ESG stakeholders are the groups a company must answer to on environmental, social, and governance issues: its employees and board, its customers and suppliers, the communities around its facilities, the investors and lenders who provide capital, the ratings agencies who score its performance, and the regulators who set the rules. Each group brings its own priorities and its own tools for enforcing them, and a credible ESG program starts with understanding what each one actually wants.
Who Counts as an ESG Stakeholder
A stakeholder is anyone who can affect or is affected by a company’s operations. In the ESG context, they sort into three broad groups based on their relationship with the company.
- Internal stakeholders are employees, senior management, and board members. They execute strategy day to day and depend on the company for wages, benefits, and career development.
- External stakeholders include customers, suppliers, local communities, and advocacy organizations. They interact with the company through purchasing, the supply chain, and the surrounding social environment.
- Financial and regulatory stakeholders are institutional investors, lenders, ESG ratings agencies, and government regulators. They control access to capital, set disclosure mandates, and score companies against sustainability benchmarks.
The lines blur in practice. Employees are also community members. Large institutional investors act like regulators when they use proxy votes to force governance changes. What makes the ESG stakeholder picture distinctive is that nearly all of these groups now have formal channels to demand transparency and accountability on non-financial issues.
What Stakeholders Want on Environmental Issues
The environmental pillar covers a company’s impact on the natural world and the physical and regulatory risks it faces from climate change, pollution, and resource scarcity. Different groups fixate on different pieces of it.
Investors and Climate Risk
Investors treat greenhouse gas emissions as a proxy for long-term financial risk. High-emission companies face tighter regulations, carbon pricing, and stranded assets as the global economy shifts toward lower-carbon energy. For years, investors pushed companies to align disclosures with the Task Force on Climate-related Financial Disclosures framework. In 2024, the TCFD’s monitoring responsibilities transferred to the International Sustainability Standards Board, whose IFRS S1 and S2 standards now serve as the global baseline for sustainability and climate-related disclosure.1IFRS Foundation. IFRS Foundation Welcomes Culmination of TCFD Work and Transfer of Monitoring Responsibilities
Regulators
Federal regulation has moved unevenly. The SEC finalized a climate-related disclosure rule in March 2024, stayed it during litigation, and formally withdrew its defense in March 2025.2U.S. Securities and Exchange Commission. SEC Votes to End Defense of Climate Disclosure Rules The SEC’s 2010 interpretive guidance, which recommends disclosure of the direct effects of environmental legislation and the physical impacts of climate change, remains in effect. At the state level, at least one major jurisdiction now requires companies with annual revenues over $1 billion to publicly disclose Scope 1, 2, and eventually Scope 3 emissions, with penalties of up to $500,000 per reporting year for noncompliance.
The EPA enforces permit programs regulating air emissions, wastewater discharge, hazardous waste management, and chemical reporting.3Environmental Protection Agency. EPA Permit Programs and Corresponding Environmental Statutes Under the Clean Water Act, any discharge of pollutants into U.S. waters requires an NPDES permit, and violations can trigger administrative penalties, civil actions, and criminal prosecution.4US EPA. NPDES Permit Basics
Customers and Suppliers
Consumers increasingly favor products with verifiable low-emission or carbon-neutral claims, which makes marketing accuracy a legal issue. The Federal Trade Commission’s Green Guides set the federal baseline for what counts as a misleading environmental claim, covering carbon offset marketing, renewable energy claims, and recyclability labels, and the FTC actively enforces against deceptive green marketing.5Federal Trade Commission. Green Guides
Suppliers share environmental risk through the value chain. A supplier that mishandles emissions, waste, or chemicals creates liability for the companies it serves, which is why large buyers now impose environmental standards on their supply chains and audit compliance as part of procurement.
What Stakeholders Want on Social Issues
The social pillar covers how a company treats people: workers, customers, communities, and the people in its supply chain.
Employees
Employees are the group with the most direct exposure to a company’s social practices. They care about fair wages, safe working conditions, career development, and equitable treatment. Workplace safety violations create severe legal liability, and high injury rates hurt both compliance standing and recruiting.
Investors have also come to treat workforce quality as a value driver. In 2020, the SEC updated Regulation S-K to require companies to describe their human capital resources to the extent material to understanding the business.6U.S. Securities and Exchange Commission. SEC Adopts Rule Amendments to Modernize Disclosures of Business, Legal Proceedings, and Risk Factors Under Regulation S-K The rule left significant discretion, and the SEC’s Investor Advisory Committee has since recommended requiring specific metrics such as employee turnover, workforce demographic data, and total compensation cost breakdowns.7Securities and Exchange Commission. Recommendation of the SEC Investor Advisory Committee Regarding Human Capital Management Disclosure
Supply Chain Workers and Advocacy Groups
Supply chain conditions draw intense scrutiny from advocacy organizations, consumers, and regulators. Existing state laws already require large retailers and manufacturers to report on supply chain verification, auditing, and training efforts related to slavery and human trafficking.8U.S. Department of Labor. Legal Compliance Companies that ignore these requirements face reputational damage that often outweighs the compliance cost.
Communities and Customers
Local communities function as gatekeepers. A company that invests in local economic development and keeps open lines of communication is more likely to secure zoning approvals and avoid protests or boycotts. Poor community relations create regulatory roadblocks that can stall projects for years.
Diversity, equity, and inclusion matter to employees and customers at once. Employees expect equitable access to opportunities and representation in leadership. Customers weigh a company’s public commitments when deciding where to spend. That creates a feedback loop in which workforce composition and corporate culture become visible competitive factors.
What Stakeholders Want on Governance Issues
Governance is the pillar investors call foundational. A company with strong environmental and social programs but weak oversight can unravel overnight. The pillar covers board structure, executive pay, internal controls, shareholder rights, and transparency.
Boards and Executive Pay
Investors demand independent boards because directors who are too close to management cannot provide objective oversight. Board composition, including whether the CEO and board chair roles are separated, is one of the first things institutional investors evaluate.
Executive compensation is where governance becomes personal. Under the Dodd-Frank Act, public companies must hold a “say-on-pay” vote at least once every three years, giving shareholders an advisory voice on executive pay packages, and companies must let shareholders vote on how often that vote occurs.9eCFR. 17 CFR 240.14a-21 – Shareholder Approval of Executive Compensation, Frequency of Votes for Approval of Executive Compensation and Shareholder Approval of Golden Parachute Compensation Most large companies now hold these votes annually. The vote is advisory rather than binding, but a poor result sends a loud signal and often triggers changes to compensation structure.
Internal Controls and Anti-Corruption
The Sarbanes-Oxley Act requires principal executive and financial officers of public companies to personally certify that each periodic report is accurate and that they have established, maintained, and evaluated internal controls.10Office of the Law Revision Counsel. 15 USC 7241 – Corporate Responsibility for Financial Reports An independent auditor must also attest to management’s assessment.11U.S. Securities and Exchange Commission. Study of the Sarbanes-Oxley Act of 2002 Section 404 Investors and regulators both need confidence that the numbers underlying ESG disclosures, and all other financial reporting, have not been manipulated.
The Foreign Corrupt Practices Act prohibits payments to foreign officials to obtain or retain business and requires covered companies to maintain accurate books and records along with adequate internal accounting controls.12Department of Justice. Foreign Corrupt Practices Act Unit FCPA violations have produced some of the largest corporate penalties on record, and investors treat weak anti-corruption programs as a direct threat to shareholder value.
Shareholder Rights and Whistleblowers
The SEC’s universal proxy rules, which took effect in 2022, require use of a universal proxy card in contested director elections, letting shareholders mix and match candidates from competing slates without mounting a full proxy fight.13U.S. Securities and Exchange Commission. Universal Proxy
Whistleblowers round out the governance ecosystem. Under Dodd-Frank, the SEC’s whistleblower program pays awards of 10 to 30 percent of monetary sanctions collected in enforcement actions exceeding $1 million and prohibits retaliation against employees who report securities violations.14U.S. Securities and Exchange Commission. Section 922 (Whistleblower Protection) of the Dodd-Frank Wall Street Reform and Consumer Protection Act A healthy internal reporting culture signals to governance-minded investors that problems surface before they metastasize.
ESG Ratings Agencies
Ratings agencies are a stakeholder group in their own right. Firms like MSCI and Sustainalytics (now part of Morningstar) score companies on ESG performance, and those scores influence where billions of dollars in investment capital flow. MSCI’s ESG ratings are embedded in index construction and ETF design, so an upgrade or downgrade can trigger automatic buying or selling. Sustainalytics’ ratings feed into Morningstar’s fund-level sustainability scores, shaping how financial advisors and retail investors evaluate mutual funds.
The methodologies differ. MSCI rewards companies that manage ESG risks well relative to industry peers, while Sustainalytics measures how much ESG risk a company has left unmanaged. A company can score well on one system and poorly on the other, which is why sustainability teams engage directly with both agencies, correct data inaccuracies, and make sure their disclosures are complete. Companies that ignore the ratings process tend to underperform on both scales because the agencies are working with incomplete information.
Competing Political and Legal Pressures
Since 2020, the ESG stakeholder picture has become significantly more contested. Companies face demands from groups with fundamentally opposing views on whether ESG factors belong in financial decision-making at all.
Between 2020 and 2025, dozens of states enacted legislation restricting or opposing ESG-based investing and corporate practices. Some laws prohibit state pension funds from considering non-financial factors in investment decisions. Others bar state agencies from contracting with companies that boycott industries like fossil fuels or firearms, or restrict the use of ESG scores in lending and insurance. Well over 100 bills passed across a majority of states during that period. At the federal level, lawmakers have pushed to codify a “pecuniary-only” standard for retirement plan fiduciaries under ERISA, and the Department of Labor has signaled it intends to replace the Biden-era rule that permitted ESG considerations in retirement plan investing.
Pressure runs the other way abroad. The European Union’s Corporate Sustainability Reporting Directive requires large companies, including U.S. multinationals with significant EU operations, to report under the European Sustainability Reporting Standards. Multinationals now build reporting infrastructure to satisfy European regulators while navigating domestic political hostility toward the same disclosures. Compliance teams, internal counsel, and investor relations departments have all become active stakeholders themselves, managing regulatory risk across jurisdictions with conflicting priorities.
How Companies Reconcile Competing Interests
Companies sort through these overlapping demands using a materiality assessment: a formal process of identifying and ranking sustainability topics based on their significance to both the business and its stakeholders. This is where stakeholder engagement becomes a concrete corporate function rather than an abstract principle.
The traditional approach focuses on financial materiality, meaning which ESG issues pose the greatest risk or opportunity to the bottom line. The ISSB standards, which incorporate and build on the former SASB industry-specific standards, take this approach. SASB standards identify the ESG issues most relevant to risk, return, and long-term value within specific industries, guiding disclosures aimed primarily at investors.15IFRS Foundation. Proposed Amendments to the SASB Standards
The competing approach is double materiality, which assesses both the financial risks ESG issues pose to the company and the impact the company has on people and the environment. The GRI Standards use this broader lens, requiring organizations to report on their most significant economic, environmental, and social impacts regardless of whether those impacts affect the company’s own financial performance.16Global Reporting Initiative. A Practical Guide to Sustainability Reporting Using GRI and SASB Standards The EU’s CSRD formally adopted double materiality, requiring companies to consider each perspective independently and disclose information material from either or both.
A materiality assessment works only when a company genuinely engages its stakeholders: systematic outreach to investors, employees, customers, community leaders, suppliers, and regulators to learn what each considers a priority. The output is typically a matrix mapping issues by importance to stakeholders against importance to the business. Its practical value is that it forces trade-offs. A mining company’s stakeholders will prioritize water use and community health over data privacy. A technology firm’s stakeholders will care more about workforce diversity and cybersecurity than wastewater discharge. Companies that skip this step and report on whatever feels safe tend to produce disclosures that satisfy no one and protect against nothing.