Prior to 2025, the political and business community across the West was largely united in backing ESG considerations. This consensus has however been upended by the new incumbent US administration and a growingly influential anti-ESG movement.

In this article, partners Elaina Bailes and James Breese answer key questions on the consequences of this sudden shift for corporates.

What are the main challenges facing businesses?

In the UK, the long-term trend in recent decades has been an increase in regulatory scrutiny over companies’ ESG responsibilities. Businesses, and directors and officers of those businesses, face greater accountability for the actions taken (or not) to address ESG risks. There has been increasing expectation that businesses implement a corporate governance structure that expressly considers existing and emerging ESG risks. The problem for businesses is that this continues to be an evolving area with no certainty as to exactly what compliance looks like.

Nonetheless, this evolution along with an increasing amount of ESG-related litigation around the globe makes it difficult for businesses not to adapt. ESG-related failings could expose businesses to financial liabilities as well as criticism from regulators that results in regulatory investigations for which professional and legal fees are incurred.

How have approaches to ESG and sustainability evolved?

There have been two main trends. On the one hand, there has been increased regulation across many jurisdictions around:

• statements made by businesses about their green credentials;
• greater scrutiny by the general public, activists (sometimes including shareholders) and regulators of corporate governance policies into whether management decisions adequately take ESG factors into account.

This has led to businesses taking ESG considerations more seriously at board level and carefully considering how they market any green initiatives or products so as to avoid the potential for regulatory action or litigation risk.

On the other hand, the anti-ESG movement in the US has been invigorated by the election of President Trump and many US-based businesses have started to row back on ESG positions, whether that be cancelling D&I initiatives or scaling down environmental commitments. Businesses with international footprints will have the challenge of navigating both this reverse course and the global trend, which remains primarily in a pro-ESG direction.

How have business risks been reassessed?

Risks to businesses are constantly being reassessed and terms are evolving. As environmental and social risks have only been more recently brought into focus for business, the taxonomy for defining these risks is new and evolving all the time, in comparison to more straightforward governance issues where legal concepts such as directors duties have been around for a very long time.

Further, climate change science is fast moving and it is getting much easier for effects of polluting activity to be measured. Lawmakers are scrambling to define the legal/regulatory parameters in time so that they are not obsolete. Add on top of this the shifting geopolitical climate and public opinion on ESG and it is very difficult for business to make definitive risk assessments that will not be out of date tomorrow.

What about insurance?

Insurance is a key part of the equation. Hypothetical financial liabilities might be insured under insurance policies. However, in a circular problem, for there to be insurance cover for such liabilities, insurers may well expect to see that the business has implemented policies and procedures that illustrate a progressive approach to ESG concerns and risks.

The risk assessment is therefore a continuous process, with insurers and insureds continuing to have to adapt and respond to developments. Take for example, the recent decision in November 2024 in Milieudefensie et al v Royal Dutch Shell, in which the Hague Court of Appeal found that corporations had a duty of care under Dutch law to reduce greenhouse gas emissions. This is a notable development that various stakeholders connected with the industry will be closely considering.

The burden is also not borne exclusively by insured entities. In many jurisdictions, the directors and officers of those companies are also being required to take greater responsibility for their company’s ESG responsibilities. For D&O insureds, this greater accountability presents a real risk to navigate with often divergent opinions on the subject matters.

Is there a general shift away from ESG despite significant ESG-linked funds remaining active?

There has perhaps been a cooling of enthusiasm amongst financial institutions as they grapple with the factors mentioned above. However, asset managers are also acutely aware of their fiduciary duties when managing money and concerned about the legal risks of ignoring investors’ ESG concerns. There has been an increase in litigation focusing on pension funds’ activities.

Financial institutions have not yet seen themselves as a prime target for activist claimants bringing claims, compared to other high emissions sectors, perhaps because their carbon footprint or environmental impact of policies are not so obvious (eg compared to businesses in the aviation or energy sectors).

This pressure will for now be a secondary element in shaping attitudes to sustainability, compared to say the attitudes of clients. However, this will likely start to change with new FCA ‘anti-greenwashing’ rules now in force and more focus on how environmental factors play into fiduciary duties leading to a possible increase in investor/shareholder securities claims which could lead to substantial damages.

You can find further information regarding our expertise, experience and team on our Commercial Litigation and ESG Disputes pages.

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