The prominence of Environmental, Social and Governance (“ESG”) factors has increased dramatically in recent years, particularly in the financial services sector. Regulatory authorities across jurisdictions, financial services firms and the wider investing public are also increasingly focusing on ESG-related disclosures and reporting, as well as the risk of ‘greenwashing’ (see below).
In the UK, the Financial Conduct Authority (“FCA”) has stated its “commitment to enhancing both ‘transparency’ and ‘trust’ as ESG and sustainable products continue to grow in prominence”, as well as highlighting the “risk of harm if the financial sector responds to rising consumer demand and awareness of ESG issues without a supportive regulatory foundation and adequate guard-rails.” However, despite the significant focus on ESG factors, there remain important open questions about their definition, consistent application and precise scope, given the potential of these factors to encompass a wide array of different business sectors, priorities and internal policies, analysed across differing, and (at times) potentially conflicting, environmental, social and governance parameters.
The existence of such questions, combined with the popularity of ESG investing, may expose firms and investors to various risks. In particular, as the FCA has highlighted: “consumers, industry participants, civil society, regulators and the media are all increasingly questioning the integrity of some of the ‘green’ claims made by companies and financial firms. So, ESG matters are high on the regulatory agenda. If the financial sector is going to help support the transition to a more sustainable future, market participants and financial services firms need high quality information, a well-functioning ecosystem and clear standards.”
It is, therefore, important for UK-listed companies and financial sector firms to review and manage their ESG-related disclosures and statements, in the interests of mitigating the risks of regulatory enforcement action, reputational damage and/or litigation. This briefing focuses on the development of the UK’s regulatory framework for ESG disclosures, as well as the key risks arising.
Click here to read the full insight: 'ESG Disclosures: UK Regulation and Litigation Risks'.
