Essential ESG regulations for UK businesses
| Regulation Name | Businesses Affected | Regulatory Body | Implementation | Regulation Purpose | Voluntary/Mandatory | Potential Benefits | Penalties for Non-Compliance |
|---|---|---|---|---|---|---|---|
| Companies Act 2006 | All companies | UK Government | Ongoing | Requires disclosure of environmental impact, social responsibility, and governance practices | Mandatory | Enhanced transparency, investor confidence, and stakeholder trust | Fines, penalties, or disqualification |
| Modern Slavery Act 2015 | Companies with a turnover above a certain threshold | UK Government | Ongoing | Addresses modern slavery in supply chains | Mandatory | Ethical sourcing, improved reputation, and risk mitigation | Fines or other enforcement measures |
| Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 | Large companies | UK Government | Ongoing | Requires climate-related financial disclosures in strategic reports | Mandatory | Better-informed investors, resilience to climate risks, and sustainable business practices | Fines or other enforcement measures |
| Disclosure Guidance and Transparency Rules (DTR) | Companies listed on UK markets | Financial Conduct Authority (FCA) | Ongoing | Requires non-financial information disclosure, including ESG matters | Mandatory | Market confidence, comparability, and informed decision-making | Fines, penalties, or delisting |
| UK Corporate Governance Code (UKCGC) | Companies | Financial Reporting Council (FRC) | Ongoing | Encourages ESG considerations in decision-making | Voluntary | Improved governance, stakeholder engagement, and long-term value creation | N/A (voluntary compliance) |
| Future regulatory regime for ESG ratings providers | ESG ratings providers | HM Treasury | Forthcoming (consultation in progress) | Aims to improve transparency and conduct in the ESG ratings market | To be determined | Enhanced credibility, investor trust, and accurate assessments | To be determined |
If you are looking for an experienced ESG expert who can help your business get the best out of these regulations, learn more about our services here
Details
The following section contains a concise details about some of the applicable ESG regulations in the UK.
- Companies Act of 2006:
- Background: The Companies Act 2006 outlines the legal framework for company operations in the UK. It includes provisions related to ESG reporting.
- Impact on Businesses: Large companies must include ESG information in their strategic reports, covering environmental, social, and governance aspects.
- Required ESG Expertise: ESG consultants or sustainability professionals can guide companies in complying with these reporting requirements.
- Modern Slavery Act of 2015:
- Background: The Modern Slavery Act aims to combat modern slavery and human trafficking.
- Impact on Businesses: Companies with a turnover above a certain threshold (currently £36 million) must publish an annual statement detailing their efforts to prevent slavery and human trafficking in their supply chains.
- Required ESG Expertise: Legal experts specializing in human rights and supply chain transparency can assist companies in meeting these obligations.
- Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022:
- Background: Introduced in 2022, these regulations focus on climate-related financial disclosures.
- Impact on Businesses: Large UK businesses (including premium listed companies) must disclose climate-related risks and opportunities in their strategic reports.
- Required ESG Expertise: Climate experts, financial analysts, and sustainability consultants can help companies navigate these requirements.
- Disclosure Guidance and Transparency Rules (DTR):
- Background: DTR provides guidance on transparency and disclosure for companies listed on UK markets.
- Impact on Businesses: Companies must comply with DTR requirements, including ESG-related disclosures.
- Required ESG Expertise: Legal advisors and ESG consultants can assist companies in understanding and fulfilling DTR obligations.
- UK Corporate Governance Code (UKCGC):
- Background: The UKCGC sets principles and best practices for corporate governance.
- Impact on Businesses: Companies must follow the code, which includes ESG considerations related to board composition, risk management, and stakeholder engagement.
- Required ESG Expertise: Corporate governance experts and board advisors can guide companies in aligning with the UKCGC.
- Future Regulatory Regime for ESG Ratings Providers:
- Background: The UK government plans to regulate ESG ratings providers to enhance transparency.
- Impact on Businesses: ESG ratings influence investment decisions, so this regulation aims to improve the quality and reliability of ESG assessments.
- Required ESG Expertise: ESG analysts, data scientists, and sustainability consultants can assist companies in navigating ESG ratings and compliance.
Disclaimer- Please remember that ESG regulations are evolving over time, and to stay updated on which specific regulations influence your business the most, you need to consult with an ESG expert. You can find some of the top ESG specialists in the UK here.
