Concerns loom large among business leaders as the specter of litigation threatens companies falling short of their environmental, social, and governance (ESG) targets.
According to a survey conducted by Gallagher, an insurance broker, two-thirds of business leaders expressed apprehension about the possibility of litigation if their companies fail to meet ESG benchmarks. The survey, encompassing 600 companies, highlighted that the foremost anxieties revolve around transitioning to renewable energy sources and attaining net-zero objectives.
Approximately three-quarters of respondents admitted feeling pressured to establish ESG goals, despite lacking confidence in their ability to fulfil them.
This research emerges at a time when ESG assertions encounter heightened scrutiny from investors amid allegations of greenwashing by major corporations. In December, the Competition and Markets Authority announced an inquiry into Unilever, the manufacturer of iconic brands such as Marmite and Hellmann’s mayonnaise, following concerns that consumers were being misled by purportedly “green” claims on various household products.
Furthermore, a separate study conducted last year by the Association of Investment Companies revealed a waning interest in ESG among retail investors. Only 53 per cent of respondents reportedly considered ESG factors before making investments, a decline from 60 per cent in 2022 and 65 per cent in 2021.
Simultaneously, investors withdrew a substantial $10 billion from equity funds carrying an ESG designation last year, as ethical and sustainability assertions came under intense scrutiny.
In response to these challenges, the Financial Conduct Authority is formulating measures to restore trust in ethical investing, prompted by concerns regarding funds making “exaggerated, misleading, or unsubstantiated claims” regarding the quality of their investments.
Among the worries voiced by business leaders surveyed by Gallagher is the withdrawal of investor support and the prospect of activist intervention. Interestingly, more executives attributed the influence on ESG target-setting to shareholders rather than government bodies or industry regulators.
James Bosley, head of climate strategy at Gallagher, commented: “The increasing array of regulations pertaining to climate change, social objectives, and corporate governance poses significant challenges for companies, exacerbated by mounting shareholder activism. The rapid pace of change in ESG matters has led to a lack of standardisation and precedence, engendering uncertainty for companies endeavoring to address their unique requirements.”
