Companies today face mounting pressure to align with global sustainability goals, meet investor expectations, and comply with evolving regulatory requirements. The stakes are high—falling short on compliance can lead to financial penalties, reputational damage, and missed investment opportunities.
With frameworks like the E.U.’s Corporate Sustainability Reporting Directive (CSRD) tightening disclosure requirements and investors demanding greater transparency, businesses need expert guidance to navigate environmental, social, and governance (ESG) risks and obligations.
As regulatory scrutiny increases, stakeholders expect meaningful ESG commitments—making due diligence a business imperative. ESG consultants play a critical role in this landscape, helping organizations assess risks, ensure compliance, and develop long-term sustainability strategies.
This guide breaks down key elements of ESG due diligence, including global and regional regulations, common challenges, and best practices for consultants guiding clients through compliance.
What is ESG due diligence?
ESG due diligence is a systematic evaluation of a company’s environmental, social, and governance risks and opportunities. It plays a crucial role in investment decisions, mergers and acquisitions, and corporate operations, helping businesses assess their sustainability impact and regulatory standing.
- Environmental factors cover a company’s sustainability practices and impact on the planet. Key issues include carbon emissions, raw material sourcing, and climate-related risks.
- Social factors evaluate how a company treats its people and stakeholders, addressing areas like working conditions, supply chain labor standards, data privacy, and human rights protections.
- Governance factors focus on corporate leadership and ethical practices, identifying risks such as bribery, weak financial oversight, and poor corporate governance.
For ESG consultants, due diligence goes beyond compliance—it provides critical insights into financial performance, risk exposure, and long-term value creation, helping businesses align with ESG regulations, investor priorities, and broader regulatory expectations.
What is the ESG reporting regulations landscape?
Navigating ESG compliance starts with understanding the frameworks and regulations that shape it. These standards vary by region and industry, creating a complex landscape that consultants must master to guide clients effectively.
Global standards
Several key frameworks define ESG disclosure requirements on a global scale, establishing the basis for sustainability reporting and regulatory compliance.
- International Sustainability Standards Board (ISSB): Following the integration of the Task Force on Climate-related Financial Disclosures (TCFD), ISSB focuses on helping businesses assess and disclose climate risks through standardized financial reporting.
- Global Reporting Initiative (GRI): It provides a broad framework for reporting economic, environmental, and social impacts.
- United Nations Principles for Responsible Investment (UN PRI): These principles guide investors on incorporating ESG factors into investment practices and decision-making.
These global standards shape how companies report sustainability efforts, providing consultants with a benchmark for assessing compliance and ESG performance.
Regional regulations
Region-specific ESG rules add another layer of complexity, with evolving policies redefining corporate reporting obligations. In the E.U., the CSRD (effective from 2024) mandates detailed sustainability reporting for over 50,000 companies, emphasizing double materiality: financial and environmental impacts.
Across the Atlantic, the U.S. has a patchwork of state-level rules. California’s Climate Corporate Data Accountability Act (SB 253) requires emissions disclosures from companies with total annual revenues exceeding $1 billion, while SB 261 mandates climate risk reporting. New York’s Climate Leadership and Community Protection Act enforces similar accountability measures.
Meanwhile, in the U.K., the Financial Conduct Authority’s (FCA) ESG rules push firms to align with climate goals and prevent greenwashing in sustainability reporting.
However, these regulations continue to change. The E.U. is refining CSRD thresholds, while the U.S. Securities and Exchange Commission’s (SEC) climate disclosure rules are paused amid legal challenges, creating uncertainty for businesses.
Industry-specific ESG requirements
Certain industries face tailored ESG disclosure mandates based on their environmental and social impact.
- Finance: The E.U.’s Sustainable Finance Disclosure Regulation (SFDR) requires firms to report sustainability risks in investment decisions.
- Energy: Companies must comply with emissions caps under frameworks like the Paris Agreement.
- Manufacturing: Firms must disclose resource use and waste management practices.
These sector-specific regulations require consultants to adapt ESG due diligence to each client’s operational realities and investment strategies.
Challenges in ESG due diligence
For consultants, ESG due diligence comes with significant hurdles. Disparate standards, data gaps, and shifting regulations create a complex environment that requires deep expertise and adaptable solutions.
Varying ESG reporting standards
The fragmented landscape of ESG reporting frameworks makes due diligence challenging. Global standards like ISSB and GRI coexist with regional regulations like CSRD, forcing consultants to align client disclosures with multiple, sometimes conflicting, requirements. This complexity complicates benchmarking and increases the risk of inconsistencies.
A manufacturing client might meet GRI’s emissions metrics but struggle with ISSB’s scenario analysis, leaving them exposed to investor scrutiny. Similarly, a company reporting under CSRD may need a level of detail that UN PRI doesn’t, creating gaps in information.
Navigating these variations demands fluency in each framework’s nuances—understanding where they align, where they diverge, and how to tailor reporting strategies accordingly.
Data collection difficulties
Gathering accurate, reliable ESG data remains a significant challenge. In fact, 35% of executives cited data accuracy and completeness as a top barrier to ESG progress, while 25% pointed to limited access to quality data.
The root of the issue? ESG information is often scattered across silos—spreadsheets, supplier reports, legacy systems—making it difficult to compile a comprehensive, verifiable dataset.
The challenge intensifies when data types vary. Numbers alone—such as tons of CO2 emitted—aren’t enough. Regulators and frameworks like ISSB require additional context, including charts, tables, and qualitative reports. Manually compiling these sources creates risks of errors or omissions for ESG auditors, especially under tight deadlines.
Fortunately, ESG consultants can leverage AI-powered solutions like Manifest Climate to streamline data analysis and enhance disclosure compliance. Our AI deciphers charts, graphs, and tables, extracting insights from diverse formats with speed and precision.
By automating the heavy lifting, Manifest Climate ensures ESG audits are thorough, traceable, and built on a solid data foundation—freeing consultants to focus on delivering high-value guidance to their clients.
Evolving regulatory landscape
The ESG regulatory landscape shifts faster than most organizations—or consultants—can keep pace, turning compliance into a moving target. New rules emerge, existing ones evolve, and enforcement tightens, requiring constant vigilance to avoid compliance gaps.
For example, the European Commission’s CSRD “Simplification Omnibus” package, proposed in February 2025, is set to exempt smaller companies with less than 1,000 employees and push assessment requirements to five years, rather than annually. It also aims to bring the E.U.’s reporting standards in line with globally recognized frameworks.
In the U.S., the SEC’s climate disclosure rules stalled in April 2024 due to legal challenges, creating uncertainty for companies. Meanwhile, California’s SB 253 remains on track, with mandatory emissions reporting by 2026.
To keep clients compliant, ESG consultants must continuously track regulatory updates and refine ESG strategies, ensuring organizations stay ahead of shifting requirements.
ESG due diligence process: Key steps for consultants
Effective ESG due diligence balances risk management with opportunity identification. Below is a structured process consultants can follow to guide clients successfully.
1. Initial ESG risk assessment
The first step is identifying material ESG risks based on the client’s industry, location, and regulatory obligations. A tech firm in California may face heightened scrutiny under SB 253 for emissions reporting, while a European manufacturer must comply with CSRD’s supply chain disclosure rules.
This assessment establishes a baseline, revealing both risks—such as unchecked pollution leading to regulatory fines—and opportunities, like energy efficiency improvements that boost profit margins.
Securing executive buy-in is also critical. Without leadership commitment, due diligence stalls, as sustainability isn’t a checkbox—it’s an ongoing process to uncover strategic risks and opportunities. Consultants must clearly articulate the business case: ignoring pollution risks can lead to regulatory challenges, while proactive ESG initiatives may unlock tax incentives and safeguard investments.
By aligning the risk assessment with the company’s priorities and evolving regulations, consultants ensure the due diligence process is both actionable and forward-looking, demonstrating its value from day one.
2. Stakeholder engagement and data collection
Effective ESG data collection relies on collaboration with key stakeholders. Consultants engage internal teams to obtain quantitative metrics like emissions totals or waste reduction statistics.
Investors contribute their perspectives, often requesting governance details and climate risk metrics aligned with frameworks like UN PRI. Suppliers provide critical supply chain insights, from worker safety records to material sourcing, while regulatory bodies offer compliance guardrails, such as those outlined in CSRD reporting rules.
This combination creates a comprehensive dataset where quantitative figures like water usage are paired with qualitative inputs like stakeholder interviews and corporate ethics policies. By integrating these diverse sources, consultants gain a 360-degree view of ESG performance, ensuring that risks and opportunities are fully accounted for in the due diligence process.
3. Gap analysis and benchmarking
With data in hand, consultants turn to the critical task of measuring ESG performance against industry standards like IFRS S1 & S2 or CSRD, competitor benchmarks, and best practices. This analysis helps clients understand how they compare within their sector and where improvements are needed.
- Is the client’s carbon footprint lagging behind sector leaders who have set a 15% emission reduction target?
- Are their emissions aligned with ISSB sector averages?
- Does a competitor’s board diversity provide a governance advantage?
Benchmarking against peers, regulatory requirements, and sustainability trends can reveal strategic opportunities. A competitor’s shift to renewable energy may be attracting investor interest, while adopting zero-waste supply chain practices could drive greater operational efficiency.
Of course, analyzing all of this data manually is a huge, time-consuming task. If you’re looking for an easier method that doesn’t sacrifice quality, compliance, or accuracy, Manifest Climate’s purpose-built, AI-powered gap analysis tool is an ideal solution. It handles the tedious manual work, so you can focus on high-level strategy and execution.
4. Developing ESG action plans
Next, consultants transform gap analyses into tailored ESG roadmaps, outlining clear, actionable steps for regulatory compliance and risk mitigation.
Beyond compliance, ESG action plans focus on sustainability-driven business improvements. A manufacturer may transition to renewables to cut costs, while a retailer may enhance worker welfare to strengthen brand loyalty. Each solution aligns with the client’s broader strategy, ensuring ESG efforts drive both regulatory success and business value.
By implementing audit schedules, technology upgrades, and policy changes, consultants help clients turn ESG from a compliance challenge into a competitive advantage.
5. Ensuring ESG action plan implementation
Execution is just as critical as planning. To ensure successful implementation of an ESG action plan, consultants provide hands-on support, helping clients move from strategy to measurable results.
- Training and capacity-building initiatives equip teams with the skills to implement key ESG measures, such as emissions tracking and diversity policy rollouts.
- Compliance documentation at the business unit level, like emissions logs for CSRD audits, ensures transparency and accountability in ESG reporting.
- Accountability measures—like linking ESG targets to manager KPIs—help sustain progress and integrate ESG goals into everyday business operations.
Beyond internal execution, consultants engage with industry associations like the Responsible Business Alliance to stay informed on sector-wide best practices. They also work with regulatory bodies like the SEC and FCA to help clients navigate evolving ESG standards and maintain long-term compliance.
6. Monitoring and reporting
Finally, consultants establish tracking systems and performance metrics to monitor ESG performance over time. This includes integrating data collection tools to track key indicators like carbon emissions, diversity metrics, and supply chain transparency.
Ongoing oversight helps clients stay compliant as regulations evolve, while transparent reporting builds stakeholder trust. A well-structured monitoring system also ensures alignment with global ESG disclosure frameworks, giving businesses confidence in their sustainability reporting.
Simplify ESG compliance for your clients with Manifest Climate
ESG due diligence is essential for businesses navigating tighter regulations, investor scrutiny, and reputational risks. But execution is complex. Disjointed data, shifting standards, and time-consuming manual reviews make compliance a challenge, leading to errors, inefficiencies, and missed opportunities.
Manifest Climate simplifies ESG due diligence with fast, accurate gap analyses, expert-backed insights, and automated audits designed for ESG professionals. Our AI-powered platform eliminates inefficiencies and enhances reporting accuracy, turning compliance complexity into clear, actionable guidance—so you can support clients with confidence and precision.
Ready to transform your ESG advisory services? Book a demo today and see how Manifest Climate can help you streamline ESG compliance.
