ESG and International Trade
ESG and International Trade: Challenges and Opportunities in the Age of Sustainability
The topic of ESG is attracting growing interest among businesses and investors, although it is not a new concept. The acronym ESG - referring to Environmental, Social, and Governance principles - was officially introduced in 2004 through the United Nations report Who Cares Wins (Source). Since then, the adoption of these principles has accelerated, driven by a heightened awareness of the environmental and social impacts of economic activity.
Governments also play a key role in ESG regulation. In April 2024, the European Parliament adopted new legislation requiring companies and their partners to carry out due diligence to assess the impact of their activities on the environment and human rights. This directive, known as the Corporate Sustainability Due Diligence Directive (CSDDD) (Source), mandates EU member states to provide detailed guidance for companies and to designate supervisory authorities responsible for compliance enforcement, including penalties for non-compliance.
According to an analysis by the Harvard Law School Forum on Corporate Governance, the CSDDD could significantly affect U.S. companies operating in Europe by increasing their accountability across supply chains. "Companies will not only need to identify ESG risks, but also demonstrate proactive commitment to mitigating those risks."
This new regulation will have a direct impact on global value chains, especially in international trade. Companies seeking to maintain partnerships with European actors will need to demonstrate compliance with strict ESG criteria—posing a major challenge for emerging markets that may lack robust regulatory frameworks.
Beyond legal obligations, companies that adopt ESG practices stand out in the marketplace by gaining the trust of investors and consumers. The World Economic Forum, in its report Beyond Compliance: The Rise of ESG (Source), emphasizes that "companies going beyond regulatory compliance and integrating strong ESG strategies enhance their long-term resilience and performance." The report also highlights ESG as a key factor in investor decisions and in the global competitiveness of companies.
Furthermore, a McKinsey & Company study on sustainability and value creation (Source) shows that “companies with strong ESG performance financially outperform their peers over the long term and attract greater investment.”
However, many challenges remain. Companies will need to strengthen their due diligence processes, develop stricter internal policies, and ensure greater operational transparency. Aligning business models with the objectives of the Paris Agreement will also require substantial investments in innovation and sustainability.
On the other hand, adopting robust ESG practices opens up strategic opportunities. Companies that adapt quickly to the new regulatory standards will gain a competitive advantage in the international marketplace, easing market access and attracting capital from sustainability-focused investors.
The evolution of ESG regulations, especially within the European Union, demonstrates that sustainability is no longer a choice, but a necessity for global competitiveness. Companies that have not yet integrated these principles into their strategy must act swiftly to maintain their market position and avoid financial and reputational risks.
How do you perceive the challenges and opportunities of ESG in international trade?