Nearly two thirds (62%) of senior leaders at large UK businesses are concerned that their ESG targets put them at risk of litigation, with close to three quarters (72%) admitting they felt pressure to set the targets without being sure on how they were going to reach them, according to new research by Gallagher.

The study of 600 senior leaders at UK companies with more than 500 employees found that over half (54%) believe legal action over missed ESG targets is far more likely now than it was 10 years ago. When ranking their concerns for their businesses should they miss their ESG targets, nearly a quarter (24%) said investor withdrawal, more than one in five (21%) said litigation and 14% said shareholder activism.

James Bosley, head of climate strategy at Gallagher UK, said: “Increasing amounts of regulation relating to climate change, social goals and corporate governance, present growing challenges for companies, compounded by increasing shareholder activism. These findings highlight the need for businesses to consider their risk model alongside their ESG ambitions and ensure that they are both comprehensive and robustly formulated. The speed of change for ESG issues has resulted in a lack of standardisation and precedent; creating uncertainty for companies trying to address their specific needs.

“To help avoid the negative risks associated with poor management of ESG risks, businesses can consider undertaking an independent ESG assessment. These provide data-driven insights into the perception of a company relating to material ESG matters and how this may give rise to legal or regulatory exposures affecting the company and its directors and officers. Looking beyond ESG factors, they also include clear guidance on actionable risk reduction measures.”

The research found that the top five ESG targets respondents are most concerned about missing are: shifting to renewable energy sources (17%); net zero targets (16%); bridging the gap between executive remuneration and lowest wage (14%); reduction of Scope 3 emissions (13%); and bridging the gender pay gap (11%).

---