As ESG scrutiny intensifies, Marco Carlizzi, Partner Lawyer at RSM Italy, explores the challenges and opportunities ahead, from tightening regulations to measurable impact, and why integration is now the real differentiator.

The ESG landscape is undergoing a quiet transformation. While headlines focus on regulation or greenwashing scandals, many firms are recalibrating their environmental, social and governance (ESG) strategies to move beyond compliance and toward credibility.

The partner lawyer at RSM Italy, shares how investors and institutions are responding to this shift, and where the next wave of ESG innovation lies.

Metrics That Matter

The pressure to quantify ESG is now coming from multiple angles, regulators, stakeholders, and internal leadership. “While regulatory expectations around ESG metrics continue to grow, the picture on investor demand is more nuanced,” Carlizzi explains. “Compared to a year ago, we’ve seen a degree of hesitation among some investors – particularly in response to the political and international situation (tariffs battles and war). In that sense, demand isn’t rising uniformly; in some areas, it’s stabilising or becoming more cautious.”

Nonetheless, environmental indicators remain front and centre. “The push for measurability remains strong, particularly from regulators and supervisory authorities. Environmental metrics are still the most widely adopted, especially carbon emissions, energy use and water consumption, because they are more easily quantified.”

In parallel, sustainability-linked KPIs are gaining ground inside organisations themselves. “Increasingly, firms are also using sustainability-linked KPIs to align leadership incentives with environmental outcomes including Managing Directors. So even in a more restrained climate, the emphasis on rigour and transparency is very much here to stay.”

The Data Dilemma

But turning ESG intentions into metrics isn’t easy, especially for small and mid-sized companies. “The core issue is data – not just the collection of ESG data, but its quality and reliability,” Carlizzi says. “Many small and middle market businesses are unable to provide the detailed data that banks or asset managers request.”

Even on the institutional side, accuracy can be elusive. “Investors typically depend on a small number of ESG ratings agencies and data providers – such as MSCI, Sustainalytics, or ISS – to assess thousands of companies across global markets. Because so many asset managers use the same sources, there’s a risk of overreliance on standardised, and sometimes inconsistent, datasets.”

The consequence? “It’s difficult to benchmark performance accurately or uncover meaningful distinctions between companies, especially when methodologies lack transparency or comparability.”

A Regulatory Reckoning

In Europe, ESG regulation is quickly catching up with industry practices. “Regulatory scrutiny around ESG labelling has intensified in Europe,” Carlizzi notes. “The European Securities and Markets Authority (ESMA) recently issued guidance on how terms like ‘green,’ ‘sustainable,’ or ‘impact’ can be used in product naming. While not yet law, the guidance is already prompting changes in how firms describe their products.”

The implications for private banks and asset managers are significant. “Many asset managers are re-evaluating product labels and marketing language. We’ve seen clients having to rename certain products to remain aligned with new expectations – not because the strategies changed, but because the language needed to be clearer and more defensible. This shows just how seriously the market is taking the risk of overstatement.”

Countering Greenwashing

As scrutiny increases, so too does the spotlight on greenwashing. Carlizzi believes credibility must be built from within. “Avoiding greenwashing starts with building internal credibility. That means ESG strategy can’t be delegated to a single board member or compliance officer. It must be understood across leadership – just like finance, marketing, or corporate governance.”

He recommends concrete, preventative steps: “Practical steps include regular board education, external legal review of ESG claims, and ensuring that communications reflect actual outcomes, not just intentions. The simplest advice is often the most important: be transparent, be cautious with language, and only promise what you can prove.”

Impact with Accountability

When it comes to impact investing, performance and transparency are no longer optional. “There’s been a clear shift toward measurability and accountability in impact investing,” Carlizzi says. “It’s no longer enough to talk about positive intentions – investors now expect evidence of tangible outcomes.”

This has implications for both institutional and private clients. “Both are asking tougher, more technical questions: How is impact defined? How is it measured? And how does it relate to financial performance?”

This shift is reengineering product design. “Managers need to integrate impact into the structure of the investment strategy, not just the marketing,” he explains.

“Increasingly, this includes setting portfolio-wide targets – such as emissions reductions or social outcomes – and linking them to financial mechanisms like hurdle rates, carried interest, or sustainability-linked fees. In the current environment, impact must be treated not just as a value, but as a measurable, reportable obligation tied to both returns and accountability.”

Preparing for Policy Shifts

Looking ahead, Carlizzi points to two EU policy developments that will reshape reporting obligations across the corporate landscape: the Corporate Sustainability Reporting Directive (CSRD) and the Corporate Sustainability Due Diligence Directive (CSDDD). “Both will increase the depth and scope of required ESG disclosures in Europe. Even businesses not directly affected will see expectations rise through their commercial relationships.”

And while AI is emerging as a tool to handle complex data, he urges caution. “There is also growing attention on how AI will be used to support ESG – particularly in data analysis and risk screening. But it’s essential to remember that AI must support, not replace, professional judgement. As I often say to my clients: artificial intelligence may be fast, but legal responsibility remains human.”

The Next ESG Frontier

Finally, Carlizzi sees innovation blooming where ESG is embedded into strategy, not tacked on. “Innovation is happening across all three – but the most exciting developments are in integration,” he says. “For example, sustainability-linked loans and ESG covenants in financing structures are becoming more sophisticated.”

On the reporting front, technological advances are starting to bite. “The use of AI and blockchain to trace data through complex supply chains could significantly improve transparency.”

Ultimately, success will depend on mindset. “The firms that will lead in ESG are those who treat it as a core strategy – not as a compliance exercise,” Carlizzi concludes. “The next wave of ESG leadership will be defined not by who has the best disclosure, but by who can act on it.”