Mar 2023

United Kingdom

Law Over Borders Comparative Guide:

Environmental, Social & Governance


1 . How is “ESG” in your jurisdiction defined in a corporate/commercial context, and what are its major elements?

Businesses operating in (or with links to) the UK have been regulated in areas falling under the ESG banner – such as anti-bribery and corruption, health and safety, environmental concerns and employment matters – for many years. Such obligations are increasingly accompanied by specific ESG- and sustainability-related requirements. Despite these developments, the UK has no coordinated legislative definition of ESG; neither from the Companies Act 2006 (Companies Act) or from the Financial Conduct Authority (FCA). In the absence of a formal definition, ESG is widely accepted to encompass a contiguous set of risks and opportunities across a mix of “hard” and “soft” law concepts.

While the “E” of ESG has received the greatest attention historically, particularly in the run-up to (and aftermath of) COP26, the Covid-19 pandemic shifted the dialogue, focusing minds and strategies on the “S”. This includes a greater focus on worker welfare, health-and-safety factors and companies’ wider relations with their stakeholders.  

To date, ESG-related regulation in the UK has centred largely on disclosure and reporting requirements aimed at driving greater transparency. The UK has a particularly strong focus on climate reporting. For example, certain large companies are now required to make disclosures in line with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations (see Question 2 below). That said, the UK also has a well-established regulatory landscape for other ESG-related areas. Larger companies must report their gender pay gap, and traded companies must report specific pay ratios (e.g. the difference between CEO pay and employees at the 50th percentile). There has been recent pressure to also introduce ethnicity pay gap reporting, but the government has so far rejected this proposal.


2 . What, if any, are the major laws/regulations in your jurisdiction specifically related to ESG?

While the UK has no specific ESG law, multiple pieces of legislation have a significant impact on ESG. 

The Companies Act includes a number of provisions designed to increase a company’s transparency in respect of ESG-related matters: 

  • companies must prepare an annual strategic report that describes the principal risks and uncertainties it faces and include information about environmental and employee matters; 
  • certain large companies must include a non-financial and sustainability information (NFSI) statement in their strategic report that contains disclosures and policies related to:  
    • the company’s impact on the environment; 
    • employee, social and human rights issues; 
    • anti-corruption and anti-bribery matters; and 
    • climate-related financial disclosures (CRFD), (which are broadly in line with the TCFD recommendations, i.e. applying TCFD to in-scope large companies); and
  • companies must include a “section 172” statement in the strategic report explaining how the directors have had regard to the issues listed in section 172 of the Companies Act, which expressly bring in ESG-related considerations (such as the community and environment and the company’s employees, suppliers and customers). 

Various accounting regulations require disclosure of greenhouse gas (GHG) emissions, metrics and targets. Depending on the size and type of company, certain corporates must disclose their UK energy use and associated GHG emissions. 

The Listing Rules require listed companies to: 

  • report on a “comply-or-explain” basis in line with the TCFD recommendations – the Department for Business, Energy and Industrial Strategy (BEIS) clarified that disclosures consistent with the TCFD recommendations for the Listing Rules would also meet the CRFD requirements of the NFSI statement;
  • disclose (for premium-listed companies only) on a “comply-or-explain” basis whether they have applied the UK Corporate Governance Code (UKCGC) (see Question 6 below); and
  • include a diversity statement in their annual reports setting out whether certain targets have been met (e.g. that 40% of the board are women, and one member is from a minority ethnic group).

The Environment Act 2021 radically transformed environmental governance in the UK. It required the government to set binding targets across the environmental sector (e.g. regarding biodiversity) and contained significant new powers to make regulations (e.g. to recall vehicles that fail to comply with emissions standards), both of which will be highly relevant to business in the coming years. 

Various pieces of EU legislation – including the Sustainable Finance Disclosure Regulation (SFDR), Taxonomy Regulation, Corporate Sustainability Reporting Directive (CSRD), proposed Corporate Sustainability Due Diligence Directive (CSDDD) and proposed Carbon Border Adjustment Mechanism (CBAM) – are highly relevant to ESG. While none have been fully on-shored post-Brexit, and the government has no plans to do so, they will still be relevant to UK firms wanting to operate inside the EU or facing investor pressure to comply with greater disclosure standards. The UK government is also looking to develop domestic versions of some of these regulations, for example, via the Sustainability Disclosure Requirements (SDR)and the UK green taxonomy, which may partially align and build on learnings from the EU versions. 

The government confirmed in November 2021 that it would require certain companies to publish climate-transition plans to set out how they would decarbonise by 2050. A Transition Plan Taskforce was launched to determine the “gold standard” for transition plans, and it published a draft Disclosure Framework and Implementation Guidance in November 2022, with final versions expected in summer 2023.


3 . What other laws/regulations in your jurisdiction touch on ESG themes?

In addition to the legislation and regulation outlined in Question 2 above, which mostly concerns “E” matters, there is a multitude of UK law concerning “S” and “G” factors, including:

  • The Bribery Act 2010, which applies to all UK companies and directors, includes an offence where corporates fail to prevent bribery. A defence is that the company had adequate procedures to prevent bribery; it is therefore critical that such policies are in place.
  • The Proceeds of Crime Act 2002 and Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017 create various civil and criminal offences. Detailed policies, procedures and training are therefore paramount.
  • The Modern Slavery Act 2015 contains several offences relating to slavery, human trafficking and exploitation. It also requires large businesses to publish an annual statement setting out the steps taken (and their due diligence process) to ensure slavery and human trafficking is not taking place in their supply chain or business. There have been recent moves to extend these requirements and introduce civil penalties for non-compliance.
  • The Equality Act 2010 is designed to prevent discrimination, harassment and victimisation in the workplace.
  • Various health, safety and environmental (HSE) legislations place criminal liability on directors where an HSE offence is committed by a company due to a director’s consent, connivance or neglect. 
  • The UK General Data Protection Regulation requires personal data to be processed fairly and lawfully, grants rights to data subjects with respect to the storage and handling of their data and requires consent before personal data may be processed.

The 2022 Online Safety Bill will place greater responsibility on social media platforms to remove illegal material online (particularly with respect to terrorism and child sexual exploitation) and will increase the powers of the regulator, Ofcom.


4 . What, if any, litigation or enforcement activity has your jurisdiction seen related to ESG?

The number of climate change-related cases is rapidly increasing.

The most common type of ESG - related litigation in the UK concerns specific projects that are perceived to have a potentially negative environmental impact via seeking a judicial review of the granted governmental approval. For instance, in 2022, Greenpeace sought a judicial review of the approval granted to Shell’s plan of developing the Jackdaw North Sea gas field on the grounds that the government had failed to properly evaluate the resulting emissions. This claim is ongoing at the time of writing.

Climate change litigation is also being conducted against the government in respect of its own policies, following the landmark decision of the Dutch Supreme Court in State of the Netherlands v. Urgenda Foundation. In 2022, Friends of the Earth challenged the UK government’s Net Zero Strategy on the basis that it would not meet the government’s net zero target. The claim succeeded, requiring the government to propose a more detailed strategy.

Activist shareholders have brought claims against companies to encourage them to take action in respect of ESG issues.In the first UK case to attempt to hold directors personally liable, ClientEarth has brought a claim against Shell’s directors, arguing that they have breached their section 172 duty to promote the long-term success of the company by not taking proper action in respect of climate change.

The recent cases of Okpabi v. Royal Dutch Shell Plc and Vedanta Resources PLC v. Lungowe have confirmed that courts will take a wider approach in construing whether a parent company may have a duty of care over the acts or omissions of their foreign subsidiaries. Although these judgments do not provide exhaustive guidance on when and where a parent will be under a duty of care to those impacted by their subsidiaries and suppliers, they do illustrate that a parent company that exerts, or purports to exert, significant control over the operations of a subsidiary may incur such a duty of care. Due to the pervasive nature of ESG issues, such cases emphasise that corporate groups should ensure that ESG considerations are managed in a coordinated manner across the whole of the group.

The highest profile ESG-related enforcement activity occurred in 2021 when the UK Environment Agency required Southern Water to pay a record GBP 90 million fine, following 6,971 illegal sewage discharges between 2010 and 2015. This represented both a pecuniary blow to the water company and caused significant reputational damage. 

Allegations of greenwashing are also mounting as companies increasingly make environmental claims as part of their advertising strategies. Greenwashing complaints to the advertising regulator (the Advertising Standards Authority (ASA)) have risen correspondingly; for example, the ASA banned a Tesco advert in June 2022 and HSBC adverts in October 2022. To help businesses make green statements in a compliant manner, the ASA produced a checklist for advertisers. In addition, the Competition and Markets Authority (CMA) published a Green Claims Code featuring six principles to help businesses avoid greenwashing. The CMA has considered enforcement action upon breaches of its code (see Question 7 below). The FCA also recently announced a crackdown focused on greenwashing from hedge funds and private equity funds, with the aim of improving consumer confidence in their ESG claims.


5 . What are the major non-law/regulatory drivers of ESG trends and developments in your jurisdiction?

Soft non-binding laws

The TCFD recommendations, which were initially voluntary but are becoming mandatory for an increasing number of companies (see Question 2 above), are driving increased ESG reporting in the UK.

The UN Sustainable Development Goals, while not strictly a reporting framework, are widely used among UK companies, which typically seek to align business activities with particular goals. 

The UN Guiding Principles on Business and Human Rights (UN GPs) are also relevant to UK companies. Shortly after publication of the UN GPs in 2011, the UK government published a report to assist companies with their implementation, but there are no current plans to convert this “soft” law into a “hard” law, unlike the French duty of vigilance law or the EU CSDDD proposal.


Multiple stakeholders engage with ESG issues. Shortly before COP26, PwC interviewed consumers, employees and executives and found that consumers expect businesses to consider ESG and would discontinue relations with companies that had poor ESG practices. It also found that employees prefer to work for companies that care about the same issues as they do. 

Investors are also contributing to the growth of ESG; globally, over USD 500 billion flowed into ESG-related funds in 2021. The UK government’s 2021 Roadmap to Sustainable Investing stressed the importance of investor stewardship in holding companies to account for the feasibility and credibility of their net-zero commitments and their transition strategies to align their business models with a net-zero economy. 

The UK Stewardship Code (UKSC), encompassing a set of principles aimed at strengthening the quality of engagement between investors and corporates, covers a number of ESG-related issues. As of September 2022, 199 investors with assets of GBP 33 trillion have become signatories and will publish annual reports setting out how they have met the UKSC’s standards.

The government has also played a significant role by converting “soft” law to “hard” law and by gradually adding “teeth” (i.e. penalties for non-compliance) to ESG-related requirements. By way of example, the government has increased the application of TCFD disclosures (see Question 2 above) and released a plan to green the financial system and further embed ESG considerations into company decision-making (see Question 6 below). 

National Contact Points (NCPs)

The UK has a National Contact Point (NCP) that has two key objectives: to promote the OECD Guidelines for Multinational Enterprises on responsible business conduct; and to consider complaints about such businesses’ conduct. The UK NCP was peer reviewed by the OECD in December 2019 and was found to be one of the leading NCPs, having handled the most complaints and conducted extensive promotional activities.


6 . Are the laws, regulations and obligations highlighted in Question 2 primarily related to corporate disclosure?

The majority of the laws and regulations described in Question 2 above relate to corporate disclosure, for example, disclosures required by the Companies Act and the accounting regulations. 

Corporate Governance

An exception relates to corporate governance, which are the UK Corporate Governance Code (UKCGC) and Wates Principles. The UKCGC, which is mandatory for listed companies, relates to board leadership and effectiveness, audit and financial reporting and directors’ remuneration. Significantly, Principle A requires boards to “promote the long-term sustainable success of the company”. The voluntary Wates Principles aim to provide a framework for good corporate governance arrangements, suitable for a diverse range of companies not subject to the UKCGC. There is overlap between the codes; for example, the Wates Principles also include the UKCGC’s Principle A. 


As noted in Question 2 above, the Listing Rules and Companies Act require TCFD-aligned disclosures, which should be made in the relevant company’s annual report.

In an October 2021 Greening Finance policy paper, the UK government committed to updating its disclosure regime through the proposed Sustainability Disclosure Requirements (SDRs), and a consultation on the SDRs was launched in October 2022 (closing in January 2023). The proposals include sustainable investment labels (“sustainable focus”, “sustainable improvers” and “sustainable impact”), consumer-facing disclosures and detailed product-level and entity-level disclosures. In addition, the Consultation also proposes naming and marketing rules with broader applicability and a general anti-greenwashing rule, as well other specific obligations on distributors.

The labelling regime is expected to be an opt-in regime, where asset managers can choose to apply the proposed labels to their products subject to meeting the relevant eligibility requirements. The FCA has to be notified of the use of any sustainable investment labels, although no regulatory approvals are required. Products that are not labelled with one of the three sustainable investment labels but use sustainability concepts need to comply with the naming and marketing rules. The FCA expects that the SDR-labelling regime will be supported by the UK Green Taxonomy, which will set out the criteria for specific activities to be considered environmentally sustainable. A consultation on the taxonomy is also expected in the near future.  

The SDRs are being developed in line with the proposed ISSB framework. The International Sustainability Standards Board (ISSB) was established by the IFRS Foundation to develop a global reporting standard. Several global standard-setting organisations have already coalesced into the ISSB organisation, including the Sustainability Accounting Standards Board (SASB), the Integrated Reporting Framework and the Climate Disclosure Standards Board. Notably, the Global Reporting Initiative (GRI) has not joined but has pledged to coordinate its future activities. The ISSB standards will take a building-block approach, and include a combination of general, thematic and industry-specific requirements, to best facilitate demand across different jurisdictions and sectors. The ISSB has published and consulted on two drafts – its general requirements for disclosure of sustainability-related financial information and its reporting standards for climate-related disclosures – and aims to issue these standards by mid-2023.


7 . Which sectors are most impacted by ESG in your jurisdiction? How significant is ESG investment in your jurisdiction?

A combination of factors, including COP26 in Glasgow, severe weather events (e.g. the 2022 UK heat-wave) and the Russian invasion of Ukraine, have reinforced the importance of ESG issues and the energy transition among the general population. 

While the energy and financial sectors have been significantly impacted by ESG-related issues, the universal and mandatory introduction of TCFD reporting has impacted the largest companies across all sectors.

Notably, the fashion and fast moving consumer goods (FMCG) sectors have been under increased scrutiny from the CMA. The CMA announced in January 2022 that it would investigate the environmental claims made by several fashion companies (including ASOS and Boohoo). The review considered claims about specific products and whether companies’ sweeping sustainability statements might create the wrong impression. The CMA’s approach reflects the issues it identified in its Green Claims Code mentioned in Question 4 above. In January 2023, the CMA confirmed its plans to initiate a similar investigation into the FMCG sector after receiving several complaints regarding green claims made by household products.


8 . What are the trends in your jurisdiction regarding ESG governance?

A key trend is the increasing appointment of Chief Sustainability Officers (CSOs) by corporations. In 2022, PwC found that the number of CSO appointments is rising rapidly, with as many CSOs appointed in 2020-21 as in the prior eight years combined. 

There is a spectrum of approaches to ESG governance. An increasing number of companies have ESG committees that report directly to the board. Other companies use the fully integrated model, where each item on a board agenda would include some discussion of the relevant ESG issues. There is no one-size-fits-all approach – the aim should be to embed consideration of ESG issues within the existing governance structure and to avoid ESG-related teams and issues being ‘siloed’.


9 . To what extent are ESG ratings or ESG benchmarks relied upon in your jurisdiction?

ESG rating agencies 

While the use of ESG ratings has dramatically increased, questions about their reliability and accuracy persist. Various studies have identified that, for the same company, ESG ratings can vary wildly across different agencies due to the different evaluations of self-reported “data” using proprietary methodologies that are rarely published. Such findings have led to criticism that ESG ratings should only be viewed as opinions, not objective weightings. 

The FCA is now looking to provide greater oversight through government regulation to bring ESG data and rating providers within its purview. It also suggested that a globally consistent regulatory approach should be adopted, which is in line with the International Organization of Securities Commissions’ recommendations on ESG data and ratings. In the meantime, the FCA has formed a group to develop a voluntary code of conduct, and urged greater voluntary use of guidelines from the International Capital Market Association.

ESG benchmarks 

ESG benchmarks compare companies’ performance against their peers. While such comparisons might avoid the issues of evaluating the underlying data, the reliability of ESG benchmarks has also been questioned. In September 2022, the FCA released a letter expressing its concerns over the benchmarks and that they might not accurately describe the economic reality they purport to measure, leading to a “trust deficit”. 


10 . What is the role of the private markets versus public markets in driving ESG developments in your jurisdiction?

Both private and public markets are driving the ESG agenda in the UK, but a more significant factor to determine ESG engagement is sector, with some embracing ESG more than others (e.g. renewable energy and finance). 

A number of companies wishing to evidence their ESG credentials have become Certified B Corporations (B Corps). This involves passing an impact assessment and embedding the commitment to, and accountability for, high standards of social and environmental performance in a company’s constitutional documents to require the directors to take decisions such that the company has a material positive impact on society and the environment, taken as a whole. More than 800 UK companies of varying sizes have become B Corps, including Kin+Carta, which was the first company listed on the London Stock Exchange to achieve B Corp status.


11 . What are the major challenges in terms of compliance for companies under ESG obligations?

Significant challenges include the fragmentation and lack of good quality ESG data. While disclosure requirements and voluntary disclosures have been increasing, there remains an insufficient quantity of data, and the quality of the data produced is inconsistent. This is partly because some ESG factors are inherently hard to measure, such as the social factors of employee work-life balance and company culture, but also because companies can be reticent to disclose unflattering data, like Scope 3 emissions or diversity and inclusion data. 

Where more data is forthcoming, this data may not always be robust or accessible, and there may be ongoing questions regarding credibility and reliability. The quality of data varies considerably by size of corporate, asset class and sector. Finally, the multiplicity of ESG standards and reporting frameworks provide further complications in the evaluation of a company’s ESG performance and reduces the ability of investors to successfully and accurately direct capital. 

A prevailing hope is that greater international standardisation, for example through the ISSB standards, reduces reporting costs and duplication. 

As noted in Question 4 above, greenwashing accusations may present an ongoing challenge for companies, and the CMA, ASA and FCA have all started to examine firms’ ESG-related claims more closely. The FCA is arguably not as advanced as other financial regulators internationally (e.g. Germany’s BaFin, which raided DWS, and the SEC, which fined BNY Mellon USD 1.5 million in May 2022; both issues related to misleading ESG claims).


12 . What information sources are most relevant for ESG considerations in your jurisdiction?

CDP (formerly the Carbon Disclosure Project) is also widely used by large companies, typically in the extractive sector, as it collects standardised information regarding climate change, the use of natural resources and commodities. 

As noted above, however, there is a smörgåsbord of frameworks that companies can utilise for disclosures in their annual or sustainability reports, and there are myriad information sources (such as S&P Global) and industry bodies (e.g. for investors, the United Nations Principles for Responsible Investment (UNPRI)). 


13 . Has your jurisdiction developed a Taxonomy related to ESG?

The government is in the process of developing a green taxonomy (though there have been no reports of the development of a social taxonomy). As noted above, a consultation on the taxonomy is expected in the near future, but the government may be awaiting implementation of the EU taxonomy before fashioning the UK version. 


14 . What does the future hold for ESG in your jurisdiction?

In the near future, ESG’s ubiquity is likely to continue to advance. 

The UK already has mandatory ESG obligations that are more prescriptive than other countries, and further regulations, such as a green taxonomy, SDR regime, mandatory transition plans, economy-wide TCFD disclosures and plans to implement the ISSB standards, are on the horizon. Such plans, however, require political will that may instead be focussed on minimising short-term costs and ensuring security of supply. 

Looking further ahead, the general public, investors and regulators will expect higher ESG standards, and UK legislation will likely follow the EU’s ESG advances. Both greater standardisation and wider assurance requirements are likely.




Guillermo Jorge
Pablo Crimer


Vanessa M. R. Hall


Carolina Queiroga Nogueira
Thiago José da Silva


Juan Antonio Parodi
Raúl Álvarez
Verónica Cuadra


Gary Gao

European Union

Patricia Volhard
Geoffrey Burgess
Jin-Hyuk Jang


Anniina Järvinen
Annika Schauman
Johanna Vanninen
Laura Sainio
Tero Pikkarainen


Christina Heil
Jin-Hyuk Jang
Patricia Volhard


Fabio Gallo Perozzi
Federico Longo
Giuseppe Taffari
Roberto Randazzo


Yasuyuki Kuribayashi
Yuko Toyoda


Diego Sierra
Edmond Frederic Grieger
Elias Jalife
Luis Burgueño
Pablo Jiménez


Davine Roessingh
Dennis Horeman
Jasper van Uden


Claudio Ferrero Merino
Francisco Tong
Tomás Denegri Vargas
Ursula Zavala

South Korea

Curie Lee
Eugenia Stavropoulou
Hye Sung Kim
Sae Youn Kim


Emma Greiff
Jenny Lundberg
Joel Montin
Rezan Akkurt


Dr. Martin Eckert
Lars A. Fischer
Stephan F. Greber

United States

Andrew M. Levine
Caroline N. Swett
Ulysses Smith

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