What’s the context?

Trustees face increasing climate and ESG pressures, with overlapping regulation, guidance and industry initiatives to navigate.

The Government’s Greening Finance Roadmap (2021), the UK Green Taxonomy and an expected review of the Climate Change Governance Regulations all indicate continued commitment to tackling climate change, including the aim of reaching net zero by 2050.

But are we now seeing an ESG backlash and rise in litigation? Recent “anti-ESG” challenges – particularly from the US – suggest the landscape may be shifting again.

What are the latest developments?

Litigation against managers

The 2025 change of government in the US arguably intensified political division on climate change, alongside a wave of anti-ESG activity.

Early in 2025, a number of banks and asset management firms withdrew from the voluntary Net Zero Banking Alliance (a UN-backed initiative aimed at aligning financial activities with net zero emissions by 2050) and the Net Zero Asset Managers initiative. Both programs subsequently ceased and suspended activities later that year.

A backlash in sentiment is arguably emerging through the US courts. In January 2025, a federal judge in Texas held in Spence v. American Airlines Inc. that the airline had breached one of its statutory duties to prioritise investment returns for savers by allowing its asset managers to vote in favour of ESG resolutions at shareholders’ meetings. At first glance, this seems markedly different from the position for trustees of UK pension schemes, where the prevailing view is that it is within a trustee’s fiduciary duty to consider financially relevant ESG factors when setting investment strategy. UK trustees also have specific legislative ESG requirements, including in relation to statements of investment principles (SIP) and climate reporting. It should, however, be noted that in the American Airlines case, ESG was treated as a “non-pecuniary” factor concerned with bringing about certain types of societal change, with the judge finding that an investment approach that “aims to reduce material risks or increase return for the exclusive purpose of obtaining a financial benefit” is not ESG investing. The case may therefore be a better illustration of the fact that we are “two countries separated by a common language” than evidence of fundamentally different fiduciary principles. The final judgement in this case in September 2025 imposed significant injunctive relief and restrictions on proxy voting.

Potentially of wider relevance is how US antitrust laws may be applied. In 2022, Lina Khan (then Chair of the Federal Trade Commission (FTC)) wrote an opinion piece in the Wall Street Journal (“ESG Won’t Stop the FTC”), stating: “Some in corporate America seem to think that the FTC won’t challenge an otherwise illegal deal if we approve of its ESG impact. They are mistaken. The antitrust laws don’t permit us to turn a blind eye to an illegal deal just because the parties commit to some unrelated social benefit.” This article was cited in a Texas case in late 2024, brought by the Attorneys General of 11 states (including Texas) against BlackRock, State Street and Vanguard. The claim is that they used collective voting power in coal production companies to violate antitrust laws by reducing coal output, thereby increasing energy prices for US consumers and producing “cartel-level profits”. The details are complex and contested, but the case is a reminder of the debate at the intersection of ESG and jurisdiction-specific corporate laws.

Despite this potential opposition, some US pension funds may be pushing back. The NY times has suggested there has been an increase in support for ESG principles, with funds more engaged with asset managers on climate goals and some shifting to European asset managers that may be more focused on climate targets. Does this suggest that pension funds are not so swayed by political priorities, but rather the need for their investments to provide long-term sustainable returns for people who might not retire for many decades, keeping climate risks at the forefront of their minds?

In Europe, political pressures and a challenging economic environment have contributed to some companies slowing their pace on climate action. In February 2026, the EU Commission finalised the EU omnibus simplification package “to simplify EU rules” on sustainability and investment. This “Omnibus Simplification Package” introduces amendments and clarifications to key sustainability regulations, with the aim of streamlining reporting.

Getting the balance right

Alongside political debate, trustees and managers in the UK are also operating against a backdrop of increasing ESG-related litigation risk. In broad terms, the risk pulls in two directions:(1) claims (or complaints) alleging insufficient consideration of financially material climate/ESG risks, and(2) challenges alleging ESG “overreach”, including accusations of pursuing non-financial objectives, misalignment with mandate, or misstatements (sometimes framed as “greenwashing”).

The practical question for trustees is how to strike the right balance—integrating financially material ESG factors without drifting into unclear objectives or unsupported claims.

From a UK perspective, the most effective mitigant is usually good governance and a clear audit trail: being explicit about the investment objective (financial risk/return over the relevant time horizon), recording how ESG factors are assessed for materiality, and ensuring that stewardship activity and manager mandates are consistent with the scheme’s stated policies (for example, in the SIP and implementation statement). This supports trustees, evidencing that they are acting for proper purposes, applying the prudent person principle, and keeping member outcomes at the centre of decision-making.

Litigation against trustees

  • In McGaughey v Universities Superannuation Scheme Ltd (2023), proceedings were brought against directors of the corporate trustee alleging (among other things) a failure to have a plan for immediate divestment from fossil fuels, breaching the directors’ duties to the trustee company. The judge dismissed the claim as there was no evidence that USS or the claimants had or would suffer loss or that there had been any deliberate or dishonest breach of duty by the directors. USS provided evidence of its investment decision-making, including that it had made changes to more than £5bn of assets under management where it considered this to be financially advantageous to the scheme. The evidence showed that it had acted well within the scope of its discretion in exercising its powers of investment.
  • In relation to the Shell Contributory Pension Fund (2019), the Pension Ombudsman found no breach of disclosure duties where the trustee provided the documents required under the disclosure regulations but declined to provide additional internal materials requested by a member (such as its investment strategy and risk frameworks).
  • In Butler-Sloss v The Charity Commission for England and Wales (2022) the High Court was asked to consider whether two charitable trusts could adopt a proposed investment policy which excluded potential investments which conflicted with the trusts’ charitable purposes of environmental protection, even if financial returns would suffer as a result. The policy was aligned with the Paris Agreement and led to the exclusion of over 20% of the investible universe, on the basis that it did not meet the trusts’ charitable purposes. The trustees accepted that they were unable to conclude the extent of the potential financial detriment that might result from the policy. The judge held that this was a matter for the trustees’ discretion in exercising their powers of investment. While he cautioned against trustees making investment decisions on purely moral grounds, the key question here was whether the trustees had properly carried out a balancing exercise between the trusts’ charitable purposes and their financial performance when deciding to adopt the policy. If that balancing exercise was properly done and a reasonable investment policy then adopted, the trustees would have complied with their duties, even if the court or another trustee might have reached a different conclusion. The judge found that the trustees had undertaken that exercise properly here. They had carefully considered the content and effect of the policy, with the benefit of professional advice, and so implementing the policy would discharge their duties regarding the proper exercise of their investment powers.

Together, these examples underline that trustees should be able to demonstrate a rational, documented decision-making process and communications should be accurate and consistent with what is actually done in practice.

Fiduciary duty tension

These litigious developments sit within the evolving fiduciary duty discussion. The Law Commission’s 2014 guidance drew a key distinction between financial factors (which trustees may always take into account where relevant to risk/return, including long-term sustainability risks such as ESG factors) and non-financial factors (which are motivated by other concerns and can only be taken into account in more limited circumstances). Looking ahead, although the planned amendments to the Pension Schemes Bill to facilitate statutory guidance on the exercise trustees’ fiduciary duties did not make it into the final Act, the Pensions Minister stated on 22 April 2026 that “The Government will proceed on work to draft that guidance. The technical working group is well under way and is doing good work to provide clarity to the industry. We will come forward with proposals to put the guidance on a statutory footing in the months and years ahead”.

What’s coming down the track?

While the UK Government’s current central mission is economic growth, climate remains on the UK agenda. For example, the Government has retained its manifesto promise on North Sea oil, committing to “not issue new licences to explore new fields”. And although Heathrow expansion is expected to proceed as part of a growth agenda, any new runway must be “delivered in line with our legal, environmental and climate obligations”. Against that backdrop, the contrasting US debate seems unlikely to disappear soon.

Overall, we would expect UK pension trustees to be relatively well insulated from the issues outlined above. English law applies to UK pension schemes when trustees are exercising their fiduciary duties, so cases such as Spence v. American Airlines Inc. would not be binding precedent here.

We may be entering an era of “greenhushing”, where companies maintain ESG policies but are less vocal about them. While we wait to see how matters develop, trustees can use the time to take stock of their own positions. Trustees may wish to ask themselves:

  • how they understand the application of their fiduciary duties to the trustees’ investment policies and the incorporation of ESG (including stewardship), and
  • whether their policies are properly reflected in their appointed managers’ investment objectives and policies (including stewardship). This may be as much about ensuring managers are not overreaching on ESG as it is about assessing whether they are going far enough. As ESG can mean different things in different jurisdictions, trustees should focus on the substance of a manager’s investment strategy (and whether it aligns with a UK trustee’s understanding of ESG as a financially material factor) rather than the label.