Five Things Boards and Management Teams Must Get Right in an Era of Global Fragmentation in 2026 and Beyond
For much of the last decade, corporate sustainability followed a familiar s-curve of an emerging practice or innovation: voluntary commitments by early adopters followed by rapid institutionalization through nascent, one-size-fits-all environmental, social, and governance (ESG) frameworks. The end of this current cycle saw an uneven shift into regulation with the passing and subsequent dilution of the Corporate Sustainability Reporting Directive (CSRD) in the E.U. beginning in 2023 and the Securities and Exchange Commission’s (SEC) late push into climate risk reporting that was walked back following the change in U.S. administrations. Finally, California’s climate mandates began to mature with increased implementation guidance, but now SB 261 (climate risk reporting) originally set to go into effect by January 2026, has been temporarily halted by the U.S. Court of Appeals for the Ninth Circuit.
ESG as a movement has undeniably lost altitude as a brand, and yet the momentum inside corporate operations has not been eradicated. According to a December investor report from US Sustainable Investment Forum (SIF), political pushback has indeed moderated ESG activity, with about half of respondents reporting some level of impact to how their organization approached sustainability. On the investor side however, the same surveys finds that 77% of investors that prioritize sustainability themes such as the energy transition, innovation, and transport are using ESG as an integration strategy.
The underlying forces driving the relationship between sustainability issues and business value have not disappeared, with the following topics becoming heightened in 2025:
- Physical climate risk threatens underlying real asset valuations across the globe, most notably in homeowners’ insurance markets.
- Geopolitical uncertainty causes supply chain risks across social dimensions like human rights.
- The movement of capital towards AI-related assets like data centers is stressing natural systems from local water supplies to biodiversity as electricity demand grows.
- Weather-driven supply problems are making consumer products like coffee and chocolate more expensive for consumers across the globe.
- Evolving cyber threats and the emergence of deep fakes and other hazards driven by AI innovation are placing increased importance on customer data protections.
For U.S. public companies with multinational investors, customers, and value chains, the challenge is no longer whether sustainability principles matter, but how to leverage them as a credible driver of growth and reputation without overreaching, politicizing the enterprise, or fragmenting the business internally. This is a moment that demands board-level oversight clarity.
Here are five oversight considerations boards can push management on in 2026:
First, boards must understand how more specific sustainability initiatives support value creation
Principles are foundational, yet the ambiguity of performance is no longer defensible. Sustainability investments need to be tied clearly to enterprise value: revenue durability in regulated markets, supply chain continuity, cost volatility, access to global capital, and customer trust. Boards should require management to articulate which sustainability initiatives meet financial return thresholds, which function as risk insurance, and which are discretionary. Just as importantly, boards should document what the company is choosing not to pursue. Strategic restraint is now a form of governance.
Regulatory fragmentation must be governed as a strategic risk, not only as a compliance problem
Sustainability regimes increasingly resemble trade regimes. The EU is moving deeper into prescriptive regulation, the U.S. is fractured across federal and state lines, and many emerging markets are aligning selectively based on trade and finance incentives. Boards should resist the instinct to force global uniformity. Instead, they should approve a global baseline focused on risk management, controls, and data integrity, paired with jurisdiction-specific and industry-specific overlays. This modular approach preserves credibility while maintaining flexibility. Under their duty of care obligation, boards should be more vocal about exercising inquiry around how material sustainability topics are being assessed and connected to risk and value with quantitative evidence.
Sustainability data must become decision-grade to be truly investor-grade
The era of expansive disclosure is giving way to a harder question: what relationship does sustainability data have with core board oversight matters such as capital allocation? Boards should become more engaged on ESG KPIs that are embedded across finance, legal, IR, and risk functions, and focus on those data points most useful for investors. 39 global jurisdictions have implemented or in the process of adopting the IFRS Sustainability Disclosure Standards S1 and S2, so this investor-focusing voluntary reporting convergence is a guiding path of good practice. Sustainability data that exists only to populate reports without consideration to investor utility will eventually lose both funding and trust. Data that changes decisions becomes indispensable. There is no one-size-fits-all approach for this.
Reputation should be protected through restraint, not volume
In today’s environment, credibility is built by under-promising and over-delivering. Boards should ensure that sustainability claims are narrower than operational capabilities, not broader. Fewer commitments, longer time horizons, conservative language, and a clear separation between facts and aspirations all reduce exposure to reputational and political risk. Oversight of major sustainability-related statements and therefore accountability should sit at the board level, not solely with communications teams. With the upcoming proxy season expected to be uncertain, especially with the recent SEC rules limiting shareholder resolutions and the December Trump Executive Order on proxy advisors, shareholders will be increasingly reliant on direct communications from issuers and not third parties.
Sustainability must be governed as a core enterprise risk function
Sustainability now intersects directly with geopolitics, supply chains, capital markets, and social license to operate. Leading boards embed it within enterprise risk management, often through audit or risk committees, and require scenario analysis tied to regulatory shocks, market access, and physical and transition risks. Management incentives should reflect long-term resilience, not just short-term performance.
The takeaway is straightforward. Sustainability is no longer a movement. It is a management discipline. And despite political threats demand is still there. A recent Morgan Stanley global investor survey found that 75% of institutional investors expect climate risks to significantly impact asset prices over the next five years.
In a fragmented global environment, boards that provide clarity, govern tradeoffs, and insist on execution will enable sustainability to drive growth and protect reputation—deliberately, credibly, and durably.
By Lane Jost, Head of Sustainability & Governance Advisory, Edelman Smithfield