Article overview：
- What is ESG?
- Why is ESG not just an “option” anymore?
- Challenges and strategic risk management for cross-border enterprises
Global companies are increasingly facing a common issue when conducting cross-border business: ESG (Environment, Social, and Governance). In the past, when companies were planning their cross-border business strategies, they primarily focused on market access, tariff policies, and supply chain costs. ESG was often viewed as a “added brand value,” serving as a supplementary narrative in corporate image promotion. However, with the tightening of global regulations, shifting consumer preferences, and increased attention from capital markets on sustainability, ESG is no longer an optional consideration but has become an indispensable requirement in the operations of cross-border businesses.
ESG is a comprehensive framework for assessing a company’s performance in terms of sustainability, covering three core dimensions:
- Environment (E): The impact of the company on natural resources and the environment, as well as the sustainable measures it has taken. Regulatory differences are particularly significant for cross-border companies. Cross-border companies operating in different markets must understand and comply with these regulations in advance to avoid potential fines or market restrictions.
- Society (S): Involves interactions between companies and their employees, suppliers, consumers, and communities. Cross-border companies in particular need to pay attention to social welfare issues such as labor conditions, employee health and safety, and diversity and inclusion in their supply chains. Effective social responsibility practices not only prevent legal risks but also earn the trust of consumers and partners.
- Governance (G): This includes internal corporate oversight, risk management, transparency of information disclosure, and ethical standards. Good governance helps companies make compliant decisions in complex cross-border transactions, prevent legal disputes and regulatory penalties, and enhance the confidence of capital markets and investors.
In short, ESG is the “ticket” for cross-border enterprises to enter the market, win customer trust, and attract capital.
1. Policy and legal trends: Australia as an example
The rapid development of ESG in Australia is reflected both at the policy level and in specific legal practices, such as:
Environmental Dimension
In 2021, the Australian Center for Corporate Responsibility (ACCR) filed a lawsuit against oil and gas company Santos, accusing it of misleading or deceptive conduct in its “clean energy” claims and net-zero plans. This is the first lawsuit globally targeting a company’s “net-zero targets” themselves, underscoring that regulatory and judicial bodies have begun to scrutinize the legitimacy of corporate ESG commitments.
Social Dimension
Safe Work Australia is Australia’s national policy agency, whose primary responsibility is to promote healthier, safer, and more efficient workplaces by improving work health and safety (WHS) and workers’ compensation systems. This indicates that employers’ responsibilities in protecting employees’ mental health are shifting from “advocacy” to “mandatory compliance.” Companies must not only provide physically safe environments, but also ensure that mental health risks are systematically managed.
Governance Dimension
Starting in 2025, many large Australian companies and financial institutions will be required to prepare annual sustainability reports, including climate-related financial disclosures. This marks a transition from voluntary to mandatory ESG disclosure for companies, requiring them to have more comprehensive reporting mechanisms and governance commitments.
2. Pressure from consumers and the market
It is not only external policies that are driving companies to prioritize ESG but changes in consumer behavior as well. In Australia, while consumers still prioritize price, environmental and social values have become key considerations in their purchasing decisions: 41% of consumers prefer to purchase sustainable or low-carbon products, 36% actively reduce unnecessary consumption to lower overall consumption, and over 68% are willing to pay a higher price for low-carbon products.
At the same time, investors are also highly sensitive to companies’ ESG performance. A high ESG rating not only indicates sound corporate governance and low compliance risks, but also typically means higher brand value and investor confidence. For cross-border companies, this often affects their ability to enter capital markets, financing costs, and supply chain cooperation opportunities.
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1. Cross-border regulatory and policy differences risk
Cross-border enterprises face challenges in ESG practices due to differences in policies and disclosure requirements between countries. Different countries or regions have varying standards for environmental protection, social responsibility, and corporate governance, including disclosure frequency, scope of information, and strictness of compliance. These differences may lead to compliance gaps in cross-border operations, increasing legal risks and potential regulatory penalties.
Strategic Response Recommendations:
- Regulatory Review and Priority Setting: Conduct a systematic review of ESG policies in target markets, distinguish between mandatory requirements and voluntary guidelines, and assist companies in allocating resources and investments appropriately;
- Internal ESG Control Processes: Embed ESG internal control points in key areas such as procurement, production, operations, and sales to ensure that cross-border business operations comply with regulatory requirements;
- Standardized Disclosure: Establish a unified ESG reporting framework, integrating regional requirements into annual reports or internal monitoring systems to enhance transparency and investor trust.
2. Supply Chain Transparency and Operational Risks
The supply chains of cross-border enterprises may span multiple countries and regions, with suppliers varying in terms of environmental management, labor conditions, and product safety standards. If there are violations in the supply chain, it will not only result in legal liability, but also further impact brand image and market trust. This is especially true in the retail and consumer goods industries, where suppliers’ management of carbon emissions, wastewater treatment, employee health and safety, and fair compensation directly affects the ESG performance of enterprises.
Strategic Response Recommendations:
- Supplier due diligence: Assess suppliers’ ESG practices, including environmental management systems, labor conditions, and certification qualifications.
- Contract terms embedded with ESG requirements: Clearly state environmental standards, labor conditions, product safety, and information disclosure obligations in contracts, and establish penalties or termination mechanisms for violations.
- Training and support: Provide ESG training or consulting to suppliers to help them improve their operations and reduce overall risk.
3. Brand Reputation Controversy Risk
As ESG gains market attention, companies are increasingly incorporating it into their strategies and marketing efforts. However, improper or false ESG practices may lead to legal and reputational risks. For example, “greenwashing” is a common high-risk behavior. Greenwashing behaviors include selective disclosure, verbal commitments without actual action, double standards, and inadequate supply chain oversight. Once such behaviors are exposed, they may not only result in regulatory penalties but also trigger investor lawsuits, consumer boycotts, and public opinion backlash, impacting corporate stock prices, market positioning, and long-term development.
Strategic Response Recommendations:
- Transparent and verifiable information disclosure: Ensure that ESG data is accurate and reliable, and avoid exaggerated claims or misleading investors and consumers.
- Pre-commitment implementation assessment: Before setting ESG goals or commitments, assess the implementation capabilities of the company and its supply chain to ensure that commitments are feasible and reduce the risk of subsequent disputes.
- Public Opinion and Crisis Response Mechanisms: Establish internal review and response processes to enable rapid response and provide substantive improvement measures in the event of questions or disputes, thereby reducing loss of public trust.
*For the above types of ESG risks, enterprises can consult lawyers with cross-border business experience to obtain detailed compliance advice and strategies specific to particular markets and supply chains.
Summary
In cross-border business, ESG is no longer merely a “icing on the cake.” It directly impacts market access, brand value, consumer choice, and capital market recognition. For businesses, early assessment of ESG risks, optimization of supply chains and governance structures, and development of compliance disclosure strategies are key to seizing market opportunities and protecting brand and capital value. With the support of professional legal advisors or compliance teams, businesses can balance compliance requirements with business development in complex international environments, ensuring the sustainability of cross-border operations.
ESG is no longer an added value, but a core element of cross-border business success.
Written by Xueying Yang; Content planning: Gang Sun; Xueying Yang; Proofreading: Gang Sun
This article is provided by Sunfield Chambers Solicitors & Associates. The content of this article is based on publicly available information and the author’s understanding, and does not constitute any form of professional legal advice or basis for business decisions. Readers should refer to this article in the context of their own actual situation and consult relevant professionals for specific guidance. The author and the publishing platform do not assume legal responsibility for any consequences arising from the use of the information in this article.
Consultation with Specialized Lawyers
Abraham Sun
Principal Solicitor
As the Principal Solicitor, Abraham has been working with numerous clients including listed companies, state-owned enterprises, ultra-high-net-worth clients, and investment banks. Customers in various industries including Australian and Chinese companies and individual investors, had achieved considerable economic benefits with his professional legal advice.
Dickson Luo
Solicitor
Dickson mainly conducts dispute resolutions and commercial litigation in areas across insolvency, corporations, employment, real property and consumer law. He is proficient in English and Chinese Mandarin, and have extensive experience acting for clients who have limited or no English skills in complex disputes and litigation matters.
Linda Thai
Solicitor
Linda assisted our legal team with a range of litigation matters in Australian intermediate and superior courts. She has established solid foundations in litigation from assisting in matters from the initial investigation stage to briefing and liaising with barristers and also assisting our solicitors at court appearances.
Bhanu Seemar
Solicitor
Bhanu is a commercial litigation lawyer who has extensive experience working closely with counsel on a range of commercial law matters including contract disputes, insolvency disputes, consumer and franchise disputes, shareholder claims, financial services and regulatory enforcement matters, corporations law, and class action litigation.
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