ESG DISPUTES IN THE FINANCIAL SERVICES INDUSTRY

Demand for environmental, social and governance (ESG)-aligned companies is transforming the finance and investment landscape. Financial institutions (FIs) have a central role to play in this development. While investor demand is growing, however, there is a lack of clarity around exactly how organisations can measure and quantify their compliance with ESG goals, which creates significant legal uncertainty and risk.

ESG was once considered a niche concern within financial services, but this has changed dramatically. Today, it is regarded as one of the most prominent areas of enquiry across the industry. Significant pools of capital are building up around the world, dedicated to ESG investment strategies, aligned both philosophically and commercially with sustainable corporate practices. With investors, regulators and employees increasingly focused on ESG concerns, it is unsurprising that companies, including FIs, are having to fundamentally rethink their strategies.

Regulatory imperatives

According to Herbert Smith Freehills, over 170 ESG-related regulatory measures have been introduced globally since 2018. Europe leads the way, accounting for around 65 percent of worldwide ESG regulation. Though there is no global, standardised, binding ESG reporting or benchmark instrument, ‘hard law’ measures with sanctions are becoming more common. Until now, ESG disclosure and reporting has been largely voluntary, but a transition toward rules-based and compulsory ESG regimes is underway.

The regulatory landscape around ESG is developing rapidly, resulting in significant, wide-reaching changes to multiple regimes.

Jan-Mar 2022 issue

Richard Summerfield