Category: ESG fundamentals · Reviewed by Mark Fox, Broker · Renewals · Last reviewed 2026-06-10
ESG is the standard abbreviation for Environmental, Social and Governance — a set of non-financial criteria used by investors, lenders, regulators and insurers to assess corporate sustainability and conduct. Within UK financial services the term has acquired a specific regulatory meaning through the Financial Conduct Authority’s ESG Sourcebook and through climate-related disclosure obligations under the Companies Act 2006.
Category: ESG fundamentals Also known as: Environmental Social and Governance, ESG factors, sustainability factors Established / Date: 2004 (term first used in UN Global Compact “Who Cares Wins” report) Related concepts: Environmental Social and Governance, ESG ratings, ESG insurance underwriting
ESG is shorthand for a tri-partite analytical framework applied to corporate entities and, by extension, to investment portfolios and insurance underwriting books. The Environmental dimension captures climate change, resource depletion, waste, pollution and biodiversity. The Social dimension captures employment standards, human rights, diversity, product safety, data privacy and community relations. The Governance dimension captures board structure, executive remuneration, audit independence, anti-corruption controls and shareholder rights.
In UK regulatory drafting, ESG is used as both an umbrella term and as a discrete concept. The FCA ESG Sourcebook, introduced via Policy Statement PS21/24 in December 2021, contains rules on climate-related disclosures and, since November 2023 (PS23/16), on sustainability disclosure requirements and investment labels [1]. The Prudential Regulation Authority’s Supervisory Statement SS 3/19 of April 2019 specifically addresses the climate component, but the broader ESG concept also informs Senior Manager and Certification Regime conduct rules where governance failures arise [2].
ESG is sometimes contrasted with “sustainability”, which in the FCA’s lexicon refers more narrowly to environmental and certain social outcomes. However, the two terms are often used interchangeably in market practice.
The legal architecture supporting ESG in the United Kingdom is multi-layered. Statute-level requirements include section 414CB of the Companies Act 2006, which since 6 April 2022 has required publicly quoted companies, large private companies and LLPs to publish climate-related financial disclosures aligned with TCFD [3]. Section 54 of the Modern Slavery Act 2015 imposes parallel social-pillar reporting obligations on commercial organisations with annual turnover of £36 million or more.
Regulator-level instruments include the FCA ESG Sourcebook, the PRA’s SS 3/19, and the FCA’s Sustainability Disclosure Requirements regime (SDR) finalised in PS23/16 [1]. International standards adopted or recognised in the UK include the TCFD Final Recommendations of June 2017 and IFRS S2 of June 2023 [4]. The UK Sustainability Disclosure Standards (UK SDS), built on IFRS S1 and S2, were the subject of a Department for Business and Trade consultation completed in 2024 and are expected to apply to large UK entities through phased implementation.
Insurance underwriters in the UK and at Lloyd’s of London integrate ESG considerations at multiple points in the underwriting cycle. At portfolio level, Lloyd’s published its first ESG strategy in December 2020, committing the managed market to phased withdrawal from coal, oil sands and Arctic energy underwriting, with new business cessation from 1 January 2022 and full run-off by 1 January 2030. At risk level, underwriters review proposal forms for evidence of ESG governance, including transition planning, modern slavery compliance and board independence.
The Association of British Insurers’ Climate Change Roadmap, published in July 2021, committed UK general insurers to net-zero underwriting and investment portfolios by 2050. Several Lloyd’s managing agents, alongside major UK composite insurers, have joined the Net-Zero Insurance Alliance or its successor frameworks, although membership has fluctuated since 2023.
For UK businesses, ESG influences insurance availability and pricing in three ways. First, proposal forms increasingly include ESG questions, particularly on directors’ and officers’, professional indemnity, environmental impairment and certain property lines. Second, sectors deemed high ESG-risk (thermal coal, oil sands, certain mining, tobacco, controversial weapons) face restricted capacity and exclusion clauses. Third, businesses with strong ESG credentials may access preferential facilities, particularly in renewables, sustainable agriculture and clean technology.
Companies caught by section 414CB Companies Act 2006 should expect insurers to review their published TCFD disclosures as part of underwriting due diligence, particularly for D&O cover.
A mid-market UK property developer applies to renew its £25 million combined property and liability programme. The insurer requests evidence of the company’s section 414CB climate disclosures, modern slavery statement and board diversity reporting. The developer’s published transition plan, including a commitment to BREEAM Excellent on new developments, supports a renewal without loading. By contrast, a sister company within the same group with a thermal coal logistics contract faces a 15% loading and a coal exposure exclusion endorsement.
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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