A thinktank has turned on the UK’s governance watchdog, arguing that it has removed all mention of environmental and social issues from the new version of the UK Corporate Governance Code.

Luke Hildyard, director of the High Pay Centre, describes the new code as a “disappointment” after the final draft issued last week appeared to scrub all mention of ESG. Hildyard says the decisions represent a “victory” for those who claim that governance has become a “reporting burden” and who claim it contributes to the UK’s economic difficulties.

“It suggests,” writes Hildyard in a blog, “that efforts to denigrate environmentally and socially conscious business are becoming increasingly effective.”

A consultation on the new code received more than 5,000 responses, more than any other call for opinion from the Financial Reporting Council (FRC).

After considering the responses, new FRC chief executive Richard Moriarty decided to remove a number of proposed new provisions, including one that asked audit committees to report on their monitoring of narrative reporting “including sustainability matters”.

Another discarded change was advice to “align” executive pay to “the company’s long-term strategy, including environmental, social and governance objectives”.

Also set aside was a measure insisting annual reports include information on how ESG metrics were “assured”.

Visibility

Hildyard writes: “These were pretty tame measures, but would have at least made issues like pay and employment practices, supply chain ethics or greenhouse gas emissions more visible at boardroom level.”

An FRC statement in November said it had cuts some code proposals due to “a much wider debate about business reporting requirements and burdens across the economy.” This week, in a webinar, FRC officials said provisions were scrapped because consultation responses said ESG measures would enter a “very crowded field” that was not an area to address when new standards are likely coming forward (there is currently a review underway to consider introduction of International Sustainability Standards to the UK).

Maureen Beresford, head of corporate governance at the FRC, says in the webinar the current code already refers to working towards “long term sustainable value” and also makes mention of diversity. “So we’ve not abandone these areas,” said Beresford, “we’ve just chosen not to go further and to work within the framework that the current code has.”

A number of events last year signalled there had been a change in direction on governance. Central government dumped other reporting reforms after lobbying by the Capital Markets Industry Taskforce (CMIT), a group chaired by Julia Hoggett, chief executive of the London Stock Exchange.

The CMIT also ended up in a public spat with proxy advisors after the group called for the public register of shareholder revolts (votes of 20% or more against) to be shut down and the end of explanations from boards when votes reach the threshold.

The CMIT included its proposals in an open letter to government entitled: Resetting the UK’s approach to corporate governance.

However, tussles over ESG take place against a wider political backdrop in which prime minister Rishi Sunak has dampened the government’s approach to climate by delaying the ban on petrol and diesel cars by five years to 2035. One governance expert told Board Agenda the move created uncertainty among boards about the government’s commitment to climate policies.

In the US, ESG has been caught up in the highly polarised political debate and accused of being “woke” by politicians on the right.

Alongside all of that is a serious discussion among investors and academics about the intellectual integrity and usefulness of the term ‘ESG’. Alex Edmans, a professor at London Business School, has argued: “Just as painting by numbers is useful for a child learning to paint but limiting thereafter, the current ESG-by-numbers approach has long outlived its purpose.”