UK: Environment, Social And Governance ("ESG") New UK Mandatory Reporting Rules

Last Updated: 17 September 2013
Article by Michael Hutchinson and Kate Ball-Dodd

Keywords: ESG, UK, mandatory reporting rules, SR regulations

The Companies Act 2006 (Strategic Report and Directors' Report) Regulations 2013 (the "SR Regulations") come into force on 1 October 2013.

The SR Regulations both extend the scope of mandatory non-financial reporting obligations in the UK and introduce a new format for reporting.

The SR Regulations are another step in the emergence of ESG as a top-of-mind boardroom issue. This has been prompted by the conviction that companies that address ESG concerns can achieve higher growth rates and increased profitability, better stakeholder reputation and improved brand strength and an acknowledgement that ESG risks can seriously undermine investor confidence and the long-term prospects for businesses.

For some time, major companies have embraced voluntary reporting on sustainability issues, but mandatory ESG reporting presents particular liability risks.

What you need to know is how to avoid criminal, civil sanctions or reputational damage for deflective reporting.

In this update, we consider the challenges mandatory ESG reporting presents and how the risks can be mitigated, summarise the changes to be introduced by the SR Regulations and look forward to what's in the pipeline in terms of ESG regulation. We begin with a summary of the legal requirements.

ESG Mandatory Reporting: the Requirements

The SR Regulations abolish the requirement on companies1 to publish a Business Review and replace it with a requirement to produce a Strategic Report. They also introduce changes to the content of the Directors' Report. The requirements take effect for companies whose financial year ends on or after 30 September 2013.

It is important to appreciate the differentiated requirements for quoted, large and medium companies in this area and these are summarised in the table below.

First, we set out the changes introduced by the SR Regulations for quoted companies.

The scope of the Strategic Report differs from that of the Business Review in the following ways. Quoted companies have to provide "to the extent necessary for an understanding of the development, performance or position of the company's business":

  • information about human rights issues alongside social and community issues;
  • a gender breakdown at the end of the financial year of the directors of the company, the senior managers and employees of the company.

If the report does not contain this information, it has to say so clearly.

The new focus on human rights follows the adoption of the UN Guiding Principles on Business and Human Rights and follows the publication this month of the UK Government's action plan on how businesses should integrate human rights considerations into their activities.

The SR Regulations also introduce a new requirement on quoted companies to state the annual quantity of emissions expressed in terms of tonnes of carbon dioxide equivalent arising from the activities for which that company (and its consolidated undertakings) is responsible (for example, from direct emissions to the atmosphere) and arising from the purchase of energy for heating or cooling Taking these changes together with existing reporting requirements, the UK's mandatory ESG provisions can be summarised as follows.

These requirements are supported by draft "Guidance on the Strategic Report" published in August 2013 by the Financial Reporting Council. In addition, DEFRA has published guidance on "Environmental Reporting Guidelines" (June 2013) to assist companies in preparing their reports.

Legal & Reputational Risk

ESG reporting presents a number of challenges for businesses and getting it wrong can have serious consequences. If companies fail to comply with mandatory reporting obligations, the directors can face fines. In addition, defective or inadequate sustainability reporting can lead to requirements by regulators to amend reports. Indeed, the Financial Reporting Council has taken such action in the past in connection with a complaint about sustainability reporting from a mining company.

In addition, in the US, investors are currently pursuing litigation against a large energy company based on supposedly recklessly made claims about the sustainability performance of the company.

Problems can arise for businesses because of the multiplicity of standards for reporting of sustainability issues – this is especially the case as companies move from voluntary to mandatory reporting, but it is not restricted to this. Carbon emissions, for instance, are frequently reported under a number of different schemes, often with differing requirements, conversion factors and boundaries. This can cause confusion, which can lead to accusations (often unfair) of a lack of consistency and candour.

Sustainability information is also often disseminated by a range of people within a business: again giving rise to a risk of inconsistency. Therefore, the key elements of any risk mitigation strategy must be:

  • balance: not only is this requirement set out in SR Regulations, but unremittingly positive ESG reports are, in practice, a prime target for activist NGOs;
  • transparency: the source of information and supporting materials should be clearly signposted in the Strategic Report;
  • consistency: internal control and reporting lines should be put in place to mitigate the risk of contradictory messages being disseminated to stakeholders.

Understanding how to manage disclosures relating to actual or potential litigation, preserving legal privilege in respect of draft ESG reports and assuring compliance with legal requirements on reporting, are some of the ways in which lawyers assist in mitigating ESG risk.

Looking forward

ESG is one of the megatrends shaping the business landscape, both because of the risks and the opportunities it presents.

Increased regulation is inevitable: the EU, for instance, has published a proposal for a Directive on mandatory ESG reporting for quoted and large companies and we can expect to see developments in the concept of integrated reporting with the publication of sustainability accounting standards.

As the ESG agenda gains momentum, we also expect to see more companies linking ESG performance to remuneration, as some have already done.


1 Excluding "small companies".

Originally published 16 September 2013

Visit us at

Mayer Brown is a global legal services provider comprising legal practices that are separate entities (the "Mayer Brown Practices"). The Mayer Brown Practices are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, both limited liability partnerships established in Illinois USA; Mayer Brown International LLP, a limited liability partnership incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a Hong Kong partnership and its associated entities in Asia; and Tauil & Chequer Advogados, a Brazilian law partnership with which Mayer Brown is associated. "Mayer Brown" and the Mayer Brown logo are the trademarks of the Mayer Brown Practices in their respective jurisdictions.

© Copyright 2013. The Mayer Brown Practices. All rights reserved.

This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions