President Donald Trump’s first week in office started with an immediate row-back on Environmentalism and Diversity, Equality and Inclusion, withdrawal from the Paris Agreement, the declaration of a national energy crisis, and the mantra of “drill, baby, drill”. We might be forgiven for thinking that this leaves the Environmental, Social and Governance agenda (known as ESG) in tatters in the USA. But, it seems likely that ESG will remain relevant to the UK’s own energy transition away from “dirty” to “clean” energy generation.
Three familiar factors drive the energy transition in the UK: the environmental impact caused by an energy system that uses fossil fuels, securing a constant energy supply, and doing so at an affordable cost for consumers. These factors compete and are balanced against one another in the so-called “trilemma” that underpins much of the activity of the regulated energy market.
However, it is the increase in ESG accountability led by pressure groups and potential litigants that will ensure ESG does not quietly go away. For example, shareholder activism has developed in new and interesting ways to bring pressure on businesses to engage with climate risks. For example, the “Say on Climate” initiative uses legal levers to pressure companies into submitting a climate transition action plan at their AGM for a shareholder vote. Environmentally focused shareholder activism can take the form of using public announcements, press articles or social media to voice concerns and propose actions that a company should take.
This threat of ESG litigation is also a fast-developing area of corporate risk, with claimants seeking to pursue novel claims to hold businesses accountable for ESG-related adverse impacts. The routes to challenge for ESG litigation can take different forms, all of which bring pressure to bear on businesses to live up to ESG expectations. The routes to court can include:
Shareholders bringing derivative claims against directors for breaches of their duties. For example, the duty to promote the success of the company for members and in doing so having regard to various matters, including the company’s impact on the “community and environment”.
Using high-profile litigation claims to obtain court orders requiring companies to cease activities that are alleged to be inconsistent with relevant duties of care and net zero commitments.
Claims for “ESG harms” such as environmental damage that have allegedly occurred. Where the harm has arisen from the operations of a multinational company’s overseas subsidiary, there is a growing trend for a claim to be brought in the parent company’s home country, with the parent company included as a defendant.
Although companies are facing an increasing amount of litigation in relation to ESG issues, a considerable proportion of climate litigation claims are still brought against the government and its regulators. For example, less than two weeks ago (30 January 2025) the Scottish Courts ruled that the previous UK government’s approval for the multi-billion Rosebank and Jackdaw oil fields was unlawful because they did not consider the carbon emissions the projects would indirectly generate. When successful, such claims can drive a change in government policy or regulatory oversight, which can quickly affect the environment in which businesses operate.
Although President Donald Trump’s flurry of executive orders appears to alter the American stance, the UK’s future on ESG and the energy transition looks quite different. Here both market and legal pressures are enhancing ESG accountability and it seems likely that ESG will remain highly relevant to the UK’s energy transition.
This article was co-authored by Trainee Brendan Naughton.