A new report highlighted that nearly two thirds of UK business leaders are concerned that their ESG targets will put them at risk of litigation.
According to research by insurance broker, Gallagher, 72 per cent of respondents admitted they felt pressure to set the targets without being sure on how they were going to reach them.
Gallagher’s study consisted of 600 senior leaders at UK companies that had more than 500 employees.
Over half believe legal action over missed ESG targets is far more likely now than it was 10 years ago.
The study found a variety of influences behind the development of ESG targets: according to the findings, nearly half (46 per cent) say the CEO is directly responsible for setting ESG targets, with the majority of businesses (66 per cent) named external stakeholders as the key driver in influencing the targets.
This comes after the rise of shareholder activism groups such as ClientEarth that have been filing lawsuits against several companies including energy giant Shell. It was also reported by City A.M. back in December that the majority of London litigation lawyers in a survey, envisaged an increase in ESG claims over 2024.
Although there are concerns around the consequences of missing ESG targets, Gallagher reports that the majority leaders say they will be able to achieve them, with 49 per cent ‘very confident’ and 44 per cent ‘somewhat confident’.
The top five ESG targets respondents told Gallagher’s they are most concerned about missing are: shifting to renewable energy sources (17 per cent), net zero targets (16 per cent), bridging the gap between executive remuneration and lowest wage (14 per cent).
While reduction of Scope three emissions was close at 13 per cent and 11 per cent said bridging the gender pay gap.
Commenting on the report, James Bosley, head of climate strategy at Gallagher, said: “These findings highlight the need for businesses to consider their risk model alongside their ESG ambitions and ensure that they are both comprehensive and robustly formulated.”
“The speed of change for ESG issues has resulted in a lack of standardisation and precedent; creating uncertainty for companies trying to address their specific needs,” he added.