Companies in England & Wales owe a fiduciary duty to pursue a long-term increase in financial value (other than in an insolvency situation). As ESG factors directly impact on both the financial bottom line and a company's reputation, to the extent they are not doing so already, companies need to ensure they take ESG factors into account.
Directors of UK companies have their own duty to promote the long term success of the company, having regard to various specified matters (other than in an insolvency situation). These matters include ESG factors such as employees’ interests, relationships with customers and suppliers, the impact of the company’s operations on the community and the environment and the company’s business reputation.
At the same time, consumers, shareholders and investors increasingly expect responsible, transparent conduct by companies and their directors, focussed on long term sustainable success rather than short term gain.
There are significant, though not insurmountable, barriers in an ESG context to establishing these duties and/or proving their breach, and proving a causal link may be difficult in practice. Nevertheless, the risk of facing claims is real.
Key contacts
If you have any questions, contact a member of the Companies and directors’ duties team for assistance:
