ESG Market Alert UK – June 2025

European asset owners reassess ESG mandates amid transatlantic divergence

A growing divergence in sustainable investing approaches is emerging between Europe and the United States, with UK and European pension funds increasingly reinforcing their ESG commitments, while many U.S. asset managers scale back amid political pressure.

Several prominent European asset owners, including the £33bn People’s Pension (UK), the €60bn Dutch industrial workers’ fund PME, and the €250bn PGGM group, have begun reassessing or terminating mandates with asset managers whose ESG practices are viewed as insufficient. PME has placed certain existing mandates under review, citing climate concerns and voting behaviour, while PGGM is shifting managers to ensure alignment with sustainability priorities across its portfolio.

This comes amid broader investor frustration at the perceived inconsistency of ESG stewardship among some global asset managers. Danish pension fund AkademikerPension recently ended a DKr3.2bn mandate with a prominent U.S. bank, pointing to a “growing discrepancy” in climate risk engagement. The fund has targeted a 22.5% climate-related allocation by 2030, though cautioned that macroeconomic headwinds may delay progress. In parallel, ShareAction’s May 2025 report found that few of the 76 asset managers assessed met basic ESG voting standards. European firms were among the highest performers, while U.S.-based asset managers generally received low ratings.

For UK businesses, these developments suggest greater scrutiny from asset owners and increased demand for credible, transparent ESG practices – particularly in climate governance, reporting, and transition planning. While capital markets remain volatile, institutional expectations on ESG integration continue to rise.

The Great British Energy Bill

The Great British Energy Bill has successfully passed through Parliament and the scene is now set for the establishment of Great British Energy (GBE). GBE will be a publicly owned, operationally independent energy company investing in clean power projects across the UK. The Bill is central to the UK government's Plan for Change, aiming to transform the nation into a clean energy superpower by investing in domestic renewable energy projects and reducing reliance on fossil fuels.

Key features of the Bill include:

• Public ownership of clean energy: Backed by £8.3 billion in funding over the current parliamentary term, GBE will invest alongside the private sector in new technologies to accelerate the deployment of clean energy technologies in offshore wind, solar, and hydropower, with profits being reinvested into community projects or utilised to reduce people’s bills.
• Community-focused investments: £200 million has been allocated to install rooftop solar panels in schools, hospitals and communities, aiming to reduce energy bills and reinvest savings into frontline services.
• Strategic industrial support and energy security: GBE will play a pivotal role in revitalising the UK's industrial sectors through investments in clean energy supply chains. Simultaneously, GBE’s investments are expected to enhance the UK’s energy security by reducing dependence on foreign energy sources.

GBE is expected to stimulate private investment by de-risking large-scale renewable energy projects and improving supply chain certainty, with UK businesses in manufacturing, construction, and clean tech benefiting from expanded market opportunities. Corporate energy consumers within the UK, especially large industrial users, may also see more stable and potentially lower long-term energy prices, through more strategic investments and increased opportunities for corporate Power Purchase Agreements and other partnerships with GBE.

Updating requirements for green claims/statements in the EU

Due to the increasing importance the EU is placing on environmental and social impacts on consumer behaviour, the EU is introducing and implementing new directives which will impose stricter regulations on all “green” claims. The two latest directives are:

The EmpCo Directive

The Directive on Empowering Consumers for the Green Transition (EmpCo Directive) came into force in the EU on 26 March 2024. Member States must transpose it into national law by 27 March 2026 and begin applying the new national rules by 27 September 2026. The EmpCo Directive introduces several restrictions on green claims in the EU:

• Generic environmental claims like being "climate-friendly," "CO2-neutral," "green," or "eco" will be prohibited unless they refer to "recognised excellent" environmental performance, such as the EU Ecolabel, or an explanation specifying the claim included on the same medium (e.g. on pack);
• There is a new explicit prohibition on environmental claims about the entire business or entire product when the claim can only be substantiated for a certain aspect of the product or a specific business segment;
• Companies will have to refrain from using claims such as their product being “climate neutral” or “carbon neutral” if such claims are based on the compensation of CO2 emissions;
• Private sustainability labels for products will be banned unless they are based on a third-party certification system or established by a government agency;
• Certification will be required for future environmental performance claims. If a company promotes “green goals” for the future (such as “climate neutral by 2050”), it must outline the specific actions it plans to take. These actions must be clear, objective, publicly accessible and verifiable; and
• Promoting compliance with legal requirements will be prohibited to prevent misleading consumers about which companies exceed the minimum legal standards.

The Green Claims Directive

The Green Claims Directive is currently in the planning phase within the EU. As per the proposed Directive, any Green claims and Green labels will need to be substantiated and verified by a third party beforehand.

While each of the above directives currently only apply (or will only apply) to the EU, it is expected that they may impact future UK legislation relating to consumer protection and green claims with UK companies possibly being subject to similar obligations in the UK in the not-too-distant future.

For further details on the above directives, please see our HL article Ban of Green Washing in the EU.

European Commission publishes country risk classifications under the EU Deforestation Regulation

On 22 May the European Commission adopted an Implementing Regulation under the EU Deforestation Regulation (EUDR), including a list ranking countries as high, standard, or low risk for deforestation and forest degradation. These risk levels will directly impact the due diligence requirements for “operators” under EUDR when placing on the EU market, or exporting from it, the seven commodities covered by EUDR (cattle, cocoa, coffee, oil palm, rubber, soya and wood) as well as products derived from them. Under these benchmarks most countries (including the UK) were classified as low risk (140 countries were designated as low risk, 50 as standard risk, and only four as high risk).

As a reminder, the EUDR entered into force on 29 June 2023. Pursuant to its provisions, it is unlawful to place certain commodities and products on the EU market, or export them from the EU, unless they are: (1) deforestation-free; (2) produced in accordance with the relevant legislation of the country of production; and (3) covered by a due diligence statement. The due diligence should take into account, amongst other factors, the above-mentioned assignment of risk to the relevant country of production. The regulation will become effective on 30 December 2025 for large and medium-sized companies and 30 June 2026 for micro and small enterprises.

For UK companies with operations in the EU or otherwise looking to place the commodities listed above on the EU market, the UK’s classification as a low risk jurisdiction is likely to seen as a positive given its beneficial impact on the due diligence requirements for operators under the EUDR.

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ESG Counsel

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Authored by Nicola Evans, Alastair Young, Christiane Alpers, Mareike Hunfeld, Scott Prior, Adam Barratt, Aimee Fullen, Ashali Herai, Oliwia Puto, Nikita Rajkumar, Joe Viles, and Rolando Virardi.