Brazil, and most of Asia—have implemented or announced adoption of the International Sustainability Standards Board (ISSB) framework. These countries represent more than 60% of global GDP and over 40% of the world’s market capitalization.

Created by the International Financial Reporting Standards (IFRS) Foundation in 2021, the ISSB establishes a comprehensive global baseline for sustainability reporting, enabling investors and other stakeholders to compare companies’ exposure to climate and broader sustainability risks in a consistent, reliable way. Its first two standards—IFRS S1 (general sustainability-related disclosure requirements) and IFRS S2 (climate-related disclosure requirements)—are already shaping corporate reporting worldwide.

Country-Level Perspectives on ESG Progress

Brazil has committed to applying ISSB-aligned standards as early as 2026, aiming to attract foreign investment through improved transparency. Meanwhile, Japan is executing a sectoral decarbonization strategy, demonstrating how public policy can support market transformation and industry-wide ESG alignment. Canada is aligning with ISSB standards through the Canadian Sustainability Standards Board (CSSB), which has introduced voluntary disclosure frameworks. However, regulatory work on mandatory climate and diversity disclosures has slowed.

The US continues to face ESG fragmentation at a state level—with divergent mandates creating uncertainty for organizations operating nationally. Amid political pushback, some US states like California have introduced strict disclosure mandates on emissions while others are scaling back DEI policies or avoiding ESG terminology altogether. Still, the structural need for responsible investment remains important and relevant for institutional investors and they are watching closely how portfolio managers and companies align with frameworks like the ISSB to navigate the current environment.

While ESG remains politically charged, it is uncertainty itself (regulatory, market, or otherwise) that financial markets view as the greatest risk.

Understanding and managing ESG Risks

At its core, ESG is not a question of values—it is a question of risk management. Environmental, social, and governance factors expose organizations to risks that can directly impact financial performance, operational resilience, and long-term value creation. ESG risks are often systemic, interconnected, and compounding over time. Climate change, demographic shifts, social inequalities, and governance failures are not abstract concerns—they represent tangible exposures that can disrupt business models, alter market dynamics, and erode stakeholder trust. Six categories of ESG risk are especially important to understand:

• Reputational risk: Failure to meet stakeholder expectations can erode trust and brand value.
• Regulatory risk: Shifting policy environments may introduce costly compliance burdens.
• Transitional risk: Stalling or procrastinating on sustainability initiatives can increase future costs and reduce competitiveness.
• Financial risk: ESG blind spots can potentially to lead to unpriced liabilities.
• Operational risk: Unaddressed social or environmental factors may disrupt the value chain.
• Market risk: Evolving consumer and investor demand can reshape the financial outlook of entire industries.

Addressing these risks helps to ensure smarter strategic decisions for long-term performance.

Portfolio strategy and ESG: Practical integration

Institutional investors can integrate ESG into their investment structures in two particularly impactful ways:

• Asset allocation: Implementing ESG considerations must not compromise the fundamental risk-return purpose of each asset class. In private debt, for example, overly thematic ESG innovation can dilute the stability that makes the asset attractive.
• Manager selection: The best investment managers now treat ESG as a tool for value creation, not just compliance, but fund labels alone are insufficient. Institutional investors who are often invested in traditional strategy have a fiduciary duty to ask difficult questions, assess methodologies, and ensure ESG practices are meaningfully embedded.

Looking ahead: ESG with conviction

Progress in ESG is unlikely to be linear; some countries will move faster than others and certain sectors will face more pressure than others. The direction, on the other hand, is clear: sustainability, transparency, and long-term thinking are becoming core expectations from stakeholders, regulators, and investors across the world. Political cycles and shifting rhetoric may create temporary slowdowns in certain jurisdictions, but the core challenges ESG addresses—climate risk, social equity, and responsible governance—are here to stay. Legislative frameworks are likely to continue to expand, and it will be the organizations that maintain consistency and conviction during periods of uncertainty that are recognized as leaders in the years ahead.

In this context, success will belong to those who proceed with consistency and clarity. After all, moving forward slowly—with conviction—is still moving forward. ESG has evolved from its origins as a compliance or value-driven initiative to a fundamental dimension of business strategy—linking risk, performance, culture, and capital.

Organizations must now be asking: Is our ESG strategy clear? Is it credible? And is it driving value?

The pressure to answer, ‘yes’ is only growing.

The author, Mélinda Bastien is a Principal at Normandin Beaudry, where she leads the firm’s institutional sustainable investment practice within the Asset Management and Savings Plans team. A graduate of Laval University and an Associate of the Society of Actuaries, she has been with the firm since 2007.

Mélinda brings a distinctive perspective to consulting guided by her Wendat heritage, curiosity, and passion for human connection. She supports organizations in developing sustainable investment strategies that not only identify and mitigate ESG risks but also harness opportunities to address societal challenges. Her expertise also includes the design, optimization, and communication of collective savings plans, with a particular focus on enhancing employees’ financial well-being and modernizing traditional approaches.

Recognized for her leadership and commitment to equity, Mélinda serves as Chair of Normandin Beaudry’s Societal Engagement Committee, advancing initiatives to reduce inequalities in employment and promote more inclusive workplaces.