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ESG Metrics: marketing, misleading or more?

A company’s “ESG” or “Environmental, Social and Governance” metrics are increasingly being used by investors to benchmark companies and identify material risks and growth opportunities. Not yet mainstream, companies are increasingly choosing to disclose such metrics voluntarily through annual reports or standalone sustainability reports. But should companies be wary of what representations they make about their ESG credentials? Can investors hold them to account if such statements turn out to be untrue or an exaggeration of reality?


  • ESG metrics are becoming more popular with investors and consumers alike when benchmarking companies
  • Companies need to be wary of making bold statements regarding ESG metrics that have no foundation in fact
  • Where companies are deliberately publishing misleading statements regarding ESG metrics they could be at risk of a claim for fraudulent misrepresentation
  • Companies need to ensure that third parties, such as suppliers are contracted into ESG measurables
  • It is generally good practice to get to know your suppliers well so that you can be sure your ethical and environmental standards are well matched

What are ESG metrics?

ESG metrics are a measurement (or an attempted measurement) of a company’s success or standing in the areas of environmental, social and governance. In order to assess a company’s ESG criteria, investors take a broad range of behaviours into account. The following are some examples of ESG factors:


  • Carbon emissions
  • Air/water pollution
  • Energy efficiency
  • Deforestation
  • Animal welfare


  • Conditions of employment
  • Diversity and equality
  • Community relations
  • Charitable contributions
  • Human rights


  • Company structure
  • Accountability
  • Bribery and corruption policies
  • Whistleblower scheme
  • Corporate transparency

Some of these are difficult to measure, whereas others lend themselves better to quantification. Either way, companies are increasingly making claims regarding these areas and investors are beginning to use the information to inform their investment decisions. In today’s world, a company that has questionable environmental practices will pose a much greater financial risk than one which has a clean sheet on the environment. Similarly, companies which are heavily reliant on fossil fuels may not represent a sound investment given global carbon emissions targets, whereas investing in businesses based on clean energy would represent a smarter choice.

But what happens if a company deliberately misrepresents its ESG credentials and an investor has based their investment decision on a certain statement or set of results? Alternatively, a company may have mistakenly misled investors, not having the expertise required to calculate its own ESG metrics, but making bold statements in hope about its ESG status. Perhaps, the statements have been made whilst in contract negotiations with another business, or prospective joint venture partner in order to make the deal more attractive?


During contract negotiations, be that for an investment contract, supply contract or partnership/joint venture agreement, many statements and pre-contract assurances will be made verbally or in writing. Some will become terms of the contract, whereas others will be representations which may have induced the other party to enter the contract, but which have not become part of its terms.  The intention of the parties together with the timing and importance of the statement will be determinative of which category the statement falls into. A successful claim for misrepresentation in the UK requires the following elements:

  • a false statement of fact or law
  • which the recipient relies upon in deciding whether to enter the contract
  • which thereby causes loss
  • to qualify as fraudulent misrepresentation, the false statement must have been made knowingly, without belief in its truth, or recklessly as to its truth


Clearly, the representation must be false. This is judged by reference to how the representation would be understood by a reasonable person in the factual context. Given the difficulties in measuring ESG metrics, it may be difficult to prove that a representation made by a company is actually false. For example, there are many different ways to calculate carbon emissions, and therefore proving a company’s carbon emissions have been misrepresented may not be easy.

However, there are some circumstances, where the falsity of a representation may be obvious. For example, if a company claims that its products are not tested on animals, when in fact there is clear evidence of products being tested on animals, or if a company states that it does not support or contribute to deforestation, and yet its products contain palm oil.


There will be many factors that contribute to an investor’s decision to invest in a company. ESG metrics are becoming more important, however, there is bound to be other performance related information taken into account. You might think this would be a bar to a misrepresentation claim i.e. where ESG representations were not the main factor in the investor’s decision making. However, it has been established that the question of reliance boils down to whether the recipient was influenced by the misrepresentation.[1]

The representation need not be the sole or even the dominant influencing factor. The recipient can have other reasons for entering into the contract or purchasing the shares. What is required is proof that the representation in question was “actively present to his mind”.[2] Furthermore, there is no duty on the part of the recipient to complete any inquiries or due diligence and even if he does it will not defeat a claim.[3] This makes a claim of this nature much more attainable.

However, to succeed in a claim for fraudulent misrepresentation the person making the representation would need to know that the representation is false or made without an honest belief in its truth, or recklessly, not caring whether it is true or false.[4]

Key takeaways

Companies need to be wary of making bold statements regarding ESG metrics that have no foundation in fact. It is also worth ensuring that third parties, such as suppliers and partners are contracted into ESG measurables. For example, contracts could contain stipulations regarding employment conditions, human rights or animal welfare. This may be particularly important when contracting with parties from overseas where legal regulation in those areas may be very different.  Getting to know your suppliers well is key so you can be sure your ethical and environmental standards are well matched.

Should you suspect that you are a victim of fraud or other wrongdoing, please do not hesitate to get in touch at

[1] Zurich Insurance Co plc v Hayward [2016] UKSC 48, at [18]-[45]
[2] Nederlandse Industrie Van Eiprodukten v Rembrandt Enterprises [2019] EWCA Civ 596, at [26]-[45] and Zurich Insurance (supra) at [32]-[33]
[3] Nederlandse Industrie (supra) at [39]-[45], Chitty at 7-045 and Clerk & Lindsell 17-39
[4] Derry v Peek (1889) 14 App. Cas. 337, at 374

Published on January 25, 2022

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