Q1 2026 has been one of the most consequential quarters yet for ESG, with clear signs of both progress and pushback: regulators in the UK and EU are refining reporting and green claims rules, while courts are reshaping expectations on supply chains, tech harms, and climate marketing. At the same time, litigation against Greenpeace and growing political backlash show how contested ESG has become, especially in the United States.
The Mishcon de Reya “ESG Watch” update for Q1 2026 highlights two big themes: growing polarisation around ESG, and increasing divergence in regulation and enforcement across jurisdictions. On one side, shareholder and civil society pressure is intensifying; on the other, companies and some governments are pushing back against perceived “overreach”, particularly on due diligence and deforestation rules.
These dynamics are especially visible in the contrast between the EU’s partial slowdown on CSRD/CSDDD and its much tougher stance on green claims, and between the UK’s more incremental approach and a highly politicised ESG backlash in the US under the Trump administration.
UK: Reporting, inclusion and supply chains
UK Sustainability Reporting Standards (UK SRS)
The UK Government published the final UK Sustainability Reporting Standards (UK SRS) in late February 2026, closely aligned with the ISSB baseline (S1 and S2) but with some important UK-specific tweaks. UK SRS S1 sets general requirements for sustainability‑related financial disclosures, while S2 focuses on climate‑related risks and opportunities, mirroring ISSB structure but without some of the transition reliefs offered globally (for example, no deferral of sustainability disclosures after financial statements).
The Financial Conduct Authority (FCA) is now consulting on amendments to the UK Listing Rules that would require listed companies to report in line with UK SRS, with final rules expected later in 2026. In parallel, the Government has signalled that equivalent changes to the Companies Act will follow for large private companies, effectively making UK SRS the new baseline for corporate sustainability reporting in the UK.
Mandatory ethnicity and disability pay gap reporting
On 25 March 2026, the UK Government confirmed it will introduce mandatory ethnicity and disability pay gap reporting for private and voluntary sector employers in Great Britain with 250 or more employees. The framework will largely mirror existing gender pay gap rules, using the same snapshot dates, reporting deadlines, online portal and six headline metrics (mean/median hourly pay gaps, pay quartiles, and bonus gaps).
Employers will also have to report workforce composition, declaration rates and publish action plans, with legislation to be introduced via an Equality (Race and Disability) Bill in the current parliamentary session. For in‑scope employers, Q1 2026 is effectively the preparation window: assessing data infrastructure, extending existing gender pay processes, and building communication strategies to improve disclosure and trust around sensitive personal data.
Forest-risk commodities and deforestation
The UK Forest Risk Commodities Regulation (FRCR), promised under the Environment Act 2021, remains stalled pending secondary legislation, but pressure on the Government rose in Q1 2026. A January 2026 national security assessment warned that the Amazon, Congo and boreal forests are on a pathway to collapse, with material implications for UK security and prosperity. In March, a new UK Cocoa Coalition including M&S, Tony’s Chocolonely and the Rainforest Alliance called for rapid implementation and alignment with the EU Deforestation Regulation (EUDR).
Meanwhile, the EU formally delayed full EUDR application to the end of 2026 for larger operators, coupled with simplification measures to reduce administrative burden. That delay and ongoing debates over scope and IT readiness are likely to influence how far and how fast the UK moves on FRCR alignment, particularly given differences in legal tests (local legality under FRCR versus “deforestation‑free” land use cut‑off dates under EUDR).
EU: Streamlined reporting and tougher green claims
Omnibus I and the future of CSRD/CSDDD
The EU’s Omnibus I Directive, published in the Official Journal on 26 February 2026 and entering into force on 18 March 2026, streamlines both CSRD (reporting) and CSDDD (due diligence). Member states now have until 19 March 2027 to transpose CSRD amendments and until 26 July 2028 for CSDDD changes, pushing back the start of reporting for many large EU and non‑EU groups to financial years beginning 2027–2028.
For non‑EU groups with significant EU turnover, the upcoming Non‑European Sustainability Reporting Standards (NESRS) will offer a simplified but still double‑materiality‑based framework, expected around 2027. The net effect is a slower ramp‑up but no reversal: double materiality remains central, and companies that lean into it gain a strategic tool for understanding both financial and impact risks in their value chains.
Empowering Consumers for the Green Transition (ECGT)
In parallel, the EU is moving decisively against greenwashing. The Empowering Consumers for the Green Transition Directive (Directive (EU) 2024/825) entered into force in March 2024 and must be applied by member states from 27 September 2026. It bans vague environmental claims such as “eco‑friendly” or “climate neutral” unless they are substantiated and independently verified, and requires clearer information on durability and repairability.
Critically for climate marketing, the ECGT Directive – working alongside proposed Green Claims rules – will prohibit product‑level “carbon neutral” or similar claims where they rely on offsetting rather than real emissions reductions across the product life cycle. Commentators note that this is forcing brands to rethink offset‑heavy strategies in favour of robust lifecycle assessment, independently validated data and in‑house decarbonisation.
Litigation: Human rights, tech harms and climate marketing
Limbu v Dyson: supply chains and modern slavery
On 26 February 2026, Dyson and 24 Nepali and Bangladeshi migrant workers reached a settlement in the landmark case Limbu v Dyson, concerning alleged forced labour and abuse in Malaysian factories supplying Dyson’s products. Dyson continues to deny liability, but the settlement follows a series of procedural victories for the claimants, including permission for the case to proceed in the English courts and orders for early disclosure of supplier audit documents.
The case is widely seen as a test for business and human rights litigation in the UK and underscores that once such supply‑chain claims are allowed to proceed, reputational and disclosure risks may make settlement more attractive than trial. For companies, it reinforces the need for robust human rights due diligence, particularly in higher‑risk jurisdictions and sectors, going beyond contractual clauses to deeper engagement and shared responsibility with suppliers.
KGM v Meta & YouTube: “Big Tech’s Big Tobacco moment”?
In March 2026, a Los Angeles County jury found Meta and YouTube negligent for designing addictive platforms that were a substantial factor in causing mental health harms – including depression, body dysmorphia and suicidal ideation – to a young woman identified as KGM. The jury awarded around USD 6 million in compensatory and punitive damages, allocating 70 per cent of responsibility to Meta and 30 per cent to YouTube.
The case is widely described as a bellwether trial: by focusing on product design rather than user‑generated content, it sidesteps traditional protections such as Section 230 of the US Communications Decency Act and invites comparisons with tobacco litigation in the 1990s. Dozens of similar suits are pending, and combined with state‑level enforcement actions, this signals that digital product governance – from design choices to disclosure of harms – is becoming a core ESG risk for tech and investor portfolios.
Apple’s “carbon neutral” watch case and green claims
In the US, a federal judge in California dismissed a proposed class action alleging that Apple misled consumers by marketing certain Apple Watch models as “carbon neutral”. The court found that the plaintiffs had not plausibly shown that Apple’s claims were false or that reliance on Verra‑certified offsets was unreasonable, and therefore the complaint could not proceed as pleaded.
At the same time, Apple is reported to be phasing out “carbon neutral” labelling for products sold in the EU in light of the ECGT Directive’s ban on offset‑based neutrality claims, even though it prevailed in the US lawsuit. Together, these developments illustrate a tightening European regime on environmental claims and a more fragmented global landscape, where a claim that survives scrutiny in one jurisdiction may become effectively unusable in another.
Civic space, SLAPPs and ESG backlash
Energy Transfer v Greenpeace: USD 345 million judgment
On 27 February 2026, a North Dakota judge finalised a USD 345 million judgment against Greenpeace in favour of pipeline company Energy Transfer, over the NGO’s role in protests against the Dakota Access Pipeline in 2016–2017. The ruling confirms a reduced but still enormous damages award previously granted by a jury, which found Greenpeace liable for defamation and other claims, and Greenpeace has warned the judgment could bankrupt its US operations.
Civil society groups and legal commentators widely characterise the case as a strategic lawsuit against public participation (SLAPP), designed to deter protest and advocacy on environmental issues. In response, NGOs and philanthropies involved in sensitive rights‑based work are increasingly looking at international restructuring and risk‑mitigation strategies, including diversifying jurisdictions and strengthening legal defences against SLAPP‑style tactics.
Shareholder rights and activism in the energy transition
Activist investor group Follow This, together with more than 20 institutional investors managing around EUR 1.5 trillion, has filed resolutions for the 2026 AGMs of BP and Shell asking boards to explain how they will create shareholder value under scenarios of declining oil and gas demand. This marks a shift from previous years’ focus on Paris‑aligned emissions targets towards a more explicit challenge to the financial sustainability of fossil‑fuel‑heavy business models.
Shell has confirmed it will put the resolution to a vote, whereas BP has, at least initially, declined to include the proposal in its AGM notice, prompting Follow This to threaten legal action in the UK courts to enforce shareholder rights. The episode underscores how debates over ESG and fiduciary duty are moving from the US into European boardrooms, focusing less on whether climate risk is “political” and more on how boards intend to manage structural demand decline.
Environmental accountability and consumer redress
In the UK water sector, Professor Carolyn Roberts’ attempt to bring opt‑out collective competition proceedings against six water and sewerage companies – alleging they understated pollution incidents and overcharged customers as a result – was blocked by the Court of Appeal in March 2026. The majority held that section 18(8) of the Water Industry Act 1991 channels such issues through the regulator, Ofwat, precluding private follow‑on claims.
However, a strong dissent by Lord Justice Zacaroli, combined with heightened public anger following Channel 4’s sewage docudrama “Dirty Business”, suggests pressure will continue to build for mechanisms that close the gap between regulatory enforcement and consumer redress. For companies in regulated sectors, this reinforces that “licence to operate” risks now extend well beyond compliance, into public legitimacy and political scrutiny.
What this means for sustainability leaders in Q1 2026
Across these developments, several patterns stand out for corporate sustainability and ESG practitioners:
- ESG reporting is consolidating, not disappearing. UK SRS, ESRS revisions under Omnibus I and planned NESRS all point towards a world where double‑materiality‑informed reporting is standard, even if timelines slip and scopes are refined.
- Green claims are entering a zero‑tolerance phase. The ECGT Directive and related EU measures are making offset‑based “carbon neutral” marketing essentially untenable in Europe, with global brands already adapting.
- Litigation risk is moving up the value chain. From supply‑chain labour abuses (Limbu v Dyson) to digital product harms (KGM v Meta & YouTube) and aggressive greenwashing claims, courts are increasingly willing to scrutinise how business models and design choices create harm.
- Civic space and activism are becoming core ESG issues. The Energy Transfer v Greenpeace judgment and threatened actions against shareholder activists at oil majors show that how companies respond to protest and investor pressure is itself a material ESG risk.
For sustainability teams, Q1 2026 is therefore a moment to move from “compliance plus” to genuinely strategic ESG: integrating double materiality into risk and strategy, tightening governance around data and claims, and preparing for a world in which courts, regulators and stakeholders are all simultaneously raising the bar.
Sources
- Mishcon de Reya, “ESG Watch: Rising tensions, diverging paths”, 7 April 2026 – overview of Q1 2026 ESG developments and cases. https://www.mishcon.com/news/esg-watch-rising-tensions-diverging-paths
- Eye on ESG (Mayer Brown), “EU and UK Corporate Sustainability Reporting Updates”, 4 March 2026 – UK SRS and Omnibus I timelines. https://www.eyeonesg.com/2026/03/eu-and-uk-corporate-sustainability-reporting-updates
- Osborne Clarke, “UK Regulatory Outlook January 2026 – ESG”, 13 January 2026 – EUDR delay and simplification measures. https://www.osborneclarke.com/insights/regulatory-outlook-january-2026-environmental-social-governance
- EU Official Journal / European Commission, “Directive (EU) 2024/825 – Empowering Consumers for the Green Transition” and explainer pages. https://energy.ec.europa.eu/news/new-eu-rules-empower-consumers-green-transition-enter-force-2024-03-27_en
- UK Government, “Government commits to introducing mandatory ethnicity and disability pay gap reporting for large employers”, 25 March 2026. https://www.gov.uk/government/news/government-commits-to-introducing-mandatory-ethnicity-and-disability-pay-gap-reporting-for-large-employers
- Littler, “UK Government Confirms Commitment to Introduce Mandatory Ethnicity and Disability Pay Gap Reporting”, 5 April 2026. https://www.littler.com/news-analysis/asap/uk-government-confirms-commitment-introduce-mandatory-ethnicity-and-disability
- Leigh Day / Dyson statement on settlement in Dhan Kumar Limbu and others v Dyson Technology Limited, 26 February 2026. https://www.leighday.co.uk/news/press-releases/2026-news/dhan-kumar-limbu-and-others-v-dyson-technology-limited-dyson-limited-and-dyson-manufacturing-sdn-bhd
- Business Wire and Scientific American, March 2026 – coverage of KGM v Meta & YouTube social media addiction verdict. https://www.businesswire.com/news/home/20260325766197/en/; https://www.scientificamerican.com/article/jury-finds-meta-and-youtube-negligent-in-landmark-social-media/
- Renewable Matter / Bloomberg Law / CarbonCredits.com – Apple Watch “carbon neutral” class action dismissal, February–March 2026. https://www.renewablematter.eu/en/apple-wins-us-greenwashing-case-over-carbon-neutral-claims; https://news.bloomberglaw.com/litigation/apple-sheds-carbon-neutral-apple-watches-deception-class-suit; https://carboncredits.com/apple-beats-carbon-neutral-lawsuit-but-greenwashing-scrutiny-is-heating-up/
- Guardian, Reuters and Greenpeace International – Energy Transfer v Greenpeace USD 345m judgment, February–March 2026. https://www.theguardian.com/us-news/2026/feb/27/north-dakota-greenpeace-access-pipeline-energy-transfer; https://www.reuters.com/legal/government/north-dakota-judge-finalizes-345-million-judgment-against-greenpeace-pipeline-2026-02-27/; https://www.greenpeace.org/international/story/81860/what-345-million-judgment-means-greenpeace/
- Reuters and Net Zero Investor – Follow This shareholder resolutions at BP and Shell AGMs 2026. https://www.reuters.com/sustainability/cop/climate-activist-shareholder-group-pushes-bp-shell-plans-declining-oil-demand-2026-01-14/; https://www.netzeroinvestor.net/news-and-views/climate-resolutions-at-shell-and-bp-agms-shift-focus-from-paris-alignment-to-shareholder-value
- Monckton Chambers / Court of Appeal media summary – Roberts v Severn Trent Water collective proceedings decision, 5–6 March 2026. https://www.monckton.com/court-of-appeal-refuses-permission-to-appeal-in-roberts-sewage-spill-collective-proceedings-claims/
- Integrum ESG, “Regulatory landscape in 2026: EU, UK and US”, 29 August 2024 – medium‑term trends in ESG regulation and supervision. https://www.integrumesg.com/insights/regulatory-landscape-in-2026-eu-uk-and-us