ESG regulation and litigation in 2025: what to expect for UK financial institutions

ESG will continue to be a priority for UK financial services firms this year, with some challenges from 2024 continuing and other new challenges likely to arise. 

This post provides an update on the trends in our 2024 post, outlines key recent developments and considers what is likely to shape 2025.

Areas of strategic focus

Transition plans continue to be an area of strategic focus for firms. In 2024, the UK’s Transition Plan Taskforce (TPT) published detailed transition plan guidance for different sectors, including asset managers and banks, to supplement its finalised framework. It is expected that the FCA will make adoption of the TPT’s recommendations mandatory and there will be a consultation this year on how to advance the government’s manifesto pledge on developing and implementing credible transition plans. While the FCA has encouraged firms to publish transition plans ahead of mandatory requirements (and many firms have done so), this is not without risk; we are already seeing transition plans being challenged in other sectors. In the Australian case of ACCR v Santos, which is the first of its kind worldwide, the claimant alleges that Santos’s representations that it has a clear and credible path to reducing its emissions and to achieving net zero are misleading and deceptive. When it becomes available, firms will want to consider the Australian court’s judgment carefully for any potential read-across.

Firms with US operations will need to navigate how best to address increasingly diverging pro- and anti-ESG sentiments. While the underlying drivers of sustainable business and investment remain strong (perhaps stronger than ever, given that 2024 was the first year to pass the 1.5C global warming limit, for example) and regulation continues to develop at pace in some jurisdictions (particularly the EU), anti-ESG sentiment is also on the rise in the US. This brings increasing and complex challenges for global firms, exposing them to differing regulatory and litigation risks across jurisdictions. In some places they may be viewed as not doing enough; elsewhere too much. This tension will impact on global firms’ strategy in different ways; recently we have seen financial institutions leave industry net-zero alliances, which may signal a quieter, if not less active, approach to ESG matters. Other firms may narrow their ESG focus to one of risk assessment rather than of value judgment, while still trying to match the expectations of regulators, clients and investors.

Regulatory developments 

The global regulatory framework developed at pace during 2024. Differing frameworks across jurisdictions mean firms with a global footprint must be mindful of overlapping but varying obligations.

In the UK, the FCA has been developing its Sustainability Disclosure Requirements (SDR) regime with the key objectives of maintaining trust and transparency and reducing greenwashing. The FCA’s anti-greenwashing rule came into force in 2024, along with a package of labelling and marketing measures (see here and here for details). The FCA is expected to publish a policy statement on extending the SDR and investment labelling regime to portfolio management, and is consulting on minor corrections and clarifications to the SDR rules. Careful consideration of how ESG characteristics are described is needed to ensure compliance with these new rules. 

There have also been major regulatory changes in the EU. For example, the Corporate Sustainability Reporting Directive (CSRD) requires wide sustainability disclosures starting this year. The Corporate Sustainability Due Diligence Directive (CSDDD) also came into force in 2024, setting due diligence standards for identifying potential or actual adverse human rights and environmental impacts. It also requires publication of a climate transition plan. The deadline for transposing the CSDDD into member states’ national laws is set for July 2026, with staggered implementation for companies from 2027. Whilst the UK will not be implementing these domestically, UK companies which operate in the EU and meet the EU turnover thresholds will have to comply (see here and here for details). The Commission has acknowledged the overlap in reporting obligations between the EU Taxonomy Regulation, CSRD and CSDDD, and has proposed a possible ‘Omnibus’ to simplify this ‘triangle’. A published proposal is expected in February 2025. 

New regulation is also expected in the UK this year for ESG ratings providers (see here). Once the legislation is finalised, the FCA intends to consult on a future regulatory regime, with the objective of improving consistency and comparability amongst ESG ratings so that investors can make informed decisions. 

Finally, several consultations are open or incoming in the UK in H1 2025 and are likely to be a pre-cursor to further developments. For example, HM Treasury is consulting until 6 February 2025 on whether a UK Green Taxonomy would be beneficial. It is also expected that there will be a consultation on “economically significant” companies making disclosures using future UK Sustainability Reporting Standards, which the government intends to align with the ISSB standards. 

Litigation and regulatory enforcement 

An increasing number of ESG-related cases are being brought globally against financial institutions. Claimants continue to leverage their positions as customers or shareholders, or simply interested parties, to highlight perceived failures to accurately disclose climate risks or plans or comply with ESG commitments. There were less developments in the English courts involving financial institutions during 2024, perhaps in light of the robust way in which the English courts have dealt with ESG-related claims so far (as explained in last year’s post). However, the cases being brought against financial institutions globally remain relevant and indicative of the cases that could be brought in the UK. Similarly, there were no published ESG-related enforcement decisions from the financial regulators in the UK, but global actions remain relevant in this context too. 

Australia was a particular hotspot for this type of litigation and regulatory enforcement in 2024, and cases there are illustrative of trends likely to continue in 2025. In addition to the Santos case referenced above:

• In Beere v National Bank Australia (NAB), Ms Beere, a shareholder of NAB, brought an application for disclosure of the circumstances in which NAB financed coal and gas projects in light of concerns that NAB had failed to comply with its public commitments on financing fossil fuel projects and its human rights policy. Analysis by potential claimants of actual activities against public commitments and policies is likely to continue into 2025.

• Focus on greenwashing (both in a regulatory and litigation context) can be expected to continue. In 2024, the Australian Federal Court ruled three times in favour of the Australian Securities and Investments Commission (ASIC) in cases concerning how sustainable funds were marketed (see here), and the Securities Exchange Commission also brought similar cases in the US, most recently against WisdomTree Asset Management. This illustrates the importance of taking care with the marketing of ESG products, particularly sustainable funds. 

In terms of other important cases for financial institutions to watch, in January 2024, Milieudefensie threatened a claim against ING modelled on its original claim against Shell, arguing that its climate policies are insufficient. Milieudefensie has recently (after losing its appeal on Shell) reiterated its commitment to the ING claim, so further developments can be expected in 2025. This claim will spotlight, among other things, the way in which firms measure and report emissions across their various different portfolios. 

In addition to litigation, complaints can also be brought under the OECD Guidelines for Multinational Enterprises through National Contact Points (see here). An increased number of OECD complaints were brought against financial institutions in 2024 and we expect the trend of OECD complaints challenging firms’ links to potentially harmful activities to continue in 2025.

Firms must also be alive to the continued risk of enforcement action from non-financial regulators; the Advertising Standards Authority (ASA) has made a second ruling against a financial institution, this time Lloyds Bank plc, in relation to misleading environmental claims made in advertisements. In this case, the ASA considered that Lloyds Bank’s advertisements gave the impression that renewable energy formed a significant part of Lloyds’ investments and the companies it financed, which the ASA considered was an impression likely to mislead given Lloyds’ overall activities.   

Conclusion

This year will see financial services firms continue to grapple with differing and overlapping regulatory frameworks across different jurisdictions. There are increased expectations of specificity in all areas of ESG, and scrutiny from regulators, investors and strategic litigants will continue. Disclosure obligations will continue to expand, applying beyond solely carbon emissions, to human rights and biodiversity risks, among others. 

As firms develop their climate policies and transition plans, the focus will continue to shift onto whether firms are doing enough, quickly enough, and whether policies and commitments are being translated into real action. 

Firms with a US footprint will also find themselves in increasingly difficult positions between pro- and anti-ESG sentiments and will have to navigate this challenge. The power of activist litigation is not waning, and all types of financial institutions are likely to continue to be challenged by individuals and NGOs through litigation, be it actual or threatened, and OECD complaints.