Environmental, social and governance

Environmental, social and governance (ESG) are three broad terms used to describe non-financial criteria, factors or standards relevant to businesses. They are increasingly taken into account in investment decisions and reporting by companies, but also also relevant to wider stakeholders and consumers. ESG reporting is now required for major UK companies (that is those companies that are publicly ‘quoted’ or ‘listed’, whose annual turnover exceeds £500 million, or who have more than 500 employees). However, many organisations not be required to report on ESG are nevertheless doing so voluntarily as a matter of best practice. While the ESG acronym is a way of bundling these factors together, it appears to be developing more into a way of thinking, or an approach, that helps organisations to work towards a sustainable way of operating. While the relevant starting point may be found in national policy developed by the Department for Business, Energy, & Industrial Strategy, the government does not yet extensively govern ESG.

Click on the headings below for an overview of UK policy on ESG across the four nations, and where to go for further information.

Law and policy

One of the key regulatory bases for ESG are some sections of the Companies Act 2006 which applies across the four nations and relate to company reporting. However, there are also provisions in the Modern Slavery Act 2015, Equality Act 2010 and indirectly aspects of the Climate Change Act 2008. Moreover, much of the work aligning to ESG does not derive from national legislation or rules but instead from private arrangements such as securing certification to ISO14001 or by committing to another form of corporate management to secure continuous environmental and social improvement. Other non-government bodies may also provide information on ESG, for instance the Confederation of British Industry (CBI) provides some information on ESG for Small and Medium Sized Enterprises (SMEs).

There are now mandatory climate-related reporting requirements for certain companies across the UK. The UK's Financial Conduct Authority regulates UK firms and set out requirements for disclosures relating to ESG and climate change matters.

These requirements responded to recommendations of the international body, Taskforce on climate-related financial disclosures, which consists of 31 members from the G20 countries.

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