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Two-thirds of UK bosses fear being sued if they fail to meet environmental, social and governance (ESG) goals as the investment craze grips the business world, a survey shows.
ESG criteria, sometimes called responsible investing, have become widespread as companies are urged to meet ambitious climate change goals and keep up with social issues such as mental well-being and gender transition.
The study by insurance group Gallagher found that three quarters of business leaders felt pressured to set targets even if they did not know how they were going to achieve them, while two in three feared legal action if they did not achieve them.
The repercussions of not meeting them were investor withdrawal, litigation and shareholder activism, the bosses added.
The findings come at a time when many business leaders feel overwhelmed by the scale of regulation and red tape introduced over the past decade, driven by investors, governments and social activists.
Awakened investment: Companies are under pressure to meet ambitious climate change targets while keeping up with social issues such as mental wellbeing and gender transition.
One businessman said: ‘Previously all investors wanted were profits and a solid business model, now there is a lot more to think about. “ESG litigation is a risk.”
Different industries have different responsibilities, with the oil and gas and mining industries at the forefront of environmental goals.
In 2021, a Dutch court ordered Shell to further reduce emissions, while in January a group of 27 investors presented a resolution calling on the oil company to align its medium-term green goals with the 2015 Paris Agreement.
Corporations were also expected to take their social and governance responsibilities more seriously than ever.
Last year in the United States, Randi Berghorst sued Texas-based Fort Worth railroad BNSF for failing to promote her.
Named one of the 2021 Employees of the Year for supporting LGBTQ+ workers, she claimed she was denied advancement after her gender transition.
James Bosley, head of climate strategy at Gallagher, said: ‘ESG is front and center of corporate strategy.
The speed of change in ESG issues has resulted in a lack of standardization and precedent, which has created uncertainty.’
But there has been a setback. Data from January showed global investors withdrew £8bn from ESG funds last year amid a backlash over greenwashing and the “vague” promises they offer.
Figures from industry group Calastone showed the three-year boom in funds focused on environmental, social and governance issues had eased.
From 2020 to 2022, £40 billion was allocated to ESG, a boon for active fund managers, Calastone said, and six times the investment committed to funds that had no specific ESG commitments.
But last year investors withdrew billions.