Environmental, social and governance (ESG) meaning

This Checklist outlines which companies and limited liability partnerships (LLPs) fall within the main UK and EU compulsory environmental reporting regimes. It offers a high-level overview and points to the sources for the applicable reporting rules. For fuller coverage of the binding reporting obligations, see Practice Notes: CSR, ESG and human rights reporting and initiatives and EU mandatory corporate sustainability reporting. For an overview of the voluntary disclosures many companies and LLPs follow, see Practice Notes: TCFD recommendations and other ESG reporting frameworks, standards and benchmarks [Archived] and Investor group guidance on environmental, social and governance (ESG) issues. UK requirements Strategic report to contain description of principal risks and uncertainties. Scope: All companies (other than micro and small companies). Traded LLPs and banking LLPs. Source: Companies Act 2006 (CA 2006), CA 2006, s 414C(2)(b). Applied to traded LLPs and banking LLPs by Limited Liability Partnerships (Accounts and Audit) (Application of Companies Act 2006) Regulations 2008, SI 2008/1911, Reg 12A. ...

Introduction Environmental, social and governance (ESG) concerns sit centre stage for governments, regulators, consumers, and the workforce alike today more than ever. Firms can no longer overlook the steadily rising impetus behind ESG and the push for fuller disclosure and transparency. Yet the agenda goes further still. In shaping, executing and communicating strategy, companies increasingly recognise ESG as fundamental to generating enduring value within their strategic thinking. ESG elements are demonstrating their material influence on financial outcomes and organisational resilience. Greater transparency is enabling more profitable investment, and improved disclosure is regarded as benefitting every stakeholder overall...

This Checklist outlines best practice for undertaking environmental, social, and governance due diligence, offering general direction on ESG reviews alongside specialised guidance for each ESG pillar. For wider ESG materials, see: ESG and sustainability collection. For environmental due diligence, consult the following Practice Notes: Environmental due diligence-asset purchase Environmental due diligence-share purchase Environmental due diligence-leases For broader due diligence guidance, see Practice Note: Due diligence-share and asset purchases. Introduction As national and international regulators release progressively stricter ESG guidance and public focus on ESG matters intensifies, the need for ESG due diligence on M&A targets continues to rise. A rigorous ESG review by an M&A buyer and its advisers can pinpoint, mitigate, and even avoid regulatory and reputational risks, while shaping deal valuation and structure. Strong ESG policies and practices may make a target more compelling by creating lasting value and goodwill that endure after completion. By contrast, a weak stance on ESG may expose a target to...

More climate change, ESG-related disputes One consistent storyline set to persist through the remainder of 2024 is the rise of disputes concerning climate change, the energy transition and environmental, social and governance principles. Historically, many cross-border arbitration cases concentrated on industries such as oil and gas or mining. Experts told Law360 that, although these sectors will still generate cases, the drivers behind them are evolving as states increasingly adopt alternative energy. On one side, disagreements are expected as international oil majors move away from agreements tied to more carbon-intensive fuels. Wade Coriell, co-head of King & Spalding LLP’s global international disputes practice, links this pivot to a confluence of factors, notably the renewed emphasis within these companies on alternative energy sources, which in turn creates space for national companies from regions including the Middle East to assume control of ongoing projects. He added that many long-term deals signed by international oil companies are now reaching their end dates...

UK developments DESNZ consults on implementing voluntary carbon and nature market integrity principles The Department for Energy Security and Net Zero (DESNZ) has opened a consultation to gather feedback on how to put into practice the UK Government’s six principles for integrity in voluntary carbon and nature markets (VCNMs), assessing how they fit markets at varying stages of development. The Minister for Climate Change, Kerry McCarthy MP, unveiled these principles at COP29 in November 2024. It further seeks to define expectations for supplier and purchaser participation in VCNMs and to consider embedding such approaches within guidance, policy and possible regulation, underpinned by market frameworks that can institutionalise and scale high‑integrity practices. The call for views closes on 10 July 2025. See: LNB News 17/04/2025 13. Sources: Voluntary carbon and nature markets: raising integrity; UK backs businesses to trade carbon credits and unlock finance. EU developments EBA publishes ESG dashboard for centralised climate risk monitoring in the EU/EEA banking sector The European Banking Authority (EBA) has...

This marks the first stage of the regulator’s climate‑related financial disclosure regime to be enforced, covering all FCA‑authorised firms, with rules on the labelling and marketing of investment products arriving later this year from July (see FCA, PS23/16: Sustainability Disclosure Requirements (SDR) and investment labels, 28 November 2023). The regime extends to regulated activities undertaken by private enterprises, listed companies and public sector bodies alike. These measures are intended to ensure that statements made by regulated entities about the sustainability credentials of supposedly green products and services are fair, clear, not misleading, and consistent with the sustainability profile of the product or service. Yet are the new rules sufficient to resolve the problem of misleading information about a company’s green credentials and its products and services? Are these anti‑greenwashing provisions anything more than a greenwashing exercise themselves? They play well in public relations, signalling that government agencies are acting to shape corporate behaviour on climate change. The problem is that, when examined more closely, they are still likely to deliver...

Key terms Expressions such as ‘responsible/sustainable business’, ‘corporate responsibility’ (CR), ‘corporate social responsibility’ (CSR), and ‘environmental, social, governance’ (ESG) appear widely in multiple settings among companies, advisers and legal practitioners across sectors. Yet, broadly, they all signal an enterprise acting responsibly within its everyday operations, as part of its day-to-day activities. An increasing number of businesses recognise that meeting national, state and local rules alone may no longer adequately shield them from legal, regulatory or reputational exposure, and that missing the escalating expectations in this sphere can carry significant financial consequences. In this note, we adopt ‘sustainable business’ as the overarching label for consistency. For further terminology, see Precedent: Sustainability glossary terms (The Chancery Lane Project). What is ‘sustainability’? The word ‘sustainability’ often sits alongside phrases such as ‘environmental sustainability’ or green business in common discussion. Although there is no single, settled definition, many bodies and sources rely on the Brundtland Commission Definition of sustainable development when attempting to explain the term. However, the Brundtland Commission Definition...

Embedding sustainability This Practice Note considers supply chain sustainability through the wider lens of sustainable procurement and environmental, social and governance (ESG) performance, concentrating on leading themes in UK and EU private sector practice. It offers practical direction on setting up a supplier code of conduct and building a comprehensive supply chain sustainability programme that addresses: Human rights and labour standards Environmental impacts and deforestation Corruption and litigation exposure Risk management across the supply chain Public procurement sits outside the scope of this note. For further information on supply chain sustainability in the UK, including details on UK regulations, see Practice Note: Supply chain sustainability—UK. For further information on supply chain sustainability in the EU, including details on EU regulations, see Practice Note: Supply chain sustainability—EU. For further information on sustainable public procurement in the UK, see Practice Note: A guide to sustainable public procurement. Supply chain sustainability has moved from the margins to a central business priority. Although...

Environmental, social and governance (ESG) factors are now central to managing environmental risk, with mounting expectations on companies to evaluate their environmental and social performance. Sustainability underpins the Environment Agency’s (EA) land contamination risk management (LCRM) guidance, which requires climate change to be addressed within risk assessments. In recent years, organisations such as The Society of Brownfield Risk Assessment (SoBRA) and CL:AIRE have issued supporting guidance and schemes that reinforce the EA’s sustainability objective. For more on ESG, see Practice Note: ESG—new starter guide. What is environmental risk? The EA’s LCRM guidance, published in October 2020 and replacing the 2019/2020 versions, sets out how to assess and manage risks arising from land contamination. Environmental risk is one of several ESG matters relevant to organisations and stakeholders, alongside risk areas such as health and safety and data security management. Risk is defined as the combination of the probability, or frequency, that a specified hazard will occur and the magnitude of the consequences if it does. See Practice Note: Environmental...

Precedent presentation on environmental, social and governance (ESG) issues Crafted as a training resource for employers and their HR teams, this Precedent presentation covers the essentials of ESG, why it is significant, and ways to identify the organisation’s most important issues. It explains HR’s role within the ESG agenda, highlights the importance of collaboration across functions, and sets out practical steps for building an ESG programme alongside a corresponding action plan for the organisation as a whole...