What is ESG · the term, its origin and its UK law
What is ESG? Environmental, social and governance, explained
ESG stands for environmental, social and governance: three headings for the information investors, lenders, customers and regulators use to judge how a company affects the world and how the world affects it.
The term was set out in 2004 by twenty financial institutions in Who Cares Wins, and in the UK it now sits behind a set of specific legal duties rather than one requirement.
The newest is the FCA’s PS26/19, which brings UK SRS into the listing rules, on a comply-or-explain basis, from accounting periods beginning on or after 1 January 2027.
Definition
ESG in one paragraph, and then in full
The environmental letter covers how a company affects and depends on the natural world: greenhouse gas emissions, energy, climate risk, nature, water and waste.
The social letter covers its relationships with people: its workforce, health and safety, pay, human rights, its suppliers and the communities it operates in.
The governance letter covers how it is run: the board, controls, ethics, remuneration and, increasingly, how it makes sustainability claims.
ESG is not a standard, a score or a law in its own right.
It is a vocabulary, and each of its parts is measured, reported, rated or regulated by something else.
That is why the same company can be “good at ESG” on one rating and poor on another: the raters ask different questions of the same three letters.
The three letters taken one at a time, with the metrics under each, are on the ESG pillars, and what raters and investors look for on ESG criteria.
ESG is a way of organising non-financial information about a company under three headings: its relationship with the environment, its relationships with people, and the way it is run.
Investors use it to judge long-term risk; customers and lenders use it to choose whom to deal with; UK law requires parts of it to be published.
Origin
Where the term came from: a 2004 report by investors
In January 2004, UN Secretary-General Kofi Annan wrote to the chief executives of 55 leading financial institutions inviting them to develop guidelines on environmental, social and governance issues.
Twenty institutions from nine countries took part, and the result, published in December 2004, was Who Cares Wins — Connecting Financial Markets to a Changing World.
The UN Global Compact oversaw the work and the Swiss Government funded it, but the recommendations were the financial industry’s own.
Their argument was that environmental, social and governance issues belong in mainstream investment analysis because they affect long-term value.
The investor network that grew from that agenda is the Principles for Responsible Investment, whose signatories commit to six principles “where consistent with our fiduciary responsibilities”.
Two decades later, the investor case is written into UK rules: UK SRS S1 asks for sustainability-related risks and opportunities that could reasonably be expected to affect a company’s cash flows, access to finance or cost of capital.
The line of descent from the TCFD to the UK standards is on TCFD.
- Jan 2004Kofi Annan writes to 55 financial institutions
- Dec 2004Who Cares Wins published
Twenty institutions from nine countries.
- 2017TCFD Final Report
Climate disclosure for investors.
- 1 Apr 2019SECR applies in the UK
- 6 Apr 2022UK climate disclosure duty applies
- Jun 2023ISSB issues IFRS S1 and S2
- 25 Feb 2026UK SRS S1 and S2 published
- 30 Sep 2026FCA PS26/19 published
UK law
The three letters, and the UK law behind each
Each row names the instrument that makes a company report on the subject, and whom it reaches.
Where no instrument names a subject, the row says so.
| Letter | Subject | UK instrument | Who it reaches |
|---|---|---|---|
| E | Energy and greenhouse gas emissions | SECR, SI 2008/410 Sch 7 | Quoted companies; large unquoted companies and LLPs |
| E | Climate-related risks and opportunities | CA 2006 s.414CB | The s.414CA categories with more than 500 employees |
| E | Climate, under UK SRS S2 | FCA PS26/19 | UKLR 6, 14, 15, 16 and 22, comply or explain, from 2027 |
| E | Nature, water, waste | No company reporting duty names them | Voluntary frameworks only |
| S | Modern slavery in supply chains | MSA 2015 s.54 | Total turnover of £36m or more |
| S | Gender pay | SI 2017/172 | 250 or more employees on 5 April |
| S and G | How directors weighed employees, suppliers, community and environment | CA 2006 s.414CZA | Companies above the medium-sized test |
| G | Board leadership, controls, remuneration | UK Corporate Governance Code 2024 | Two listing categories, comply or explain |
| G | Sustainability claims in financial products | FCA ESG 4.3.1R | Every FCA-authorised firm |
| G | The ESG ratings market | SI 2025/1349 | Rating providers, from 29 June 2028 |
The environmental letter is the most regulated in the UK, and almost entirely through climate.
SECR alone reaches about 19,900 organisations, according to the DESNZ evaluation published on 29 January 2026, and its method is set out in the government’s Environmental Reporting Guidelines.
Carbon figures follow the GHG Protocol: Scope 1 for direct emissions, Scope 2 for purchased energy and, under its Scope 3 Standard, the rest of the value chain, as explained on the GHG Protocol.
The social letter has two statutory reporting duties, both about a decade old, and a great deal of voluntary reporting.
The governance letter is mostly the Code and the Companies Act, with the FCA policing what financial firms say about sustainability.
The full list, each duty to its provision with a scope checker, is on ESG reporting requirements in the UK; SECR in practice is on the SECR reporting guide and the climate duty on TCFD in the UK.
Sorter
Pick an issue, see its letter and its law
The sorter beside this text takes an issue a company might be asked about and shows which letter it sits under.
It then names the UK instrument, if any, that makes a company report on it, and the voluntary frameworks that cover it.
The point it makes repeatedly is that the letters are not equally regulated.
Emissions and energy are covered by law for large companies; water, waste and biodiversity mostly are not, outside sector regimes.
“No duty names it” is a statement about reporting law, not a statement that the issue does not matter to investors or customers.
Customers increasingly ask suppliers about all of them anyway, which is the subject of the ESG questionnaire page.
Which letter, which law?
SECR (Scope 1 and 2 for quoted companies; UK energy and related emissions for unquoted companies and LLPs); UK SRS S2 for listed companies from 2027
GHG Protocol; CDP; GRI 305 (replaced by GRI 102 from 2027)
“No duty names it” is a statement about reporting law, not about whether the issue matters.
Nothing you choose is stored.
Related terms
ESG, sustainability, CSR and impact investing: four different things
Sustainability
The broad idea of operating without exhausting the resources and relationships a business depends on.
UK instruments use this word: UK Sustainability Reporting Standards, the FCA’s Sustainability Disclosure Requirements.
ESG
The reporting and investment lens on sustainability, in three headings, built on comparable metrics.
In FCA rules the word itself appears mostly as a restricted term in the names and marketing of retail investment products.
CSR
Corporate social responsibility: an older, voluntary practice centred on a company’s contribution to society, usually told as narrative.
The comparison is drawn in full on ESG vs CSR.
Impact investing
Investing with the stated aim of a measurable social or environmental result alongside a return.
Where ESG asks how sustainability affects the company, impact investing asks how the investment affects the world; the FCA’s Sustainability Impact label is one regulated form of it.
Two lenses
Outside-in or inside-out: the two ways to read ESG
ESG information can be read in two directions, and much disagreement about it is really disagreement about which one is meant.
The outside-in reading asks how sustainability matters affect the company: UK SRS S1 treats information as material if it could reasonably be expected to influence investors’ decisions, judged through cash flows, access to finance and cost of capital.
The inside-out reading asks how the company affects the world: the GRI Standards ask for an organisation’s most significant impacts on the economy, environment and people.
The EU’s standards combine the two as double materiality, which is set out on double materiality.
The UK’s own standards, published by the Department for Business and Trade and built on the ISSB’s work, take the outside-in reading.
So a UK listed company’s ESG disclosures will be investor-facing, and a separate GRI-based report, if it publishes one, will be stakeholder-facing.
Status · 1 October 2026
Is ESG a legal requirement in the UK? Parts of it are
No UK law requires “ESG” as such, and none requires a document called an ESG report.
What the law requires is specific disclosures from the organisations each regime reaches, set out in the table above.
The largest change in 2026 is for listed companies: the FCA’s final rules require companies in UKLR 6, 14, 15, 16 and 22 to report against UK SRS on a comply-or-explain basis for accounting periods beginning on or after 1 January 2027, with first reports in 2028.
The rules finalise CP26/5, which had proposed mandatory climate reporting; the final rules do not make any part of UK SRS mandatory.
For every other UK company, UK SRS S1 and S2 remain voluntary standards, and no private-company UK SRS requirement or threshold has been proposed.
The government’s modernising corporate reporting consultation, open until 30 November 2026, is a set of proposals and changes nothing today.
The listing rule in detail is on the FCA and UK SRS, and the standards on UK SRS S1 and UK SRS S1 and S2.
2026
Is ESG still relevant? The label is debated; the duties grew
The word ESG has become contested, and some companies now prefer “sustainability” or avoid the label altogether.
The obligations underneath moved the other way in the UK in 2026.
UK SRS S1 and S2 were published on 25 February 2026, and the FCA finalised the rules that bring them into the listing rules on 30 September 2026.
The ESG Ratings Order, made on 15 December 2025, brings ratings providers into FCA regulation from 29 June 2028.
A company may use the word less, but it will report more, and the questions behind the three letters do not depend on what they are called.
The statements beside this text test the points most often got wrong, each with its source.
How ESG reporting works as a programme is on ESG reporting in the UK, the frameworks on ESG frameworks in the UK, the standards by type on ESG standards, and the wider regime map on sustainability reporting.
A standards-focused editorial treatment of the same ground is on our sister reference, sustainabilityreportingstandards.co.uk.
What is ESG · true or false
The United Nations itself wrote the 2004 report that set out the term ESG.
UK law requires large companies to publish a document called an ESG report.
From accounting periods beginning on or after 1 January 2027, listed companies in five categories report against UK SRS or explain.
Signing the UN Principles for Responsible Investment commits an investor to specific exclusions.
The FCA restricts the use of “ESG” in the names of certain investment products.
ESG ratings providers are already authorised by the FCA.
0 of 6 answered.
Nothing you choose is stored or sent.
Frequently asked
ESG, answered
What does ESG stand for?
ESG stands for environmental, social and governance.
It is a way of grouping the non-financial information investors, lenders, customers and regulators use to judge a company’s risks and conduct: its effect on and exposure to the environment, how it treats people, and how it is run.
What is ESG in simple words?
ESG is a checklist of three questions about a company: how it affects and is affected by the environment, how it treats its workers, suppliers and communities, and how well it is governed.
Investors use the answers to judge risk; regulators require some of the answers to be published.
Where did the term ESG come from?
It was set out in Who Cares Wins, a December 2004 report by twenty financial institutions from nine countries.
They were invited by UN Secretary-General Kofi Annan to recommend how to integrate environmental, social and governance issues into investment analysis; the UN Global Compact oversaw the work and the Swiss Government funded it.
Is ESG a legal requirement in the UK?
Not as a single requirement.
UK law requires specific disclosures from the companies each regime reaches: SECR energy and carbon, Companies Act climate disclosures, the section 172(1) statement, Modern Slavery Act statements and gender pay gap figures.
Listed companies in five categories must report against UK SRS or explain, for accounting periods beginning on or after 1 January 2027, under the FCA’s PS26/19.
Nothing requires a document called an ESG report.
What is the difference between ESG and sustainability?
Sustainability is the broader idea of operating without using up the resources and goodwill a business depends on.
ESG is the reporting and investment lens on it, organised into three headings.
UK instruments mostly say “sustainability”, as in UK Sustainability Reporting Standards, while the market says “ESG”; the data underneath is usually the same.
What is the difference between ESG and CSR?
Corporate social responsibility is an older, voluntary practice centred on a company’s contribution to society, usually told as narrative.
ESG is investor-facing, built on comparable metrics, and increasingly tied to disclosure rules.
A CSR report can contain ESG data, but ESG reporting is judged by whether its figures are complete, consistent and decision-useful.
What are the three pillars of ESG?
Environmental covers emissions, energy, climate risk, nature, water and waste.
Social covers workforce, health and safety, pay, human rights and supply chains.
Governance covers the board, internal controls, ethics and how sustainability claims are made.
In UK law the E is the most regulated letter, through SECR, the Companies Act climate disclosures and UK SRS.
Is ESG still relevant in 2026?
The label is debated; the underlying duties have grown.
In 2026 the UK published UK SRS S1 and S2 (25 February), the FCA finalised rules bringing them into the listing rules (PS26/19, 30 September), and the ESG Ratings Order, made in December 2025, brings ratings providers into regulation from 29 June 2028.
Companies may use the word less, but they report more.
What does financial materiality mean in ESG?
Financial materiality asks whether sustainability information could reasonably be expected to influence the decisions of investors, judged by its effect on the company’s cash flows, access to finance or cost of capital. It is the test in UK SRS S1 and IFRS S1.
Impact materiality, used by GRI, asks instead about the company’s most significant effects on the economy, environment and people.
Sources
Primary sources
Every figure, date and status on this page traces to the instrument’s owner.
Secondary commentary is never the source for a number.
- UN Global Compact (World Bank repository copy)Who Cares Wins — Connecting Financial Markets to a Changing World (December 2004)
The report by twenty financial institutions that set out the ESG case.
- UN PRIPrinciples for Responsible Investment
The investor network built around six principles.
- UN PRIWhat are the Principles for Responsible Investment?
Signatories commit “where consistent with our fiduciary responsibilities”.
- Department for Business and TradeUK Sustainability Reporting Standards: UK SRS S1 and UK SRS S2
Published 25 February 2026 for voluntary use.
- Department for Business and TradeUK SRS S1 (PDF), ¶¶3, 17–18
The financial materiality test.
- Financial Conduct AuthorityPS26/19: Aligning listed issuers’ sustainability disclosures with international standards
UK SRS on comply or explain for five listing categories, from 2027.
- Financial Conduct AuthorityPS26/19 (PDF), ¶¶1.2, 3.6, 3.12
The basis, scope and start date.
- Financial Conduct AuthorityCP26/5 — the consultation PS26/19 finalises
The proposals the final rules changed.
- IFRS FoundationInternational Sustainability Standards Board
The issuer of IFRS S1 and S2, on which UK SRS is built.
- legislation.gov.ukSI 2008/410 Schedule 7 (SECR)
Energy and carbon in the directors’ report.
- Department for Energy Security and Net ZeroSECR regulations: evaluation (29 January 2026)
About 19,900 organisations in SECR scope.
- Department for Energy Security and Net ZeroEnvironmental Reporting Guidelines, including SECR guidance
The government’s method guidance.
- legislation.gov.ukThe Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022 (SI 2022/31)
The 2022 climate disclosure duty.
- legislation.gov.ukCompanies Act 2006, section 414CB
The eight climate disclosures.
- legislation.gov.ukCompanies Act 2006, section 414CZA
The section 172(1) statement.
- legislation.gov.ukModern Slavery Act 2015, section 54
Transparency in supply chains.
- legislation.gov.ukThe Equality Act 2010 (Gender Pay Gap Information) Regulations 2017
Gender pay gap reporting at 250 employees.
- Financial Reporting CouncilUK Corporate Governance Code 2024
The governance code for listed companies, on comply or explain.
- Financial Conduct AuthoritySustainability Disclosure Requirements (SDR) regime
Investment labels and the anti-greenwashing rule.
- FCA HandbookESG sourcebook, chapter 4
ESG 4.3.1R, and “ESG” as a restricted term in fund names.
- legislation.gov.ukThe FSMA 2000 (Regulated Activities) (ESG Ratings) Order 2025 (SI 2025/1349)
Ratings providers authorised from 29 June 2028.
- legislation.gov.ukUK statutory instruments, 2025
The year’s list, in which the ESG Ratings Order sits.
- Department for Business and TradeModernising corporate reporting — consultation
Open until 30 November 2026; proposals only.
- Global Reporting InitiativeGRI 1: Foundation 2021
Material topics as the most significant impacts.
- Greenhouse Gas ProtocolCorporate Accounting and Reporting Standard
Scopes 1 and 2.
- Greenhouse Gas ProtocolCorporate Value Chain (Scope 3) Standard
Scope 3.
Related questions
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For the company-policy question, read the sustainability policy guide alongside the reporting framework.
For the organisation-specific question, read about sustainability reporting for membership organisations and its reporting context.