ESG stands for Environmental, Social and Governance. It describes the three groups of non-financial factors that investors, lenders, customers and regulators use to judge how a business affects the world and how exposed it is to sustainability risks. Environmental covers climate and resource use. Social covers people and communities. Governance covers how the company is run. In the UK, ESG is moving from a voluntary label to a reporting framework. The government published the UK Sustainability Reporting Standards (UK SRS S1 and S2) on 25 February 2026, and on 30 September 2026 the FCA finalised rules for listed companies to report against them for accounting periods starting on or after 1 January 2027.
What each letter means
ESG is a lens rather than a single standard, and the factors that matter vary by sector. The core themes are broadly agreed:
| Pillar | Typical issues | Example measures |
|---|---|---|
| Environmental | Climate change, greenhouse gas emissions, energy use, waste, water, pollution, biodiversity | Scope 1, 2 and 3 emissions; energy consumption; transition plans |
| Social | Employees, health and safety, diversity and pay, supply chain labour standards, customers, communities, data privacy | Staff turnover; gender pay gap; accident rates; supplier audits |
| Governance | Board structure and oversight, ethics, anti-bribery, executive pay, internal controls, risk management, tax transparency | Board independence; whistleblowing cases; control failures |
The "G" is often treated as the poor relation, but it underpins the other two. Environmental and social data are only credible if the governance, controls and accountability behind them are sound. That is also the part of ESG closest to an accountant's existing work.
ESG, sustainability and CSR: what is the difference?
- Corporate social responsibility (CSR) is the older term. It usually describes what a company chooses to do for society, such as charity, volunteering and community programmes. It is largely voluntary and outward-facing;
- Sustainability is the broad goal of operating in a way that can continue without depleting environmental or social resources;
- ESG is the measurement and risk framework. It asks which environmental, social and governance factors could affect the company's value and prospects, and how the company manages and discloses them.
The modern reporting standards build on that last idea. The UK SRS work this way. UK SRS S1 sets the general framework and requires disclosure of sustainability-related risks and opportunities. UK SRS S2 deals specifically with climate-related risks and opportunities. Both were created by assessing and endorsing the IFRS Sustainability Disclosure Standards issued by the International Sustainability Standards Board (ISSB) for UK use.
Why ESG matters to UK businesses
For most businesses ESG does not start as a legal obligation. It arrives through the people they deal with:
- Investors and lenders ask ESG questions in due diligence and loan documentation, and some price finance against sustainability targets;
- Large customers pass their own reporting needs down the supply chain. A listed or large company reporting Scope 3 emissions needs data from its suppliers, which pulls smaller businesses in;
- Employees and recruits increasingly look at a company's conduct and culture;
- Regulators police what businesses claim. The FCA's anti-greenwashing rule, which all authorised firms have had to meet since 31 May 2024, requires sustainability references to be "fair, clear and not misleading". Under the Digital Markets, Competition and Consumers Act 2024, the CMA can now fine a business up to 10% of global turnover (or £300,000, if greater) for breaching consumer protection law. The CMA's guidance on green claims confirms these powers apply to misleading environmental claims.
What is mandatory in the UK today
- Listed companies. At present, listed companies must state in their annual financial report whether their disclosures are consistent with the TCFD climate recommendations, or explain why not. Under the FCA's policy statement PS26/19, this is replaced by comply-or-explain reporting against UK SRS S1 and S2 for periods starting on or after 1 January 2027, with first reports in 2028. Transitional relief allows one extra year for Scope 3 emissions and two years for the wider S1 disclosures;
- Large private companies and LLPs. Under the Companies Act, companies with more than 500 employees and turnover above £500 million must include climate-related financial disclosures in their annual report;
- Energy and carbon reporting. UK-registered quoted companies, and unquoted companies and LLPs above the statutory size thresholds, report energy use and emissions under the streamlined energy and carbon reporting (SECR) rules;
- Voluntary use. UK SRS are open to any entity that chooses to use them. The government has said it will consider whether to require other UK entities to report against them.
For the detail of each regime and how they fit together, see our guide to ESG reporting in the UK.
Getting started with ESG
A business without a reporting obligation does not need a sustainability department. It needs a credible starting point:
- Work out what is material. Ask which environmental, social and governance issues could genuinely affect the business, its customers or its finance. A logistics firm and a software company will produce very different lists;
- Measure before you claim. Build a baseline, starting with energy use and Scope 1 and 2 emissions, from records that would survive scrutiny;
- Put the data under control. Apply the same ownership, review and audit trail you would use for financial data. Assurance of sustainability information is where the market is heading;
- Link it to risk management. Treat ESG risks as business risks, recorded and owned alongside the rest. Our note on an ESG risk management framework sets out a structure;
- Check every public claim against the evidence before it appears on a website, tender or product label.
Acumon's ESG assurance team helps businesses build reliable ESG data and prepare it for independent assurance. Our corporate governance specialists work on the "G": board oversight, controls and risk.