Unintended consequences

What have been the unintended negative consequences of ESG policies? What can businesses learn from policymakers’ mistakes?

Balancing ESG factors is difficult not only for businesses, but also for policymakers and legislators. Focusing too closely on one area can have unintended negative consequences in other areas. How can this be avoided?

It goes without saying that government policy and legislation are key drivers for behavioural change and investment decisions among businesses. Policy and legislation can even create entire markets, such as the carbon market. However, sometimes a focus on a particular issue can have unintended consequences in other areas.

Interest in ESG issues, both in the UK and globally, has increased dramatically in recent years. In the UK at least, one of the reasons for this is the government amending the Climate Change Act 2008 in 2019 to require the UK to achieve net zero carbon emissions by 2050. Following this change, a number of organisations have pledged their own net zero goals. While these pledges are to be welcomed, those making them need to be careful not to see net zero as the be-all and end-all of all things ESG-related.

Climate change policy

UK climate change policy and legislation over the last few decades have included some well-intentioned but ultimately poorly thought-through and implemented policies and laws that have had a negative impact in other areas. Arguably, the most tragic of these has been the tightening of energy efficiency requirements for buildings under Part L of the Building Regulations 2010, which resulted in the installation of combustible cladding on high-rise residential buildings.

Other examples of unintended negative consequences of climate change policies include:

  • Incentivising drivers to switch from petrol to diesel cars through a change to Vehicle Excise Duty taxation policy in 2001. Diesel engines emit lower CO2 emissions than petrol engines, but higher NOx emissions and (at least in the case of older diesel engines) particulate matter, which have contributed to deteriorating air quality in urban areas.
  • The flawed implementation of the Renewable Heat Incentive scheme in Northern Ireland in 2012 led to a massive overspend and, ultimately, to the resignation of the First Minister and the collapse of the power-sharing arrangement in the Northern Ireland Assembly in 2017. The scheme was intended to encourage businesses to switch from using fossil fuels for heating to renewable sources of energy such as biomass, but allowed applicants to claim payments for 20 years for heating empty buildings.

While the electrification of road transport is now also a key policy in both the UK and the EU, with proposals to ban the sale of new petrol and diesel cars and vans from 2035, concerns have been raised about the environmental and social impacts of the mining of materials used to produce electric vehicle batteries, such as cobalt and lithium. There is also currently a shortage of recycling facilities for waste lithium-ion batteries.

Government policy and legislation are key drivers for behavioural change and investment decisions.


This information is for general information purposes only and does not constitute legal advice. It is recommended that specific professional advice is sought before acting on any of the information given. Please contact us for specific advice on your circumstances. © Shoosmiths LLP 2024.



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