Big businesses trumpet ESG credentials. Scrutiny is on the rise

As the 2020s progress, discussions about climate change, the environment and issues related to equality and diversity are at the forefront of many people’s minds.

The corporate world is no exception, with banks, energy producers and a host of other major businesses keen to trumpet their sustainability credentials through advertisements, pledges, social media campaigns and a range of other initiatives.    

Many of these claims are now viewed through the prism of ESG, or environmental, social and governance.

It’s become a hot topic in recent years, with a wide range of organizations attempting to boost their sustainability credentials — and public image — by developing business practices which they claim chime with ESG-linked criteria.

But here’s the rub: Definitions of ESG often vary and are hard to pin down. That, in turn, can create a headache for businesses looking to toe the line with regulators and authorities.   

Take the situation in the United Kingdom. “One of the major complexities in this area is that there is no single overarching regulation or statute in the UK governing ESG compliance,” Chris Ross, a commercial partner at London-headquartered law firm RPC, told CNBC via email.

“Rather, there is a patchwork of domestic and international regulation.” 

Those regulations were, he said, “administered by a disparate set of bodies” including Companies House, the Pensions Regulator, Financial Conduct Authority, Environment Agency, Financial Reporting Council and, “in respect of European law, the European Commission.”

Expanding on his point, Ross described ESG as being “an umbrella term.”

It covered “a very broad spectrum of considerations, from climate and pollution related issues through bribery and corruption, anti-money laundering, diversity and inclusion … health and safety, to modern slavery,” he said.

“Developing a universal definition would be practically impossible,” Ross added, “and for the foreseeable future companies will need to ensure they are compliant with the range of relevant law and regulation.”

Today, companies who label their products or services as being ESG, sustainable or similar are finding their business practices and claims and examined in great detail by lawyers, the public, environmental organizations and regulators.

At the end of August, for example, an ad from consumer goods giant Unilever for its Persil brand of laundry products was banned by the U.K.’s Advertising Standards Authority.

In a detailed ruling, the ASA concluded that the ad, which described Unilever’s product as being “kinder to our planet,” was “likely to mislead” and “must not appear again in its current form.” 

In a statement sent to CNBC, a spokesperson for Unilever said it was “surprised” by the ASA’s decision and that the ad “had been cleared for broadcasting a number of times.”

“We acknowledge that this decision reflects a recent and important evolution in the ASA’s approach to substantiate environmental claims…