ESG is an umbrella term for a broad range of environmental, social and governance factors against which investors can assess the behaviour of the entities they are considering for investment. ESG is the term often preferred by the investment world when using these types of factors to assess corporate behaviour, evaluate the future financial performance of companies (particularly in the long term) and to manage risk.

ESG is also the term increasingly used to encapsulate the ethical corporate behaviour and social responsibility of an organisation. Here, it is used to refer to the potential for an organisation to reduce or improve its impact on the key ESG factors associated with its activities. The terms corporate responsibility (CR), corporate social responsibility (CSR) and sustainability are also sometimes used to refer to a broad range of environmental and social responsibility behaviours demonstrated by businesses.

For information on the evolution of ESG, see:

The June 2022 issue of PLC Magazine is dedicated to ESG articles (see PLC Magazine: June 2022).

The following diagram illustrates the types of factors that are commonly included in the concept of ESG. However, the ESG factors that are relevant to a particular business will differ depending on the sector and the countries in which the business operates and its supply chain. The later sections of this toolkit list key Practical Law materials on the legal aspects of these factors.

It is increasingly important for organisations to consider their strategic approach to ESG and sustainability matters. For materials that will assist, see:

The concept of ESG has been gaining momentum in the supply chain sphere, as more and more organisations want to ensure that those in their supply chain adhere to certain ESG standards. For key materials, see:

ESG is now a key issue to consider in transactions. For key resources, see:

Many companies are increasingly subject to disclosure and reporting requirements in relation to ESG and sustainability matters. For guidance on the various UK requirements, see:

For information about EU sustainability reporting requirements, see ESG and sustainability toolkit (EU).

Businesses and trade associations may seek to enter into sustainability agreements that seek to attain ESG or sustainability goals. These could give rise to competition law concerns. For more information, see Practice note, Transactions and practices: UK Co-operation between competitors: Sustainability agreements.

Climate change can affect a wide range of organisations. The risks include direct physical risk from flooding or other extreme weather events, impacts on international supply chains, distribution networks and global markets, increased regulatory requirements, litigation and reputational risk. For more information on the risks and key legal regimes, see:

For an index of model climate clauses that can be adapted for use in common commercial contracts and transactions to help fight climate change and support the move towards achieving net zero, see The Chancery Lane Project: model climate clauses toolkit. For climate-conscious drafting guidance, see Practice note, Climate conscious drafting for commercial supply contracts.

For information on the principal legal regimes regulating emissions to air and water, land contamination and waste management, see:

For information on legal requirements relating to the impact of projects or business operations on the environment, habitats, biodiversity and wildlife, see:

Environmental management systems can help a business identify and manage key environmental risks. For more information, see:

Many companies are subject to mandatory requirements to report on environmental or climate change impacts, either through their annual reports, or under specific environmental regimes. Other organisations choose to report on their environmental impacts on a voluntary basis, as part of their engagement with stakeholders and the wider community. For more information, see Climate-related and environmental disclosures toolkit and Competition issues.

Manufacturers and others involved in the life cycle of products are subject to a range of obligations. Products must comply with requirements on chemicals for the product to be placed on the market. Some chemicals are subject to restrictions, are being phased out or are prohibited. For information on the key regimes, see:

More efficient use of resources, such as energy, materials and water, can improve businesses' resilience and enable sustainable growth. For more information on the key legal regimes, see:

Complicity in the violation of human rights is a significant issue that has been gaining more attention in recent years. Businesses that are associated with an adverse human rights impact could be open to civil and criminal liability in some jurisdictions, and risk a significant impact to their reputation. Businesses are increasingly required to identify and manage their involvement in adverse social impacts throughout their organisations and supply chains. For more information, see:

For access to resources on the EU Conflict Minerals Regulation, see ESG and sustainability toolkit (EU): Conflict zones and conflict minerals.

Businesses may be required to comply with legal requirements relating to equal pay, inclusion and non-discrimination. Managing these issues is considered to support talent attraction, retention and development. For information, see:

A safe work environment is considered essential to the wellbeing of employees and to the sustainability of a business' operations. The extent of health and safety regulation and risk will depend on the type of sector within which the business operates. For more information, see Health and safety toolkit.

For key resources, see:

For resources on:

Bribery is illegal under international law. However, the risk of corruption, money laundering and bribery is higher in some countries and sectors than others. For information on the UK legal regimes, see:

It is generally considered that an independent, diverse board can provide objectivity and fresh perspective, mitigate conflicts of interest, and better protect shareholders' interests. For information on key UK requirements, see:

The level of remuneration of directors and other executives, how this is calculated and how it compares to remuneration of other employees are part of corporate governance. For information on the key UK requirements, see:

Economic sanctions can be imposed by national governments or by international bodies (for example, the UN). They are a tool for exerting political and economic pressure on states through restrictions on trade relationships or travel. For more information, see Practice note, Sanctions regime: overview (UK).

Russia Sanctions and Related Considerations Toolkit is a toolkit to help counsel working in the US, UK, EU, Canada, Australia, and New Zealand guide their clients through the business interruptions caused by the Ukraine crisis, including key sanctions imposed on Russia and other countries, persons, and entities. It covers a wide range of resources, including on business operations, crisis management and disaster preparedness, cybersecurity, employment matters, financial services, fundraising, insurance, oil and gas, sanctions compliance, supply chain disruptions, and social governance.

Tax contributions are essential to sustainable development and stakeholders are increasingly demanding transparency when it comes to tax policy.

In the UK, it is a criminal offence to fail to prevent facilitation of either a UK or foreign tax evasion offence. Companies at risk of facilitating tax evasion may find the following resources useful:

For more tax materials relevant to ESG, see Environmental, social and governance (ESG): tax toolkit.