ESG+ Newsletter – 19 March 2026

Climate, energy transition, and AI emerge as top business conduct risks  

A new report by RepRisk and Oxford Economics reveals a shift in executive risk priorities. Material risks are shifting to rapidly evolving exposures such as AI, data integrity, and the energy transition, demanding new capabilities.  Most notably, AI-related ethical conduct issues have risen significantly, with 56% of executives ranking it as a top concern (from 16%), surpassing greenwashing, which declined from 46% to 36%. AI risks include disinformation, workplace surveillance, data privacy breaches, and environmental impacts from computing power. The report also expands from theory to practical, with incidents on conduct increasing by 55% from 2023 to 2025, driving higher costs through investor loss, regulatory sanctions, and brand damage. The research indicates that the average business conduct risk incident carries a multimillion-dollar cost, and these costs are set to rise as emerging risks intensify.  

FTI Consulting research provides insight into integrated climate risk impact on financial markets

A new report from FTI Consulting and Vyzrd, a leading climate & sustainability intelligence platform, analysed 148 global companies representing ~$31.4 trillion in market cap to test whether current climate risk models produce decision-useful intelligence. The short answer: not reliably. Transition risks – regulatory shifts, stranded assets, supply chain disruption – are systemically underweighted relative to physical climate impacts, with conventional models underestimating exposure by 2–4×. The result is hidden losses across credit, equity, and capital allocation that most frameworks aren’t capturing. This work is part of our broader partnership with Vyzrd, through which we’re building AI-enabled climate analytics capabilities across our advisory offering.

Increasing energy prices piles pressure on ETS market  

Europe’s carbon price has dropped by more than 5% following the announcement that the EU would consider increasing the number of carbon permits available through the bloc’s ETS system, Reuters reports.  The bloc has been making efforts to curb the rise in energy costs, caused by increasingly uncertain geopolitical events. In the short term, the EU will alter its plans to reduce the number of free CO2 permits available to certain industries, which will be further reviewed later this year with a view to cutting supply in 2030. Commission president Von der Leyen has affirmed that whilst there is divergence of opinions on the merits of the ETS system and short-term measures may be considered, the market will not be dismantled due to its importance in Europe’s broader long term decarbonisation efforts. The reaction to these proposed amendments has been mixed, with Dutch climate minister Stientje van Veldhoven-van der Meer noting a warning that any radical changes to the system could impact the ability of the bloc to meet 2030 climate targets; Germany’s environmental minister claimed that only “small adjustments” would be acceptable. While a second group of countries, including Spain and the Netherlands, has come out in favour of not weakening the system further, energy-intensive sectors, and certain countries such as Italy, Hungary, Poland, Romania, and the Czech Republic, have been lobbying against the ETS sector, claiming it directly contributes to rising energy costs, which are ultimately transferred to the consumer. With rising energy costs to the fore once more, it is likely that a planned review of the ETS system will take place in July of this year, with further updates expected in the months prior.  

New FRC guidance encourages more flexible governance reporting  

On 16 March 2026, the Financial Reporting Council (FRC) issued updated guidance on ‘comply or explain’ reporting. It aims to help investors, proxy advisors and other users of corporate disclosures better understand the value of companies that depart from provisions of the UK Corporate Governance Code. The FRC recognises a prevailing market culture in which deviations from the Code are often viewed with scepticism. This has encouraged companies to claim full compliance even where alternative arrangements would better serve shareholders. The guidance emphasises that companies can apply the Code’s high-level principles without adhering to every provision. These principles are intentionally broad, enabling firms to tailor governance to their circumstances. To support this, the FRC sets out five criteria for meaningful explanations: providing context, offering a clear rationale, addressing risks and mitigations, stating whether and when compliance is expected, and ensuring explanations are clear and persuasive. As FTI has always maintained, thoughtful deviations from the Code’s provisions may represent better governance than superficial compliance. 

Flexibility has become a central theme in UK governance. This shift follows the Investment Association (IA)’s updated Principles of Remuneration in October 2024, which encourage greater tailoring of pay frameworks to company circumstances, and the revised UK Stewardship Code effective January 2026, which refocuses stewardship on value creation for clients and beneficiaries, removing references to stakeholder benefits. A February 2026 IA report further emphasised that effective stewardship should be judged by outcomes rather than activity metrics such as “against” votes. Despite an ongoing push for flexibility, the 2025 AGM season saw increased shareholder dissent on remuneration proposals. The 2026 AGM season promises to be an interesting one though the full impact of these governance changes on voting outcomes may take time to emerge.  

US judge restores veterans’ agency’s labour union contract  

According to Reuters, last week a federal judge ruled to restore a union contract covering over 300,000 U.S. Department of Veterans Affairs (VA) employees after the agency had cancelled it following an order from President Trump. The 2025 executive order had limited most of the federal workforce’s collective bargaining rights, which the VA claimed justified cancelling the existing union agreement to comply with the directive. The order exempted other agencies, including the departments of Justice, State, Defense, Treasury, and Health and Human Services, obligations to bargain with unions. However, the ruling judge argued the VA specifically could not unilaterally terminate the agreement in this way and rejected the use of national security as sufficient justification, ordering that the contract be reinstated. “No worker can be retaliated against for standing up for their rights,” said Everett Kelley, President of the American Federation of Government Employees. The ruling underscores that strong employee relations and collective bargaining rights are core social elements of ESG. The case reflects a broader trend that employee protection and engagement are material ESG issues. Unions have filed more challenges with individual agencies cancelling bargaining agreements, creating legal and reputational risk for institutions accused of undermining labor rights.