ESG Watch: Rising tensions, diverging paths

Following consultation, the UK Government published final versions of the UK SRS on 25 February 2026 (see our full article here: Final UK Sustainability Reporting Standards: What boards need to know).

To recap previous updates and summarise the road ahead:

• Based closely on ISSB global baseline standards, UK SRS S1 sets general requirements for sustainability-related financial disclosures, while UK SRS S2 focuses specifically on climate-related risk and opportunities.
• In June 2025, the Government launched a consultation on proposed amendments to ISSB standards, deemed necessary for the UK to endorse them.
• This has led to several differences compared with ISSB standards, most notably the removal of a transition relief allowing reporting entities to publish sustainability-related disclosures later than financial statements.
• Available for immediate voluntary use, any obligations to report in line with the standards will be given effect through separate regulation.
• On 30 January 2026, the Financial Conduct Authority (FCA) launched a consultation on proposed amendments to UK Listing Rules, which would require listed companies to report in line with UK SRS.
• Separately, the Government is expected to launch a consultation later this year on equivalent changes to the UK Companies Act, which would similarly affect large private companies.

Our view

Listed companies (and those preparing for a listing) should treat the FCA consultation as having fired the starting pistol on mandatory application and begin their gap analysis against UK SRS-aligned reporting now. As alluded to in our previous update, boards of larger private companies should do likewise, treating the current voluntary period as vital preparation time.

Multinational organisations operating across the UK and EU should also pay close attention to key points of convergence and divergence between UK SRS and ESRS, which are covered in detail in our full article (link above).

The two sets of standards may share many features, but fundamental differences (most notably in approaches to materiality assessment and coverage of topical standards) create considerable complexity, particularly for UK-headquartered groups with group-level CSRD reporting obligations.

For advice on strategies for reducing this complexity, get in touch.

First promised in the Environment Act 2021, implementation of the UK Forest Risk Commodities Regulation (FRCR) has been in limbo ever since, pending secondary legislation. However, pressure is now mounting on the Government to act.

Published on 20 January 2026, the Government's own security assessment confirmed that critical ecosystems – including the Amazon rainforest, Congo rainforest and boreal forests – are all on a pathway to collapse, threatening UK security and prosperity (see our article: When national security assessment meets boardroom duty: why biodiversity loss and ecosystem collapse demand urgent action).

Pressure is also mounting from the likes of a new UK Cocoa Coalition, comprised of companies and NGOs including M&S, Tony's Chocolonely, and the Rainforest Alliance. On 24 March, the Coalition issued a statement calling on the Government to publish secondary legislation as soon as possible and to align requirements of the FRCR with those of the EU Deforestation Free Products Regulation (EUDR).

As originally proposed, the FRCR would:

• Encompass non-dairy cattle products (beef and leather), cocoa, palm, soy, and derived products
• Apply to UK organisations with a global turnover of more than £50 million that use these commodities/derived products in their UK commercial activities
• Prohibit use of these commodities/derived products, unless local laws where the commodities were grown/raised/cultivated have been complied with
• Require organisations to implement due diligence systems to obtain information about commodities used, and to assess and mitigate risks on non-compliance with local laws

Our view

After nearly five years of no movement, could we soon see the secondary legislation necessary to implement the FRCR? Much will depend on developments elsewhere.

Calls to ensure alignment between the FRCR and the EUDR are not without complications. For example, there are notable differences between the two regimes, including that:

• EUDR scope extends to commodities (and their derived products) that are not currently in scope of the FRCR, such as coffee and rubber.
• The EUDR defines "deforestation-free" as commodities produced on land that has not been subject to deforestation since 31 December 2020. Whereas use of forest risk commodities would be permitted under the FRCR, provided local laws have been complied with, the legality of deforestation under local laws is irrelevant under the EUDR.

Additionally, application of the EUDR has been postponed multiple times and the regulation may yet be subject to further amendment. With the European Commission due to report in April regarding opportunities to further simplify obligations for companies (see our previous update), the Government will no doubt want to assess the outcome of that process before committing to a timeline.

On 25 March 2026, the Government published its response to consultation on ethnicity and disability pay gap reporting, confirming that it will introduce mandatory reporting for all private and voluntary sector employers in Great Britain with 250 or more employees. Closely mirroring existing gender pay gap reporting obligations, in-scope employers will be required to:

• Use the same snapshot dates, annual reporting deadlines, and online reporting service as gender pay gap reporting. For private and voluntary sector employers, the snapshot date is 5 April each year, with data to be reported within 12 months (public sector employers have slightly different reporting dates).
• Report against the same six metrics used for gender pay gap reporting, i.e. mean and median differences in average hourly pay; pay quarters; mean and median differences in bonus pay; and the percentage of employees receiving bonus pay.
• Use a binary comparison at a minimum for ethnicity pay gap reporting (White versus all other ethnic groups combined) and aggregate to five ethnic groups where possible, in line with GSS harmonised standards and ONS guidance. There will be a threshold for employees for each group to protect anonymity.
• Use a binary approach for disability pay gap reporting (disabled versus non-disabled), applying the Equality Act 2010 definition of disability. Here too, there will be a threshold for employees for each group to protect anonymity.
• Capture the ethnic and disability composition of the workforce to contextualise pay gap figures. Employers must also report declaration rates - the percentage of employees who did not disclose their ethnicity or disability status - to indicate the reliability of the underlying data.
• Publish action plans for tackling any ethnicity or disability pay gaps. This will be aligned with the incoming requirement to produce an action plan covering steps to reduce the gender pay gap and support employees going through the menopause, so that employers can produce a single plan covering all these characteristics.

No timetable for implementation has been provided; however, the Government has previously committed to introducing the Equality (Race and Disability) Bill in the current parliamentary session. While the Act and supporting Regulations will require parliamentary scrutiny and could take some time to pass, the inclusion of indicative draft clauses in its consultation response indicates that the Government may well be committed to this timeline.

Our view

Businesses within scope - or approaching the 250-employee threshold - should use the period before commencement to build their readiness for producing mandatory disclosures and action plans.

This includes assessing the extent to which existing gender pay gap processes, data infrastructure, and action plan frameworks can be extended to cover ethnicity and disability data, and identifying and addressing any capability gaps. It also includes building appropriate internal communication strategies to encourage employee engagement and improve declaration rates.

Regarding the latter, we believe this rests on framing data gathering as a cultural initiative, rather than a compliance exercise - a vital step in normalising conversations around pay gaps. Success will depend heavily on building the necessary trust and psychological safety for employees to share their information, and on demonstrating leadership commitment to using that data to drive action.

Final text having been adopted by the European Parliament in December 2025, the Council followed suit on 24 February 2026, and the Omnibus I simplification package was published in the EU Official Journal on 26 February 2026.

Entering into force 18 March 2026, EU member states now have until 19 March 2027 to transpose amendments to the Corporate Sustainability Reporting Directive (CSRD) into national laws. As summarised in our previous update, the key milestones for businesses are as follows:

• EU undertakings and non-EU issuers that (on an individual or group basis) exceed €450 million turnover and an average of more than 1,000 employees during the financial year, will be required to report from 2028, for financial years starting on or after 1 January 2027.
• Non-EU ultimate parent companies of groups that exceed €450 million turnover generated in the EU, and have an EU subsidiary/branch with net turnover of more than €200 million, will be required to report from 2029, for financial years starting on or after 1 January 2028.

As for the simplified standards they are required to report against:

• Omnibus recitals state that the Commission will adopt revised ESRS standards by delegated act within six months of its entry into force. Therefore, we can expect them to take effect no later than 18 September 2026.
• As regards the narrower Non-European Sustainability Reporting Standards (NESRS) to be applied by non-EU parent companies of groups, work on these standards is expected to resume shortly, with adoption sometime during 2027.

Our view

Our view hasn't changed since our previous update.

While the EU has hit the brakes on the CSRD, China is stepping on the gas with its own Corporate Sustainability Disclosure Standards (CSDS), which are similarly rooted in a double materiality approach to evaluating sustainability-related impacts, dependencies, risks and opportunities (see our article: Leading the sustainability transition: is the balance of power shifting from the EU to China?).

This is indicative of two very different directions of travel – the former prioritising burden reduction and competitiveness within the current global economic system, while the latter prioritises policy alignment and future competitiveness in recognition of escalating systemic risks.

In our opinion, the latter view will ultimately win out, which is why we continue to recommend double materiality assessment to clients, even if their businesses are no longer (or never were) in scope of the CSRD.

Done right, double materiality assessment isn't just part of the reporting process. It's a critical strategic tool, providing insights into where a business is exposed to risk, lacks resilience and needs to transform (see Double materiality: the de facto global norm for sustainability reporting?).

The Omnibus I simplification package entering into force also means that EU member states now have until 26 July 2028 to transpose amendments to the Corporate Sustainability Due Diligence Directive (CSDDD) into national laws.

As summarised in our previous update, all undertakings still in scope of the CSDDD will be required to comply by 26 July 2029, and to publish required disclosures by 1 January 2030. This includes:

• EU undertakings that (on an individual or group basis) exceed €1.5 billion turnover and an average of more than 5,000 employees during the financial year.
• Non-EU undertakings that (on an individual or group basis) exceed €1.5 billion turnover generated in the EU.
• EU and non-EU undertakings that (on an individual or group basis) have entered into franchising or licensing agreements in the EU, where turnover exceeds €275 million and royalties are more than €75 million.

Our view

Our view remains the same, insofar as reductions in scope of, and obligations under, the CSDDD do little to diminish the underlying rationale for robust due diligence. Irrespective of the politics, three simple truths deserve to be remembered:

1. Studies show that up to 90 per cent of a company's sustainability impacts originate in their supply chain.
2. Linked to our comments above on the strategic value of double materiality, robust human rights and environmental due diligence is integral to impact materiality assessment.
3. Drawing heavily on the due diligence steps set out in OECD Guidelines, what the CSDDD sought to make mandatory is already long-established voluntary best practice.

Contrary to the dominant political narrative right now, which paints sustainability due diligence as excessive regulatory burden, it is an essential tool of good governance, anticipatory risk management, and strategic decision-making.

Those that embed proportionate, risk-based due diligence into governance and strategy are better placed to anticipate disruption, protect value, and navigate a future defined by escalating systemic risks.

On 26 February 2026, Dyson announced that it had reached a settlement in relation to a claim brought by 24 Nepalese and Bangladeshi migrant workers for alleged abuses suffered during their employment in two Malaysian factories manufacturing components for the Dyson supply chain.

Claimants alleged that they had been trafficked to Malaysia, where they were subjected to conditions of forced labour, exploitative and abusive working and living conditions, and (in some cases) detention, torture and beating.

They argued that Dyson exerted a high degree of control over operations and conditions at the factories, and that Dyson knew (or ought reasonably to have known) of the high risk that workers might be subjected to unlawful forced labour. Their claim was pleaded in negligence, false imprisonment, intimidation, assault, battery, and unjust enrichment, which Dyson denies any liability for.

Considered an important test case in business and human rights law, a brief procedural history is as follows:

• Proceedings were first issued in May 2022.
• Dyson disputed jurisdiction, arguing that Malaysia was the more appropriate forum, and the High Court initially found in their favour.
• On 13 December 2024, the Court of Appeal unanimously overturned that decision, granting permission for the case to be heard in the English courts.
• Dyson sought permission to appeal the issue of jurisdiction to the Supreme Court, which was refused on 6 May 2025.
• On 14 January 2026, following a case management conference, Mr Justice Pepperall ruled that the case should proceed to trial in April 2027, and ordered early disclosure of certain documents relating to supplier audits and correspondence between Dyson and its Malaysian suppliers.
• On 26 February 2026, Dyson announced it had reached a settlement, "in recognition of the expenses of litigation and the benefits of settlement."  

Our view

After several years of wrangling, the last six weeks appear to have been decisive — Dyson seemingly concluding that, win or lose, proceeding to trial and early disclosure of documents was not worth the cost or reputational risk. The implications for supply chain workers, UK companies and the Government are significant:

• The reality for defendants in claims of this nature is that, once a claim is given permission to proceed, there is unlikely to be a good outcome. This should embolden future claimants by demonstrating that redress is achievable even without an admission of liability.
• For UK companies, this is a timely reminder of the importance of robust due diligence, especially where human rights risks are known to be more prevalent. If it ever were acceptable for companies to claim ignorance of, or lack of control over, impacts in their supply chains, it isn't any more. Beyond conducting risk assessments and using contractual clauses that devolve responsibility to suppliers, we believe this calls for a more comprehensive reimagining of supplier relationship management – one that treats protection of human rights and the environment as a shared responsibility, and that encourages identification of actual/potential harms in the expectation of shared learning, support and investment to address them.
• For the UK Government, the case highlights long-identified shortcomings of the UK Modern Slavery regime and will add further weight to calls for reform. As highlighted in our previous update, measures under consideration include introducing mandatory human rights and environmental due diligence measures, and a "failure to prevent" obligation in relation to forced labour.

For more detailed analysis, see Responsibility without liability: The Dyson settlement and why it matters for UK business and human rights.

On 25 March 2026, a jury in Los Angeles found Meta and YouTube liable for designing platforms in a manner that contributed to addictive use patterns and subsequent mental health-related harms, including depression, body dysmorphia, and suicidal ideation.

The plaintiff, a 20‑year‑old woman identified as KGM, stated that she became hooked on social media having signed up to YouTube aged six, and Instagram aged nine. Her legal team contended that the companies had intentionally engineered "addiction machines", relying on internal documents to argue that the platforms were designed to attract young users despite knowledge of potential harms.

In reaching its verdict, the jury were asked to assess whether the companies’ conduct constituted negligence that was a “substantial factor” in causing harm to the plaintiff, and whether they knew that the design of their products was dangerous. They found in favour of the plaintiff on both issues and awarded a total of $6 million in compensatory and punitive damages, allocating 70 per cent to Meta and the remainder to YouTube.

Both Meta and YouTube have denied wrongdoing and have indicated their intention to appeal.

Our view

Earlier the same week, a court in New Mexico imposed a $375 million fine on Meta for alleged failures to protect children from exposure to sexual predators, leading commentators to posit that these rulings could be a "Big Tobacco" moment for big tech.

Historically, technology companies have frequently relied on section 230 of the US Communications Decency Act, which provides immunity for content posted by users. However, the novel strategy of focusing on the design of the platforms themselves looks set to rewrite the legal playbook.

Allegations relating to youth targeting and the concealment of harms draw obvious comparisons to litigation against the tobacco industry in the 1990s, and it is worth drawing comparisons to the outcomes of that litigation, too.

Under the 1998 Tobacco Master Settlement Agreement, the four largest US tobacco companies agreed to make ongoing payments to 46 US states to cover certain healthcare costs associated with smoking, with commitments of at least $206 billion over the initial 25-year period.

On 20 February 2026, a US district judge in North Carolina dismissed a lawsuit accusing Apple of misleading customers by marketing certain Apple Watch models as "carbon neutral".

Challenging the credibility of the four nature-based offsetting projects that Apple uses to support its claim, the claimants also questioned the carbon credit calculations by nonprofit Verra, which certifies the offsets (note: an extensive investigation carried out by The Guardian, Die Zeit and SourceMaterial in 2022 found that more than 90 per cent of Verra's rainforest offset credits were likely "phantom credits" that did not represent genuine carbon reductions).

The judge granted Apple's motion to dismiss the case on the basis that Apple had acted in good faith, not with intent to deceive as the suit suggested.

This outcome contrasts sharply with a similar case brought in Germany. Environmental group Deutsche Umwelthilfe argued that advertising of the Apple Watch as "CO2 neutral" was misleading on the grounds that offsets from nature-based projects were only secure until 2029, with insufficient follow-up contracts to sustain carbon removals over the long-term. The Frankfurt am Main Regional Court agreed, ruling in August 2025 that Apple must refrain from "this type of advertising."

Despite the failure of the US claim, Apple is nonetheless phasing out carbon neutral labelling, in preparation for the EU Empowering Consumers for the Green Transition Directive (ECGTD), which takes practical effect from 27 September 2026.

Our view

That Apple is phasing out carbon neutral labelling, despite the failure of the US claim, indicates the substantial influence of tighter EU regulation.

Adding 12 new banned and automatically unfair practices to the Unfair Commercial Practices Directive – including generic claims (e.g. eco-friendly) and claims based on offsetting – the ECGTD is forcing a fundamental reset of how companies talk about environmental performance and carbon credits.

Meanwhile, in the UK, the failure to prevent fraud (FTPF) offence has transformed greenwashing from a primarily regulatory risk into a potentially criminal matter with unlimited financial penalties (see our full article: How does the failure to prevent fraud raise the stakes on greenwashing?).

Both developments amplify the necessity of establishing robust procedures for ensuring that sustainability claims are clear, accurate and backed by evidence.

On 28 February 2026, a North Dakota judge finalised a $345 million judgment against Greenpeace in a case brought by Energy Transfer over protests against its Dakota Access Pipeline in 2016 and 2017.

The protests, near the Standing Rock Sioux Reservation, drew thousands. Energy Transfer accused Greenpeace of orchestrating an "unlawful and violent scheme" to cause financial harm to the company, physical harm to its employees and infrastructure, and disruption to construction to the pipeline. Greenpeace maintains its involvement was small and at the request of the Standing Rock Tribe.

The Standing Rock tribe has affirmed that it led the protests, accusing Energy Transfer of "frivolously alleging defamation and seeking money damages to silence the truth of the threat posed to our land, our water and our people."

Calling the lawsuit a "blatant attempt to silence free speech", Greenpeace has already filed an anti-SLAPP (strategic lawsuit against public participation) countersuit in the Netherlands. It has stated that it will also seek a new trial in the US and, if necessary, appeal the decision to the North Dakota Supreme Court.

Our view

Energy Transfer first brought a lawsuit in 2017, arguing protesters had violated the Racketeer Influenced and Corrupt Organizations Act (RICO) – an allegation more commonly made against organised crime groups. When that case was dismissed in February 2019, a week later it filed an almost identical suit in North Dakota.

This has all the hallmarks of a classic SLAPP case and has rightly been condemned as bad faith litigation designed to shut down legitimate protest.

In response to the ESG backlash under the Trump administration, more and more US-based philanthropies involved in sensitive advocacy or rights-based sectors are seeking to mitigate their risk exposure by internationalising their footprints (see Beyond protection against political volatility, what else can US philanthropies gain from international restructuring?).

NGOs are also increasingly seeking advice on how to mitigate and manage the risks of SLAPP-style tactics.

If we can help your organisation on either front, get in touch.

In January, activist investor group Follow This co-filed new shareholder resolutions for the 2026 Annual General Meetings of BP and Shell, alongside 23 institutional investors with a combined €1.5 trillion in assets under management.

Requesting that the companies set out their strategies for maintaining shareholder value under scenarios of declining demand for oil and gas, Shell confirmed the validity of the resolution and that it plans to include it for voting at its AGM in May.

In contrast, the resolution was not included when BP published the notice for its 2026 AGM on 6 March. According to Follow This, BP initially confirmed the resolution met the threshold for a valid submission. However, BP subsequently claimed that the resolution did not conform to legal requirements.

Describing the decision as "an attack on shareholder rights", Follow This stated that, if BP didn’t reverse the exclusion, it would pursue injunctive relief in court, ordering the company to circulate the resolution to shareholders.

Our view

At the time of writing, it is unclear whether BP has reversed its decision to exclude the resolution, and whether Follow This will follow through on its threat of legal action.

In any event – as Follow This CEO, Mark van Baal, has commented – BP's move to exclude the resolution is indicative of how the battle over ESG and shareholder rights is spreading from the US to Europe.

It also highlights a more specific tension emerging across the oil and gas sector, as activist investors shift their strategic focus from urging companies to set science-based emissions reduction targets to calling on them to articulate a credible pathway through structural decline.

Calling for BP to disclose how it plans to sustain shareholder value, under scenarios of declining oil and gas demand, is not a frivolous or vexatious proposal (one of the few grounds, under the UK Companies Act 2006, for rejecting a shareholder resolution). It goes to the heart of how boards are preparing for foreseeable, material risks to the long-term viability of their business models.

Professor Carolyn Roberts’ bid to bring opt-out collective competition proceedings on behalf of millions of UK water customers has been barred by the Court of Appeal on a statutory technicality.

Professor Roberts' claim is that water companies have abused their dominant position as sole licence holders for sewerage services. By providing misleading information about the number of pollution incidents, they have led Ofwat to permit them charging customers more than accurate reporting would have allowed.

In a majority decision handed down on 5 March 2026, the Court of Appeal ruled that section 18(8) of the Water Industry Act bars collective proceedings. Designed to channel disputes about water companies' conduct through the regulator, not the courts, the effect of section 18(8) is to preclude any private right of action where a breach of license conditions (in this case, the obligation to provide accurate reporting) is an essential ingredient of the claim. In other words, but for that regulatory breach, there would be no cause of action.

Lord Justice Zacaroli's dissenting view is notable, however, and suggests grounds for an appeal to the Supreme Court. In his view, the essential ingredients of the claim are simply that:

• Water companies provided inaccurate information to Ofwat;
• Ofwat was induced by that inaccuracy to set Revenue Allowances too high;
• The water companies took advantage of those higher allowances to charge customers more; and
• Customers have suffered financial harm as a result.

Crucially, in his mind, the competition law claim still stands, irrespective of whether the alleged provision of inaccurate information also constitutes a breach of licence conditions.

Our view

Channel 4's Dirty Business docudrama has significantly sharpened public awareness of, and anger about, the water industry's pollution record. The sense that executives and shareholders have profited while networks have deteriorated, and while consumers and the environment have borne the consequences, makes political inaction on water increasingly untenable.

This case highlights a structural issue, also evident elsewhere. Just as the CMA can now fine companies up to 10 per cent of global turnover for breaches of consumer law (including greenwashing), Ofwat has the power to direct water companies to reimburse customers for overcharges arising from under-reporting of pollution. Yet, while this regulatory route to redress exists in theory, in practice, it depends entirely on regulators' capacity and willingness to pursue enforcement.

This contrasts sharply with the established culture of private enforcement in other jurisdictions and, as the gap between regulatory enforcement and genuine consumer redress widens, the pressure for change is only likely to increase.