Environmental, social and governance (ESG) considerations now sit at the heart of corporate strategy, lending decisions, investment mandates and supply chain management. Boards, investors and lenders increasingly rely on specialist ESG consultants, sustainability advisers, auditors, accountants and lawyers to guide decisions worth many millions of pounds. But as ESG advice has become more commercially significant, so has the risk of it being wrong, incomplete, or misleading. Where flawed ESG or sustainability advice causes financial loss, the affected business or individual may have a claim in professional negligence. This article explains when ESG and sustainability advisers can be held liable, the legal tests that apply, and how our specialist team at LEXLAW can help you pursue compensation.

What Counts as ESG and Sustainability Advice?

ESG advice covers a broad spectrum of professional services, including carbon footprint reporting, sustainability due diligence on mergers and acquisitions, green finance structuring, ESG risk ratings, supply chain compliance audits, and advice on regulatory disclosure obligations such as the Task Force on Climate-related Financial Disclosures (TCFD) framework and the UK’s Sustainability Disclosure Requirements. Advice may be given by accountants, auditors, specialist ESG consultancies, investment advisers, or solicitors and barristers advising on regulatory compliance. Where a professional holds themselves out as having ESG expertise and is retained (whether under a formal engagement letter or informally) to provide that expertise, a duty of care will typically arise.

When Does ESG Advice Become Negligent?

Not every disappointing ESG outcome amounts to negligence. As with any professional negligence claim, the adviser must have fallen below the standard of a reasonably competent professional in that field. The classic test derives from Bolam v Friern Hospital Management Committee [1957] 1 WLR 582, as refined in negligence litigation generally: a professional is not negligent if they acted in accordance with a practice accepted as proper by a responsible body of opinion in their field, provided that practice withstands logical scrutiny. In the ESG context, this means measuring the adviser’s conduct against recognised reporting standards and industry benchmarks current at the time advice was given, such as the Greenhouse Gas Protocol, ISSB standards, or the Green Finance Strategy guidance issued by HM Treasury.

The requirement that a duty of care exists, that it was breached, and that the breach caused a quantifiable loss reflects the well-established three-stage approach confirmed in Caparo Industries plc v Dickman [1990] 2 AC 605, namely foreseeability of harm, proximity between the parties, and whether it is fair, just and reasonable to impose a duty. Where an ESG adviser is formally engaged under a letter of engagement, a contractual duty of care will typically also apply, often mirrored by a concurrent duty in tort.

Common Examples of Negligent ESG and Sustainability Advice

Situations giving rise to claims that we regularly encounter include:

• Overstated sustainability credentials: an adviser certifies a supply chain, product or fund as meeting a particular ESG standard when it does not, exposing the client to regulatory action, reputational damage or mis-selling claims.
• Defective due diligence on acquisitions: a failure to identify environmental liabilities, contaminated land, or non-compliant labour practices during ESG due diligence on a corporate acquisition, leading to unforeseen remediation costs post-completion.
• Negligent carbon accounting: miscalculated emissions data used in regulatory filings or investor reporting, resulting in restatement costs, fines, or loss of green financing.
• Flawed green finance structuring: advice that a bond or loan facility qualifies as a green or sustainability-linked instrument when it does not meet the applicable framework, jeopardising preferential financing terms.
• Inadequate regulatory advice: failure to advise a client correctly on mandatory climate disclosure obligations, leading to enforcement action or penalties.

Greenwashing, Regulatory Risk and the Overlap With Professional Negligence

Regulators have sharpened their focus on unsubstantiated environmental claims. The Competition and Markets Authority’s Green Claims Code and the Financial Conduct Authority’s Sustainability Disclosure Requirements and anti-greenwashing rule (effective from 2024) both impose duties on firms making sustainability claims to ensure they are accurate, substantiated and not misleading. Where a business relied on negligent ESG advice to make a public claim that was later found to breach these regimes, the resulting regulatory fine, product recall, investor claim or reputational loss may itself be a recoverable head of loss in a financial negligence claim against the adviser, provided the loss was reasonably foreseeable and not too remote.

Establishing Causation and Recoverable Loss

As with any negligence claim, a claimant must prove that the loss would not have occurred “but for” the adviser’s breach, and that the loss was not too remote to be recoverable. This can be a genuine evidential challenge in ESG disputes, where losses (such as a downgraded credit rating, a lost tender, or a collapsed green bond issuance) may also be influenced by market conditions unrelated to the negligent advice. Detailed expert evidence, often from forensic accountants and ESG specialists, is usually essential to demonstrate that the adviser’s failure was the effective cause of the loss suffered, echoing principles applied in professional negligence claims against negligent accountants and auditors more generally.

Limitation: How Long Do You Have to Bring a Claim?

The primary limitation period for a professional negligence claim is six years from the date the cause of action accrued, pursuant to section 2 of the Limitation Act 1980. Where the negligence only becomes apparent later, for example when a regulator opens an investigation into a sustainability claim made years earlier, a claimant may benefit from an extended three-year period running from the date of knowledge of the negligence, under section 14A of the same Act. Given how fact-sensitive limitation arguments can be, we recommend seeking advice on the limitation period applicable to your case as early as possible.

What Compensation Can Be Recovered?

The purpose of damages in a professional negligence claim is to put the claimant back in the position they would have been in had the negligent advice not been given. In ESG disputes this can include regulatory fines and legal costs incurred defending enforcement action, the increased cost of refinancing after losing green financing status, remediation or clean-up costs uncovered after a defective due diligence exercise, and lost profits from a collapsed transaction or terminated contract. Where the adviser is insolvent or under-resourced, most professional advisers carry professional indemnity insurance, and where insolvency is a live issue our team works closely with LEXLAW’s insolvency litigation solicitors to pursue recovery as a creditor where appropriate. Where the ESG failure has a tax dimension, for example negligent advice on green tax reliefs or incentives, our colleagues at LEXLAW’s tax disputes team are also on hand to assist.

Speak to LEXLAW’s Specialist ESG and Professional Negligence Team

ESG and sustainability negligence is a fast-developing and technically demanding area of law, sitting at the intersection of financial regulation, corporate advisory work and traditional professional negligence principles. Our qualified barristers and solicitors, based in the Middle Temple Inn of Court in the City of London, regularly advise businesses and individuals who have suffered loss as a result of negligent professional advice. We assess the merits of your case at the outset, advise on the optimal strategy to secure compensation, and can act on a no win no fee basis following that assessment. For more information about our wider litigation practice, visit lexlaw.co.uk, or contact our team to discuss your ESG advice dispute.