Fears over meeting environmental, social, and governance targets (ESG) are permeating UK businesses, with a recent study from Gallagher revealing the issue as a main concern as the world at large tries to inch closer to net-zero.
The recent study from the global broker revealed that 62% of senior leaders at large UK businesses are concerned about the litigation risks associated with their ESG targets, compounded by the fact that 72% admit to feeling pressured to set these targets without a clear plan for achieving them.
The research, which surveyed 600 senior leaders at UK companies with more than 500 employees, also found that over half (54%) believe the likelihood of legal action over missed ESG targets has increased significantly compared to a decade ago.
When asked about the consequences of failing to meet ESG targets, nearly a quarter (24%) cited investor withdrawal as a primary concern, followed by litigation (21%) and shareholder activism (14%). This anxiety stems from doubts about the substance and credibility of ESG targets, with 35% of leaders reporting their motivation was to fulfill investor and shareholder expectations. Only 28% said their business set targets aligned with science-based goals.
The research also identifies the top five ESG targets of concern, including shifting to renewable energy sources (17%), achieving net-zero targets (16%), bridging the pay gap between executives and the lowest-paid workers (14%), reducing Scope 3 emissions (13%), and closing the gender pay gap (11%).
Gallagher’s study comes at a time of heightened scrutiny over the ESG ambitions of the UK’s largest companies, questioning whether these targets are realistic and based on practical strategies.
The survey further revealed that CEOs are directly responsible for setting ESG targets in nearly half (46%) of businesses, with external stakeholders identified as the main influence on these targets by 66% of respondents. Additionally, 29% of leaders said shareholders influence ESG target setting, with industry regulators (29%) and the government (22%) also playing significant roles.
Despite these concerns, a majority of UK business leaders are confident in their ability to meet ESG targets, with 49% very confident and 44% somewhat confident. Furthermore, 80% of senior leaders believe their targets are crucial for the country to meet its net-zero goals, indicating that ESG targets are considered essential for trading today and contribute to a company’s commercial success.
James Bosley, head of climate strategy at Gallagher UK, emphasises the importance of ESG in corporate strategy.
“ESG has been on the radar of businesses for several years, but now more than ever it is front and centre of corporate strategy,” he said. “ESG factors are now a key consideration for companies in attracting investors, customers, and talent. Conversely, poor ESG performance can lead to reputational damage, legal liabilities, and financial losses.”
ESG concerns also extend towards the insurance industry at large. Recently, Graeme Trudgill, chief executive of the British Insurance Brokers’ Association (BIBA), signed the trade body’s 2024 ESG policy as a representation of BIBA’s reaffirmed commitment to the framework.
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