Air pollution and the management of emissions are the ESG risk criteria against which the UK’s largest listed companies perform the poorest, according to Chaucer and Moody's latest ESG Balanced scorecard.

The third worst-performing area was respect and management of working hours followed by responsible management of restructurings and the protection of water resources.

In contrast, the ESG risk criteria for which the UK’s largest listed companies scored highest include: "weapons" or "‘involvement in the armaments industry", followed by "diversity and inclusion", forced resettlement, illegal fishing practices and executive pay.

Commenting on the findings, Simon Tighe, group head of investments treasury and credit risk at Chaucer, says the reason why so many major listed companies achieve low ESG rankings is that they aren’t disclosing enough data - the equivalent to "falling at the first fence".

“To date, not enough listed companies have even quantified and disclosed their greenhouse gas emissions, let alone published plans on how they will meet net zero,” he said. “If UK listed businesses are going to achieve a high ESG rating then they are going to have to take the initial steps of publishing data that allows stakeholders to measure their performance. If they fail to do that they will achieve a low ESG rating almost by default.

“Businesses that have a low ESG rating will face significant challenges, not least as the regulatory environment develops. Corporates that have not been forthcoming with disclosures risk sending a message to investors that their ESG risks are not managed properly, putting off ESG-focused investment funds and business partners.”

Listed companies face growing pressure from regulators and governments to improve disclosures of matters concerning ESG, particularly when it comes to the environment. Since April 2022, over 1,300 of the UK’s largest companies and financial institutions have been required to report on climate-related risks and opportunities, based on recommendations by the Taskforce on Climate-related Financial Disclosures.

And In November 2022, the European Council formally adopted the Corporate Sustainability Reporting Directive, which will replace and significantly expand the scope of existing sustainability reporting rules for large EU-listed entities.

“As regulation on ESG tightens, corporates should be taking the lead and disclosing what action they plan on taking to become more sustainable, rather than simply reacting to external pressure,” Tighe added. “A lack of relevant and reliable ESG data will hinder the insurance industry as re/insurers will not have the full picture when it comes to ESG risk profiles. This could potentially create challenges for corporates when it comes to getting insurance coverage in the future.”

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