UK bosses fear being sued if they miss ESG targets as woke investing grips the business world

Two-thirds of UK bosses fear being sued if they miss environmental, social and governance (ESG) targets as the woke investment fad grips the business world, a survey has found.

ESG – sometimes referred to as responsible investing – has become rife as firms are urged to hit ambitious climate change goals and keep up with social issues such as mental wellbeing and gender transitioning.

The study by insurance group Gallagher found three-quarters of business leaders felt pressure to set targets even if they did not know how they were going to reach them, while two in three feared legal action should they miss goals.

The repercussions of missing them were investor withdrawal, litigation and shareholder activism, the bosses added.

The findings come as many business leaders feel overwhelmed by the scale of regulation and paperwork brought in over the past decade, driven by investors, governments and social activists.

Woke investing: Businesses are under pressure to hit ambitious climate change goals while keeping up with social issues such as mental wellbeing and gender transitioning

One entrepreneur said: ‘Once, all investors wanted were profits and a sound business model, now there’s a lot more to think about. ESG litigation is a risk.’

Different industries have different responsibilities, with the oil and gas and mining industries at the forefront of environmental targets.

In 2021 a Dutch court ordered Shell to cut emissions further, while in January a group of 27 investors filed a resolution that called for the oil company to align its medium-term green targets with the 2015 Paris Agreement.

Corporations also expected to take their social and governance responsibilities more seriously than ever before.

In the US last year, Randi Berghorst sued Fort Worth’s BNSF Texas-based railroad for not promoting her.

Named as one of the employees of the year in 2021 for supporting LGBTQ+ workers she claimed she was denied advancement after her gender transition.

James Bosley, head of climate strategy at Gallagher, said: ‘ESG is front and centre of corporate strategy.

The speed of change for ESG issues has resulted in a lack of standardisation and precedent, creating uncertainty.’

But there has been a recoil. Data in January showed global investors pulled £8bn from ESG funds last year amid a backlash over greenwashing and the ‘vague’ promises they offer.

Figures from industry group Calastone showed the three-year boom in the funds focused on environmental, social and governance issues had waned.

From 2020 to 2022, £40billion went into ESG – a boon for active fund managers, Calastone said, and six times the investment committed to funds that did not have specific ESG commitments.

But last year billions were pulled out by investors.