Category: ESG fundamentals · Reviewed by Mark Fox, Broker · Renewals · Last reviewed 2026-06-10
Environmental, Social and Governance (ESG) is a framework used to assess an organisation’s exposure to, and management of, non-financial risks and opportunities arising from environmental impact, social conduct and governance arrangements. The term entered mainstream finance through the United Nations Global Compact’s 2004 report “Who Cares Wins” and has since been embedded in UK financial services regulation, corporate disclosure law and insurance underwriting practice.
Category: ESG fundamentals Also known as: ESG, environmental social governance, ESG factors Established / Date: 2004 (UN Global Compact “Who Cares Wins” report) Related concepts: ESG, ESG insurance underwriting, ESG ratings
Environmental, Social and Governance refers to the three central pillars used to evaluate the sustainability and ethical impact of an investment, organisation or counterparty. The Environmental pillar covers matters such as greenhouse gas emissions, energy use, water and waste management, biodiversity impact and physical and transition climate risk. The Social pillar covers labour standards, modern slavery, health and safety, product safety, community relations and human rights. The Governance pillar covers board composition, executive remuneration, audit and internal controls, anti-bribery measures, data governance and shareholder rights.
In a UK regulatory context, ESG is not a single defined term but a composite concept referenced across multiple regimes. The Financial Conduct Authority’s ESG Sourcebook, introduced through Policy Statement PS21/24 in December 2021, sets out rules and guidance for asset managers and certain regulated firms on integrating ESG considerations [1]. The Companies Act 2006, as amended by the Companies (Strategic Report) (Climate-related Financial Disclosure) Regulations 2022, requires large UK companies and LLPs to publish climate-related financial disclosures aligned with the Task Force on Climate-related Financial Disclosures (TCFD) recommendations [2].
ESG is conceptually distinct from corporate social responsibility (CSR). Where CSR focuses on voluntary corporate philanthropy and reputation management, ESG provides a structured, measurable framework intended for use by investors, lenders, insurers and regulators as part of financial decision-making.
The UK regulatory framework for ESG draws on multiple authorities. The Prudential Regulation Authority’s Supervisory Statement SS 3/19, “Enhancing banks’ and insurers’ approaches to managing the financial risks from climate change”, published in April 2019 and updated in July 2020, requires PRA-regulated insurers to embed climate-related financial risks within their governance, risk management, scenario analysis and disclosure frameworks [3]. The FCA ESG Sourcebook (ESG 1 to ESG 5) applies labelling, disclosure and product-level transparency requirements to in-scope firms [1].
At international level, the Task Force on Climate-related Financial Disclosures published its Final Recommendations in June 2017, establishing the four-pillar structure (Governance, Strategy, Risk Management, Metrics and Targets) that underpins UK climate disclosure law [4]. In June 2023 the International Sustainability Standards Board issued IFRS S2 Climate-related Disclosures, which incorporates and develops the TCFD framework and forms the basis for the UK Sustainability Reporting Standards currently under government consultation.
UK insurance underwriters treat ESG as both a risk factor and an underwriting filter. Lloyd’s of London published its ESG strategy in December 2020, setting out targets for the managed market, including a phased withdrawal of underwriting for new coal-fired power plant, thermal coal mines, oil sands and Arctic energy exploration from 1 January 2022, and from existing risks by 1 January 2030. The Association of British Insurers published its Climate Change Roadmap in July 2021, committing UK general insurers to align their underwriting and investment portfolios with net-zero by 2050.
In the London market, ESG considerations are routinely embedded in pre-bind questionnaires, in particular for energy, mining, agriculture and manufacturing risks. Brokers increasingly receive ESG due diligence questions covering decarbonisation strategy, modern slavery compliance, governance composition and litigation exposure. Specialist facilities and follower capacity have been established to provide cover for transition technologies including offshore wind, hydrogen and carbon capture.
UK SMEs and mid-market corporates should expect proposal forms, particularly for directors’ and officers’ liability, professional indemnity and management liability, to include ESG-related questions. These commonly cover board diversity, climate transition planning, supply chain due diligence and any historical or pending ESG litigation. Larger insureds with annual revenue above £36 million may also be subject to Companies Act 2006 section 414CB climate disclosures, which insurers may review when assessing exposure.
Capacity availability is uneven. Carbon-intensive sectors face restricted markets and premium loadings, while businesses with credible transition plans and verified ESG metrics may benefit from preferential terms in certain facilities.
A Yorkshire-based engineering company manufacturing components for both fossil fuel and offshore wind clients applies for directors’ and officers’ insurance with £10 million limit. The proposal form includes 14 ESG questions covering net-zero target adoption, modern slavery statement publication under section 54 of the Modern Slavery Act 2015, scope 1 and 2 emissions reporting and any pending climate-related litigation. The underwriter applies a modest loading for fossil-fuel revenue concentration but offers preferential pricing on the renewable energy segment, conditional on annual ESG metric reporting.
This entry is part of the Apex Insurance Wiki. Last reviewed by Matt Bartlett on 2026-06-10. Next review: 2026-12-10.
Apex Insurance Brokers Limited. Authorised and regulated by the Financial Conduct Authority, FRN 724952. Registered in England and Wales, Companies House 07014570. This entry provides general information about UK insurance concepts and is not regulated advice. Consult your insurance broker on your specific position.
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