How to make ESG decision-critical.

ESG activity across the majority of UK-listed mid- and small-cap companies has increased or been maintained in the last year. However, how ESG is being treated as a potential driver of value is becoming increasingly divergent.

Our 2025 research reveals that, while effort and intent remain high, many organisations are struggling to use ESG to genuinely influence strategy, capital allocation or operational decision-making. For many leadership teams, ESG remains primarily about compliance and reporting rather than value creation.

The central issue is not ambition. It is a question of value.

Most organisations are struggling to translate sustainability risks and opportunities into financial terms that fit with today’s planning, forecasting, and investment frameworks. Without a credible link to profit, cashflow, costs, or valuation, ESG struggles to compete for management and Board attention – particularly in the current economic environment.

This challenge is becoming more immediate. The FCA’s consultation on mandating UK Sustainability Reporting Standards (UK SRS), for accounting periods beginning on or after 1 January 2027, signals a clear shift towards more rigorous financially grounded ESG scrutiny. For many organisations, UK SRS will reveal whether ESG, and in particular climate-related considerations, are genuinely embedded in strategy and decision-making, or simply well disclosed.

Key insights from the research:

• ESG still matters – but its ability to drive performance or resilience is largely untested.
• Fewer than half of companies interviewed (44%) believe ESG is truly embedded in strategy and operations.
• Financial materiality testing is the critical bottleneck. Most organisations stop at high-level assessments, with limited translation into forecasts, capital allocation, performance, or incentives.
• Where ESG is framed primarily as compliance or risk management, its influence on decisions is limited.
• Mandatory UK SRS will test the robustness of many organisation’s approach to ESG, raising expectations around financial materiality and integration, rather than disclosure alone.

While investor engagement on ESG has softened, this reflects shifting priorities rather than reduced expectations. Regulatory momentum continues, and underlying pressures, such as climate impacts, supply-chain vulnerability, and workforce challenges, continue to build. When scrutiny returns, it is likely to be more financially focused, more technical, and more demanding.

The conclusion:

ESG is stuck in a “chicken-and-egg” trap. Without clear financial translation, ESG lacks influence at senior management and Board level. Without that influence, its financial value is never properly tested.

Organisations that break this cycle early, by focusing on decision-useful financial materiality and embedding ESG into strategy, planning and capital allocation, will be best positioned when regulatory and investor scrutiny intensifies.

Download the full ESG Review 2025/26 to understand where ESG creates value, where it doesn’t, and what leadership teams can do next.