Geopolitical shifts and Omnibus

Global geopolitical changes are directly impacting environmental, social and governance (ESG).

In the United States, the current administration is rapidly reversing many ESG policies from previous administrations and leveraging its purchasing power to require the same from its suppliers.

In the European Union (EU), the Corporate Sustainability Reporting Directive (CSRD) - 2022/2464/EU, and the Corporate Sustainability Due Diligence Directive (CSDDD) - 2024/1769/EU (amending EU Directive 2019/1937/EU and Regulation 2023/2859/EU) are expected to be significantly diluted as part of the EU’s Omnibus Proposals, which aim to improve competition and simplify regulation.

While this is not the place for political commentary, it is important to note that supply chains are global. The UK’s economy is closely tied to both the United States and the EU, and UK corporates are closely monitoring these shifts to predict the ESG landscape in 2025.

After a wave of ESG-related laws in 2023 — including the UK Infrastructure Bank Act, Energy Act, Levelling-Up and Regeneration Act, Animals (Low Welfare Activities Abroad) Act, and Shark Fins Act — the legislative calendar in 2024 was lighter on ESG focus. As it was a general election year, with a change in government, parliamentary time was limited.

2024 UK legislative and policy developments

A key development in 2024 was the set timeline for the Financial Conduct Authority (FCA)’s Sustainability Disclosure Requirements (SDR) (PS23/16: Sustainability Disclosure Requirements and Investment Labels):

• 31 May 2024: Anti-greenwashing rule in effect for all FCA-authorised firms.
• 31 July 2024: Sustainability labels and disclosures allowed for asset managers.
• 2 December 2024: Naming and marketing rules for asset managers come into force.

Despite initial concerns about the FCA’s approval process, asset managers have embraced the sustainability investment label. St James’s Place (SJP) recently awarded Schroders a GBP 5.2 billion sustainable investment mandate, allocated to SJP’s Sustainable & Responsible Equity fund and Schroders’ Global Sustainable Value and Growth strategies. Both firms plan to adopt the FCA’s “Sustainability Focus” label under the SDR.

(Source: www.moneymarketing.co.uk (13 January 2025).)

Current ESG policy developments in the UK

Despite expectations for a pro-ESG policy agenda under the incoming Labour Government, other priorities such as defence and economic growth have pushed ESG down the agenda as we enter 2025.

Against this backdrop, several key ESG policy developments emerged in the UK during 2024, which are listed below.

ESG ratings regulation

In November 2024, the UK government responded to a consultation on regulating ESG rating providers, concluding with strong support for such regulation. The Financial Services and Markets Act 2000 (Regulated Activities) (Amendment) (No. 2) Order 2024 amends the Act, making ESG ratings a regulated activity by the FCA. This approach aligns with the EU’s Regulation on ESG Ratings Transparency (2023/0177(COD)).

UK Carbon Border Adjustment Mechanism

In October 2024, the UK government published its response to the consultation on a UK Carbon Border Adjustment Mechanism (CBAM), set to take effect from 1 January 2027. The CBAM will impose a carbon price on emissions-intensive industrial goods — initially focusing on sectors such as aluminium, cement, fertilisers, hydrogen, iron, and steel — while considering the inclusion of glass and ceramics.

Modern slavery

In October 2024, the House of Lords Select Committee published its report, “The Modern Slavery Act 2015: Becoming World Leading Again”, calling for mandatory supply chain due diligence and an import ban on businesses linked to forced labour. The UK Government’s response was positive but non-committal.

Transition Finance Markets Review

The Transition Finance Markets Review, published in October 2024, offered key recommendations to position the City of London as a global leader in transition finance. A crucial recommendation was the need for credible, comparable transition plans to support the transition finance market.

Mandatory transition plans

In October 2024, the Transition Plan Taskforce (TPT) published its final report. The UK Government is expected to introduce mandatory transition plans in Q2 2025, aligned with the Paris Agreement’s 1.5% goal. Given the EU’s potential reduction in mandatory transition plans through the Omnibus Proposals, the UK Government may need to adjust its commitment in light of global ESG rollbacks.

UK Green Taxonomy

Between late 2024 and early 2025, the UK Government consulted on adopting a green taxonomy, echoing Chancellor Rachel Reeves’ ambition to create a world-leading sustainable finance framework. While other jurisdictions have adopted taxonomies, the UK risks falling behind even if the EU’s Omnibus Proposals, including on the EU Taxonomy, are implemented.

Joint Committee on Human Rights: New inquiry

In January 2025, a new inquiry was launched to assess the effectiveness of the UK’s legal and voluntary frameworks in preventing forced labour in international supply chains. This builds on the Modern Slavery Act 2015 report.

Harmonised sustainability reporting

The UK Government is expected to consult in early 2025 on adopting UK corporate sustainability reporting standards, aiming to unify existing frameworks such as the Taskforce for Climate-related Financial Disclosures (TCFD) and the Global Reporting Initiative (GRI), based on International Sustainability Standards Board (ISSB) standards.

Summary

While these developments represent policy rather than regulation, they typically inform strategic decisions by large UK corporates ahead of becoming law — especially as they reflect manifesto commitments from the incoming government. Given geopolitical shifts and the EU’s Omnibus Proposals, we may see the UK Government scale back its ESG agenda during 2025.

Prioritisation of ESG in UK corporates

There is no uniform approach for how UK corporates prioritise the environmental (E), social (S), and governance (G) aspects of ESG.

Governance

Strong, effective governance should be a given across all corporates. However, we observe an additional regulatory focus on governance in two areas of corporate UK:

• In regulated sectors that receive or are partially supported by public (taxpayer) funds, the relevant regulator tends to set governance standards and grade the corporate entity accordingly (e.g., the Regulator of Social Housing).
• For companies listed on the London Stock Exchange, the UK Corporate Governance Code applies. This is part of UK Company Law and is overseen by the Financial Reporting Council.

The UK Corporate Governance Code was amended in 2024 (effective from January 2025). While a number of measures can be seen as enhancing corporate governance for in-scope entities, the update was notably silent on whether sustainability-related reporting should be linked to good governance. The Financial Reporting Council explained this absence as follows:

“The FCA’s Listing Rules and the Companies Act already require in-scope companies to provide climate-related financial disclosures. Additionally, HM Treasury has launched the Transition Plan Taskforce Disclosure Framework, and work is ongoing to introduce UK Sustainability Disclosure Standards for companies on sustainability-related risks and opportunities, based on the International Financial Reporting Standards (IFRS) S1 and S2. The Code already asks companies to consider long-term sustainability, therefore proceeding with our original proposal risked duplication.”

Environmental and social

With regard to the environmental (E) or social (S) aspects of ESG, how much a corporate prioritises these will depend largely on its business. For instance, how exposed is the corporate’s product or value chain to climate change or other environmental changes? Does the corporate own assets that risk becoming “stranded” without investment in decarbonisation? Is the business itself a heavy polluter and implementing a broad transition plan?

Alternatively, for corporates operating in socially driven sectors (e.g., education, poverty alleviation, housing), a focus on social issues will naturally be intrinsic to their strategy.

Boards and C-suites

For any corporate, the priority given to ESG by the board (or any executive level) depends on factors such as:

• products or services;
• geographical footprint;
• strategic growth objectives; and
• immediate business priorities (e.g., cash flow, profitability, or survival as a going concern).

While larger businesses may have a Chief Sustainability Officer (CSO), their influence at the board level may be less than that of the Chief Executive Officer (CEO), Chief Operating Officer (COO), or Chief Financial Officer (CFO). For many organisations, ESG remains more of a risk and compliance issue than a strategic one.

In June 2023, the ISSB published the first two international sustainability disclosure standards: IFRS S1 and S2. In our view, viewing and reporting on sustainability through a financial lens is welcomed — it should help boards consider sustainability in terms of both (financial) risks and (financial) opportunities. The global nature of IFRS also aids harmonisation, which individual legislatures will likely never fully achieve, allowing investors to assess relativity more easily.

IFRS S1 and S2 require the CFO to be a key C-suite stakeholder on sustainability measures. The challenge, however, is that research suggests many UK CFOs:

• lack clarity on ESG reporting issues; and
• are unprepared for climate-related regulatory requirements.

(Source: www.cardano.co.uk/industry-insights/our-new-2023-cfo-report-uk-corporates-risk-falling-behind-on-esg-and-pension-progress (published 19 December 2024).)

In 2025, the UK Government plans to consult on a more standardised approach to sustainability disclosures, aligning with IFRS S1 and S2, and the ISSB. ESG laws are often viewed as corporate sustainability disclosure regulations, and from this perspective, the UK’s approach can appear fragmented. However, many UK laws fall under the broader category of ESG laws, aiming to change behaviours that cause environmental, social or economic harm. These laws typically outlaw harmful behaviours, make them illegal, or provide civil recourse to governmental bodies tasked with monitoring compliance.

At present, the UK’s approach to corporate sustainability disclosures consists of a mixture of limited hard laws and voluntary alignment. On the one hand, there are a few hard laws covering sustainability disclosures, applicable to specific sectors and certain companies. On the other hand, many large corporations voluntarily align their reporting with established frameworks, driven by stakeholder expectations. This includes an increasing focus on the reliability and accuracy of disclosures, as seen in the rise of science-based targets.

In addition to the FCA’s sustainability disclosure regime, a non-exhaustive list of regulations impacting parts of the UK corporate landscape includes:

• Companies (Climate-Related Financial Disclosure) Regulations 2022.
• The UK Stewardship Code.
• Listing Rules.
• The UK Corporate Governance Code.
• Limited Liability Partnerships (Energy and Carbon Reporting) Regulations.
• The S172 Companies Act, which covers:
  • the TCFD; and
  • Streamlined Energy and Carbon Reporting (Scope 1 and 2 Emissions).

On the voluntary side, UK corporates follow various frameworks, depending on stakeholder expectations and competitive pressures. These include:

• IFRS S1 and S2, see above.
• SASB Standards: provide industry-specific guidance on reporting material ESG issues.
• CDSB Framework: aligns with the TCFD, focusing on the financial impacts of climate change.
• GRI Standards: a comprehensive framework for sustainability reporting on a wide range of ESG factors.
• Carbon Disclosure Project (CDP): encourages companies to disclose their environmental impacts, particularly on climate change, water security, and deforestation.
• TCFD: offers recommendations on disclosing the financial risks of climate change, with mandatory adoption for some businesses.
• Taskforce on Nature-related Financial Disclosures (TNFD): focuses on disclosing nature-related financial risks, complementing the TCFD’s climate-related framework.
• EcoVadis: a platform that evaluates sustainability performance across supply chains, providing transparency on environmental, social and ethical practices.
• Science-Based Targets Initiative (SBTi): helps companies set emissions reduction targets in line with the latest climate science and the Paris Agreement.

While these regulations and voluntary frameworks provide valuable insights into corporate sustainability, the UK’s fragmented approach creates challenges for businesses seeking clarity, consistency, and comparability in ESG reporting. Harmonisation is crucial to improving transparency and aligning with global standards. The increasing pressure from investors, consumers and employees means that the UK Government must prioritise aligning corporate sustainability laws with international frameworks by 2025 to ensure UK businesses remain competitive, transparent, and responsive to global expectations.

The UK has a robust framework of hard laws that, while often seen as conventional legislation, are driven by underlying social, economic or environmental challenges central to ESG considerations. These laws not only address issues such as sustainability, equality and governance, but also directly prohibit harmful activities that negatively impact society, the environment or the economy. Broad cross-party support and strong public backing are hallmarks of this legislative approach, ensuring that businesses and individuals operate with greater accountability and responsibility.

Below are some key hard laws that shape the UK’s ESG landscape (although the list is not exhaustive):

• The Modern Slavery Act 2015. Requires businesses to disclose efforts to prevent modern slavery in their supply chains, addressing social responsibility.
• The Equalities Act 2010. Prohibits discrimination based on protected characteristics, promoting equality and social governance.
• The Bribery Act 2010. Establishes offences related to bribery and corruption, reinforcing ethical governance and anti-corruption measures.
• The Climate Change Act 2008. Sets a legally binding target for the UK to reduce greenhouse gas emissions to net zero by 2050, promoting environmental sustainability.
• The Human Rights Act 1998. Protects fundamental human rights and freedoms, ensuring businesses comply with human rights standards, impacting social governance.
• The Companies Act 2006 (in relation to directors’ duties). Imposes duties on directors to act in the best interests of the company, including considerations of environmental and social factors in decision-making.
• The Corporate Manslaughter and Corporate Homicide Act 2007. Holds companies accountable for deaths caused by gross negligence, strengthening corporate responsibility and governance.
• The Environment Act 2021. Sets legally binding environmental targets for air quality, water management, waste, biodiversity, and pollution control, addressing environmental harm. Examples include:
  • Air Quality Standards: The Act requires the government to set and enforce standards for air quality, with targets to reduce harmful pollutants, such as nitrogen dioxide and particulate
  • Biodiversity Net Gain: The Act mandates new developments to leave the environment in a better state for biodiversity, enhancing natural ecosystems.
  • Various (other) environmental laws and regulations: Enforced by agencies, covering areas such as pollution, water usage, waste management, environmental harm, biodiversity, and air quality, supporting sustainability — such as the Water Resources Act 1991, which regulates the abstraction and use of water resources to protect the environment and ensure sustainable usage.
• Anti-avoidance laws (including laws on tax evasion, money laundering, and proceeds of crime). Encompass laws that address financial misconduct and ensure businesses contribute fairly to society and the economy. Examples include:
  • The Proceeds of Crime Act 2002: Allows authorities to seize assets derived from criminal conduct and addresses money laundering.
  • The Criminal Finances Act 2017: Introduces new offences for failing to prevent the facilitation of tax evasion by employees or other representatives.
  • The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017: Strengthen measures to prevent money laundering and terrorist financing in businesses.
• Consumer Protection Laws. Protect consumers, particularly regarding product safety and stewardship, promoting responsible business practices. Examples include:
  • The Consumer Protection Act 1987: Ensures products are safe and protects consumers from defective products.
  • The Consumer Rights Act 2015: Provides clear rights for consumers when purchasing goods and services, including the right to refunds, repairs, and replacements for faulty goods.
  • The Producer Responsibility Obligations (Packaging and Waste) Regulations 2024: Place obligations on businesses to reduce packaging waste, encouraging recycling and responsible waste management.
• Whistleblower Protection Laws. Safeguard individuals who report unethical or illegal activities, reinforcing good governance and corporate accountability.

ESG-related disputes in the UK are often driven by non-governmental organisations (NGOs) against the UK Government and large corporates. In some instances, it is the corporate suing the NGO for losses due to protesting, as was the case in the Shell and Greenpeace litigation, which settled in December 2024.

In contrast, Client Earth has been more active as a claimant in recent years, often finding itself opposing Shell, where Shell (and its board of directors) were the defendants. Although not successful in its litigation against Shell, Client Earth has successfully litigated against the UK Government and the EU Parliament in recent years on ESG matters. It has also publicised settlements reached with Danone (related to single-use plastics) and is currently a key claimant in relation to greenwashing allegations against TotalEnergies.

There has been an increase in investigations and enforcement activities in the UK by the Competition and Markets Authority (CMA) and the Advertising Standards Authority (ASA), each concerning ESG-related claims or assertions. Some cases have settled, others are being challenged by the corporates involved, and some investigations have been concluded with no action taken:

• Boohoo, ASOS, ASDA, and Unilever have been under the CMA’s scrutiny in 2024 from an ESG perspective; and
• Lloyds Bank, Mazda, Etihad, Lufthansa, Air France-KLM and Virgin Atlantic are among the corporates that have been in the ASA’s spotlight during 2024 regarding green claims.

We are yet to see how the FCA will penalise regulated firms for any breaches of the Sustainability Disclosure Regime.

The FCA has demonstrated a willingness to issue fines over the past 12 months for failings that indicate weak governance, particularly where these failings have led (in the FCA’s view) to money laundering, bribery, or corruption. Starling Bank, Citigroup, Macquarie Bank, and PwC are just some of the businesses fined by the FCA over the past year, where governance failings were seen as contributing to operational failures and other third-party misfeasance.

Soft non-binding laws

Please see the responses to Questions 3 and 7 for detail in relation to ESG soft laws.

Stakeholders

Please see the responses to Questions 11 and 13 for examples of how stakeholders drive ESG trends in the UK.

Yes, however, we view ESG laws as including those listed under both Question 3 and Question 4.

Reporting

Research would suggest that the most frequently used soft laws relating to corporate disclosure in the UK are as follows:

• In 2023, 1,797 UK-based organisations disclosed their environmental data through the CDP, marking a 24% increase from 2022. This growth was largely driven by smaller public and private companies. Notably, 94% of FTSE 100 companies reported through the CDP on climate-related matters in 2023.
• In 2021, the UK became the first G20 country to mandate TCFD-aligned disclosures for large companies and financial institutions by 2025. Initially, from January 2021, this requirement applied to premium-listed companies on the London Stock Exchange, with plans to extend it to most other companies by 2023.
• As of 2023, the UK ranked second globally in the number of companies with validated science-based targets. Specifically, 693 UK companies set these targets, following Japan with 768 companies. Focusing on the UK’s FTSE 100 companies, by the end of 2022, 45 had established science-based targets, and an additional 24 had committed to setting them. This indicates that 69% of FTSE 100 companies had either set or pledged to set science-based targets by that time.

The requirement to make disclosures in relation to IFRS S1 and S2 is likely to become prevalent (in our view) from 2026 onwards.

Private equity

A growing number of limited partners now integrate ESG factors into their investment decisions and actively seek sustainability-linked opportunities. The global ESG investing market, projected to reach USD 11,140.2 million in 2024, underscores this shift, according to research from Grand View. UK private equity firms are also aligning with the BVCA’s “Creating Sustainable Growth: Private Capital at Work 2025” initiative, which prioritises long-term value creation through ESG. Between 2012 and 2022, approximately GBP 111 billion was raised for funds targeting ESG or impact investments. In 2021, ESG-related investments accounted for 19% of total UK private market fundraising.

Looking ahead to 2025 and beyond, the focus will be on investing in renewable energy and healthcare, as well as improving transparency and reporting standards to meet evolving regulatory demands and investor expectations.

(Sources: www.grandviewresearch.com/horizon/outlook/esg-investing-market-size and www.deloitte.com/uk/en/services/deloitte-private/research/esg-in-private-capital-survey.)

Hedge funds/asset managers

While exact data is not publicly available, it is evident that ESG principles are gaining traction. Between April and July 2020, ESG funds saw a net inflow of USD 71 billion. Additionally, a significant portion of institutional investors is reducing or planning to discontinue investments in non-ESG products. UK asset managers are preparing for the FCA’s SDR, which will enforce greater transparency and accountability in ESG reporting.

From 2025 onwards, the focus will shift to generic ESG-focused funds, carbon pricing derivatives, and impact investing through customised products and sustainability-linked derivatives (SLDs). A key priority for 2025 will also be aligning with the UK’s SDR and enhancing ESG reporting to meet regulatory and investor expectations.

(Source: www.securities.cib.bnpparibas/app/uploads/sites/3/2021/04/ss-files-2020-hedgefunds-esg-report.pdf.)

Banks

The UK banking sector is prioritising ESG integration. The majority of UK banks have implemented formal ESG strategies and are aligning with the TPT requirements to support the UK's net zero goals.

From 2025 onwards, key ESG focus areas for UK banks will include climate risk management, green financing, diversity and inclusion, robust governance frameworks, and social impact initiatives, such as affordable housing and financial inclusion. A specific focus for 2025 will also be improving ESG disclosure and aligning with TPT requirements to meet regulatory and investor expectations, as well as addressing the issue of accessible finance.

Small and medium-sized enterprises (SMEs)

The UK SME sector is increasingly adopting ESG practices and attracting notable investments, although data is limited due to the private nature of most companies. However, a significant proportion of SMEs recognise the importance of ESG for long-term growth. SMEs are also supported by government initiatives such as the UK’s Net Zero Strategy, which encourages businesses to reduce their environmental impact, along with incentives such as the British Business Bank’s Start-Up Loans Programme, which facilitates loans to new enterprises.

From 2025 onwards, key ESG focus areas for UK SMEs will include reducing carbon footprints, improving energy efficiency, fostering diversity and inclusion, enhancing governance practices, and supporting local communities through social initiatives. A specific focus for 2025 will also be accessing green financing and aligning with the UK’s Net Zero Strategy to meet regulatory and customer expectations.

Fashion

The UK fashion sector is increasingly adopting ESG principles, with substantial investment inflows from Equirus InnovateX Fund, Entrepreneur First, and Kindred Ventures. A significant majority of UK fashion businesses and retailers are integrating sustainability into their strategies, including the use of green materials and enhancing circular economy practices. The sector is also aligning with the Textiles 2030 initiative, which aims to reduce the environmental impact of textiles through circular economy practices.

From 2025 onwards, key ESG focus areas for UK fashion will include reducing carbon emissions, adopting circular economy practices, ensuring ethical supply chains, promoting diversity, and enhancing transparency in sustainability reporting. A specific focus for 2025 will be aligning with the Textiles 2030 initiative and meeting stricter regulatory requirements on environmental impact and labour practices.

Travel industry

The UK travel sector is attracting significant investments aimed at promoting sustainability and responsible practices. Most UK travel companies and professionals are prioritising sustainability and welcoming capital to support their transition. The sector is also aligning with the UK’s Jet Zero Strategy and the Tourism Sector Deal, both of which aim to reduce carbon emissions and promote sustainable tourism practices.

From 2025 onwards, key ESG focus areas for the UK travel sector will include substantial private equity investments in hospitality, sustainable tourism initiatives, and regeneration plans, alongside green travel and investment in cybersecurity, addressing risks to the social aspect of ESG. A specific focus for 2025 will be aligning with the Jet Zero Strategy and enhancing transparency in sustainability reporting to meet regulatory and consumer expectations.

Automobile industry

The UK automobile sector is increasingly prioritising ESG practices, with the Society of Motor Manufacturers and Traders (SMMT) reporting a growing commitment to aligning with ESG principles. This includes reducing carbon footprints, implementing sustainable manufacturing, and ensuring ethical supply practices. The sector is also aligning with the UK’s Net Zero Strategy and the 2030 ban on new petrol and diesel car sales, which is driving innovation in electric vehicles (EVs) and sustainable manufacturing.

From 2025 onwards, key ESG focus areas for the UK automobile sector will include accelerating the transition to EVs, reducing supply chain emissions, improving energy efficiency in manufacturing using sustainable materials, promoting circular economy practices, and enhancing workforce diversity and inclusion. However, global uncertainty surrounding EV adoption remains, with expectations that consumer demand fluctuations could delay the timeline for widespread adoption in the UK and globally.

Real estate industry

Research indicates that the UK real estate sector is increasingly integrating ESG practices. For example, the UK issued USD 32.7 billion in green bonds in 2023, accounting for 5.6% of global issuance volume, marking a 77.7% increase in UK bond issuance. Additionally, numerous UK property firms now have formal ESG strategies in place, and ESG factors are increasingly influencing the valuation process of real estate and insurance premiums.

(Source: www.bdo.co.uk/en-gb/insights/industries/real-estate/green-bonds-driving-sustainability-in-real-estate.)

While parts of the sector, particularly new construction and listed real estate businesses, are adopting ESG practices, a significant portion of the UK’s real estate assets will require investment for retrofitting. The sector is generally aiming to align with the UK’s Net Zero Strategy and Minimum Energy Efficiency Standards (MEES) to reduce carbon emissions and improve building sustainability. However, retrofitting remains a challenge, as property assets are often viewed as investments, and such expenditure can impact investor returns. Organisations such as the National Wealth Fund are increasingly offering retrofit funding products, alongside mainstream funders, to support the retrofitting of residential properties. Nevertheless, the challenge remains considerable, with the risk of “stranded assets” in many asset classes, particularly where retrofit costs are high.

From 2025 onwards, key ESG focus areas for the UK real estate sector will include energy efficiency, carbon reduction, sustainable material use, biodiversity net gain, social impact, and improved governance. The retrofit challenge and the risk of “stranded assets” will continue to be pressing concerns, particularly for existing stock.

E-commerce

The UK e-commerce sector is increasingly adopting ESG practices, with initiatives such as the British Retail Consortium’s (BRC) Climate Action Roadmap, which supports UK retailers in achieving net-zero emissions by 2040. The sector is also aligning with the UK’s Plastics Pact and the Waste and Resources Action Programme (WRAP), both aimed at reducing packaging waste and promoting circular economy practices, while also seeking ways to cut costs.

From 2025 onwards, key ESG focus areas for the UK e-commerce sector will include reducing carbon emissions from logistics and packaging, promoting sustainable supply chains, enhancing energy efficiency in warehouses, improving labour practices, and increasing transparency in ESG reporting. A specific focus for 2025 will be aligning with the UK’s Plastics Pact and meeting stricter regulatory requirements on waste reduction and sustainability.

Building on the discussion of governance in Question 2, various consultants have researched ESG across UK corporates. While data sources are limited, an Investec survey from late 2023 found:

• 24% of respondents reported that ESG responsibility was shared across the entire C-suite;
• 18% of mid-market corporates indicated that their CSO was responsible for ESG; and
• 26% of respondents placed ultimate ESG responsibility with the CEO.

(Source: www.investec.ft.com/who-is-really-in-charge-of-esg (19 October 2023).)

Investec also referenced research from PwC and EY, which showed that 37% of UK-listed corporates have a CSO, compared to 81% of Fortune 1000 companies. However, only 7% of CFOs took responsibility for ESG, according to Investec’s findings.

The role of non-executive directors in ESG governance is seen as vital, with industry groups, local networks, and peer organisations also playing a role in shaping ESG policies.

Research by WTW in 2022 revealed that 85% of UK companies linked short-term executive compensation to at least one ESG measure.

While drawing clear trends from this data is challenging, one key observation is the limited role of CFOs in ESG, which mirrors Cardano’s earlier research (www.cardano.co.uk/industry-insights/our-new-2023-cfo-report-uk-corporates-risk-falling-behind-on-esg-and-pension-progress). We believe this responsibility will increase in the coming years.

ESG rating agencies

As discussed earlier regarding ESG rating agencies, while it is difficult to draw on empirical data on the use of ESG ratings by investment managers or debt providers, the anecdotal evidence — and indeed a key reason for the desire to regulate ESG ratings — is that these ratings are widely used and relied upon as part of the decision-making process for funding or investment.

The concern, therefore, is that where reliance is placed on an ESG rating that contains bias in its scoring, or that lacks transparency and/or consistency, the outcome of such reliance could be sub-optimal for the investor, funder, and the corporate entity. This could manifest in a rating that is too high, leading to incorrect risk assessments, or too low, potentially causing the corporate to miss out on capital as a result. We expect to see these ratings regulated in the UK during 2025.

Private companies

UK private markets are increasingly adopting ESG principles, although implementation varies by sector and company size. Regulatory pressure and investor expectations are key drivers, but progress remains inconsistent.

• A 2024 study by the UK Business Climate Hub found 65% of UK businesses have net zero plans for 2050, although many still lack clear sustainability commitments.
• Morningstar’s 2025 research revealed sustainable funds saw the highest inflows in Q4 2024, highlighting growing investor interest in ESG-focused funds.
• The 2023 Parker Review found nearly 20% of mid-sized UK firms have made no progress on ethnic diversity in their boardrooms, pointing to gaps in the social and governance aspects of ESG.
• Investec’s January 2024 study of 500 UK mid-market firms found 65% of private equity-backed companies believe ESG increases their appeal to acquirers, with 39% planning to boost ESG investments. ESG is seen as a value driver, enhancing returns, improving portfolio performance, and boosting valuations by over 10%.

While private companies face less regulatory pressure, investor expectations are pushing many, especially private equity-backed firms, to adopt sustainability strategies beyond mere compliance.

Public companies

Public markets have traditionally led ESG adoption, driven by regulatory frameworks and increasing investor scrutiny, as seen with the launch of FTSE4Good. Listed companies must meet disclosure requirements, but many go beyond this to differentiate themselves and attract capital.

Regulatory requirements

• The London Stock Exchange mandates TCFD-aligned climate risk disclosures for premium-listed firms.
• The FCA enforces the SDR to standardise ESG reporting.
• The London Stock Exchange’s Green Economy Mark identifies companies generating at least 50% of their revenue from sustainable activities.

Investor and shareholder pressure

• Institutional investors, particularly pension funds, are influencing corporate ESG strategies. For example, the People’s Pension moved GBP 32 billion in assets from State Street to Amundi to align with net zero goals (ESG Today, March 2025).
• The Local Government Pension Schemes, managing GBP 300 billion in assets, have committed to climate-focused investment strategies and fossil fuel divestment.
• Organisations such as ShareAction advocate for responsible investment by engaging with companies.

The level of ESG integration beyond compliance often depends on investor engagement, with shareholder pressure from pension funds and asset managers driving stronger commitments.

Government-owned organisations

Public sector organisations in the UK can play a dual role in ESG — both as regulators setting policies and as market participants implementing them (and, as such, role modelling an approach to the corporate community).

Government ESG policies

• The Greening Government Commitments (GGCs) set targets for reducing carbon emissions, improving resource efficiency, and enhancing sustainable procurement practices.
• The Public Sector Decarbonisation Scheme supports net-zero transitions for government entities.

State-owned ESG initiatives

• NHS England aims to become the world’s first net-zero national health system by 2045.
• Channel 4 has set carbon neutrality targets and improved ESG reporting practices.
• The 2023 Green Finance Strategy aligns public sector investments with sustainability principles, reinforcing ESG expectations across markets.

By embedding ESG into its operations, the government not only enforces compliance but also influences private markets by setting sustainability benchmarks.

ESG agenda: National versus international

The UK’s ESG agenda is shaped by domestic policies, investor demands, and global standards. While the UK has introduced its own ESG regulations, international developments also play a significant role:

• The FCA’s SDR framework aligns UK companies with global ESG reporting standards, enhancing transparency and accountability.
• UK firms comply with frameworks such as the EU Taxonomy, the ISSB, and the UN Sustainable Development Goals (SDGs).
• Global events, such as the Ukraine conflict, have sparked debates over ESG definitions, particularly regarding the inclusion of defence companies.

There is a significant body of academic research exploring the challenges that corporates face in relation to compliance with ESG obligations, many of which we see borne out in practice in the UK corporate landscape.

These challenges include:

• Legislative uncertainty. Ongoing regulatory shifts, such as the EU’s Omnibus Proposals potentially diluting the CSRD, and the UK’s continued deliberations over a sustainability disclosure regime, create a landscape of uncertainty for businesses. The lack of clarity and frequent changes in requirements make it difficult for companies to plan and implement long-term ESG strategies effectively.
• Lack of harmonisation The absence of globally consistent ESG standards remains a major obstacle. While frameworks such as IFRS S1 and S2 are promising, their ability to unify reporting across jurisdictions is still uncertain. Until a universal standard is agreed upon, businesses must navigate a patchwork of national and regional regulations, leading to inefficiencies and confusion.
• Data silos. ESG reporting often requires data from a range of departments and sources within a company, yet these data sets are frequently siloed, making comprehensive reporting cumbersome. Breaking down these silos is crucial for providing a complete and accurate picture of a company’s sustainability performance.
• Data quality and veracity. The reliability of data provided by third parties, such as suppliers, is a critical concern. Ensuring the legal veracity and accuracy of this data — especially in the context of climate risk and social impacts — is a challenge. Inaccurate or unreliable data can undermine the credibility of ESG reports and expose companies to regulatory scrutiny or reputational damage.
• The double materiality test. The complexity of the double materiality principle, which requires companies to assess both the impact of their activities on the environment and society, as well as the environmental and societal risks they face, adds a layer of difficulty. This nuanced approach can be challenging to implement, especially for companies without the necessary expertise or resources.
• Cost, time and resourcing. ESG compliance demands significant investment in time, resources and expertise. For many businesses, particularly smaller ones, the costs of hiring specialists and dedicating internal resources to ESG efforts can be prohibitive. Moreover, the time and effort required to meet evolving regulations can detract from core business objectives, further complicating compliance efforts.
• Lack of ESG expertise and talent. There is a significant shortage of skilled professionals with expertise in ESG compliance, which makes it difficult for companies to implement effective strategies. The growing demand for ESG specialists outpaces supply, and companies often struggle to recruit or retain talent with the necessary skills to navigate the complexities of ESG reporting and implementation.
• Evolving stakeholder expectations. As ESG expectations continue to evolve, it becomes increasingly difficult for companies to anticipate the needs and demands of stakeholders, including investors, regulators, customers, and employees. Balancing these competing interests can create strategic tensions, especially as each group may prioritise different aspects of ESG (e.g., environmental sustainability vs. social justice).
• Limited access to reliable ESG ratings and metrics. The lack of standardised and comparable ESG ratings further complicates decision-making processes for investors and corporates. ESG ratings can vary significantly across agencies, and the metrics used may not always align with the company’s actual ESG impact or strategy. This inconsistency can lead to confusion and mistrust among stakeholders, including investors.
• Supply chain complexity and transparency. For companies with global supply chains, ensuring transparency and accountability across all tiers of suppliers is a significant challenge. The lack of standardised ESG data from suppliers, combined with limited visibility of the practices of lower-tier suppliers, makes it difficult to assess and manage ESG risks effectively across the entire value chain.
• Regulatory and jurisdictional overlap. Companies operating in multiple jurisdictions often face overlapping and sometimes contradictory ESG regulations. Different countries may have their own reporting standards, governance frameworks, and disclosure requirements, making it difficult for multinational corporations to align their ESG strategies and meet diverse regulatory demands.
• Greenwashing risk. As the demand for ESG-compliant investments grows, there is an increased risk of companies overstating their environmental or social impact — knowingly or unknowingly. This “greenwashing” poses not only a reputational risk but also potential legal consequences, as regulators become more focused on ensuring accurate and transparent ESG disclosures.
• Integration of ESG into business strategy. Many companies still struggle to fully integrate ESG considerations into their core business strategy. ESG is often treated as a separate function, rather than being embedded in the organisation’s overall strategic decision-making. Without this integration, it is difficult to achieve meaningful ESG outcomes, and companies may miss opportunities for innovation, competitive advantage, and long-term sustainability.

In addition to hard laws, soft laws, and key stakeholders, the following UK-based NGOs, universities, and think tanks are worth following. While some NGOs employ controversial activist methods, their key strength lies in influencing various community segments and stakeholder groups on ESG-related issues.

Examples of NGOs include:

• Share Action. Advocates for responsible investment practices, promoting corporate transparency and accountability on ESG issues, especially workers’ rights, climate change, and public health. It urges institutional investors to adopt sustainable and ethical strategies.
• Operates a global disclosure platform for companies, cities and regions to manage their environmental impact, focusing on carbon emissions, water security, and deforestation, while promoting transparency and accountability.
• Forum for the Future. A global sustainability organisation working with businesses, governments, and civil society to drive systemic change. Its key areas include climate action, sustainable value chains, and regenerative agriculture.
• Extinction Rebellion. A global movement using non-violent civil disobedience to demand urgent climate action and biodiversity preservation, targeting governments and corporations for net-zero commitments and ecological sustainability.
• Just Stop Oil. Campaigns against new oil and gas projects through direct action, focusing on ending fossil fuel dependency and promoting renewable energy. It targets the UK government and fossil fuel companies to halt new licences.
• Project Green. Promotes green energy solutions, climate advocacy, and environmental awareness, encouraging businesses, policymakers, and consumers to adopt sustainable practices and reduce carbon emissions.
• Client Earth. A non-profit environmental law organisation using legal action to enforce regulations and hold governments and corporations accountable, pushing for stronger climate policies and better compliance with environmental laws.

Examples of key ESG Departments of Universities include:

• University of Cambridge — Cambridge Institute for Sustainability Leadership (CISL). CISL partners with businesses and policymakers to develop sustainable economy solutions, with research spanning climate change, sustainable finance, and the circular economy.
• London School of Economics — Grantham Research Institute on Climate Change and the Environment. This institute focuses on climate policy, sustainable finance, and the economics of climate change, providing influential research and policy recommendations for governments and businesses.
• University of Oxford — Smith School of Enterprise and the Environment. A leading centre for sustainability research, focusing on sustainable finance, climate risk, and the integration of ESG factors into investment decisions, alongside the transition to a net-zero economy.
• University of Edinburgh — Business School. The Business School’s Centre for Business and Climate Change explores the intersection of business and climate change, focusing on ESG reporting, carbon markets, and sustainable business models.

Examples of key think tanks include:

• Chatham House. A major influence on global governance, climate change, and sustainable development, with a focus on the international impact of ESG policies on businesses and governments.
• Green Alliance. Known for promoting ambitious environmental policies, this alliance advocates for the circular economy, net-zero transitions, and sustainable resource use, bridging the gap between policy and practice.
• Institute for Public Policy Research (IPPR). This think tank focuses on social and environmental justice, including just transitions to a green economy, ESG policy frameworks, and addressing inequality in sustainability.
• Policy Exchange. Focuses on energy and environmental policy, integrating ESG principles into public and private sectors and developing climate change mitigation strategies with a pragmatic approach.

The UK Government is expected to consult further on a UK Taxonomy, but one does not yet exist.

ESG is at a critical juncture, shaped by the factors discussed above. One undeniable truth is that the future of ESG is highly uncertain, and this uncertainty directly affects business confidence. The UK, like other nations, is not immune to this global shift.

As we assess the future, we consider both potential scenarios: one where ESG focus retreats — at both the governmental and corporate levels — and another where ESG regulation and commitment are significantly strengthened. These perspectives help to understand how the landscape might evolve in the short, medium and long term.

Summary

Even if ESG is rolled back at the regulatory level, many market forces (institutional investors, consumer behaviour, and international standards) will continue driving ESG integration in the UK.

However, UK companies and investors could face greater uncertainty and volatility if ESG remains a political battleground rather than a stable framework for long-term risk management.