Thursday, 21 August 2025
A new survey by the Compliance Institute reveals that seven in ten financial firms believe changes to Environmental, Social, and Governance (ESG) regulations in the United States and the European Union will have an impact on Irish compliance frameworks. While the majority of respondents (over half) expect the impact to be moderate, around 20% foresee […]
A new survey by the Compliance Institute reveals that seven in ten financial firms believe changes to Environmental, Social, and Governance (ESG) regulations in the United States and the European Union will have an impact on Irish compliance frameworks.
While the majority of respondents (over half) expect the impact to be moderate, around 20% foresee significant disruption, particularly as global ESG rules diverge and create additional complexity.
Recent regulatory changes highlight the contrast in ESG policy direction between the US and the EU:
In the United States, rollbacks under the Trump Administration included exiting the Paris Agreement, reducing climate regulations, and relaxing rules on sustainable investment and DEI (Diversity, Equity, and Inclusion) initiatives.
The European Union, meanwhile, is making moves to simplify its ESG reporting requirements, especially following concerns about the burden on smaller businesses and the need to delay implementation for some upcoming compliance phases.
Michael Kavanagh, CEO of the Compliance Institute, explained that ESG reporting in Europe began with large listed companies issuing detailed sustainability reports. However, as a response to US regulatory retrenchment, the EU has scaled back some aspects of its ESG agenda, particularly for waves two and three of its implementation plan. This includes reduced scope and postponed deadlines, creating an evolving and inconsistent global ESG landscape.
While regulatory divergence may ease compliance burdens temporarily, it also raises concerns about the effectiveness of global climate action. Coordinated ESG policies are crucial for meeting international climate targets such as the Paris Agreement. When major economies scale back or diverge, it weakens the collective ability to reduce emissions and address biodiversity loss. Ireland, as part of the EU, may face pressure to maintain high environmental standards regardless of US policy shifts.
Regulatory inconsistencies across jurisdictions can, therefore, create a loophole known as “ESG arbitrage”, where multinational firms exploit weaker environmental regulations in one region to lower compliance costs. This undermines sustainability efforts and may give some firms an unfair competitive edge. Ireland’s role as a hub for international companies makes it particularly vulnerable to these dynamics, potentially complicating its national sustainability agenda.
Ireland is uniquely positioned in this global context. Many US multinational companies have their European headquarters in Ireland, meaning ESG compliance decisions made abroad directly impact Irish-based compliance teams.
Speaking on RTÉ’s Morning Ireland, Mr. Kavanagh highlighted that this regulatory divergence is increasing the burden on compliance teams:
“That [compliance] team has to deal with all these different aspects and rules from jurisdictions, so when you have divergences like that, it just adds to the burden of compliance in what is already a rather heavily trafficked area with various rules and regulations at the moment.”
He added that many professionals are navigating global rules throughout their day, working with jurisdictions as far apart as India in the morning and the US in the afternoon.
Despite widespread awareness of the looming impact, the survey found that only 40% of financial services firms are proactively preparing for changes in ESG frameworks. Nearly half say the issue is “on their radar” but have not yet taken concrete steps.
This gap raises concerns about the industry’s readiness to address evolving ESG requirements amid an increasingly fragmented regulatory environment.
While regulation is one driver of ESG compliance, investor pressure is another powerful force. Global institutional investors are increasingly integrating ESG criteria into decision-making. Irish firms ignoring these expectations risk not only regulatory penalties but capital flight or limited access to green financing, especially as ESG ratings grow more influential in capital markets. A lack of preparedness, even in this increasingly shifting regulatory environment, may mean more stress on SMEs even as the EU moves to ease ESG reporting for them.
Mr. Kavanagh noted that the European Commission’s move to ease ESG reporting for SMEs is a welcome development, reflecting a more balanced approach that considers practical realities.
Still, he warned that the overall trend toward tougher sustainability expectations is likely to continue in the long term, even if current regulatory pressures have eased temporarily.
The divergence in ESG policies between the US and EU is creating significant compliance challenges for Irish financial firms, especially those acting as European hubs for multinational operations. With regulations in flux, compliance teams face increasing complexity and pressure.
While some reforms may temporarily reduce the regulatory burden, the long-term trajectory suggests that ESG compliance will remain a critical focus area. Irish firms would be well-advised to begin preparing now, not just to ensure compliance but to position themselves for future sustainability standards.
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