By Shona Frame, partner and construction law specialist at CMS
THE integration of ESG (Environmental, Social, and Governance) practices within the construction sector continues to present challenges for one of the UK’s key industries.
A report released at the end of 2024 by Bartlett School of Sustainable Construction at University College London (UCL) highlights the extent of the task ahead. ESG in Construction Law: Evaluating Sustainable Practices in the UK Construction and Legal Industries was based on an in-depth survey of construction law professionals over their views on this increasingly important issue. It highlights a number of key points including a gap of engagement in implementing ESG policies, with only 28% of those surveyed currently holding active ESG roles although 54% of respondents consider it ‘moderately’ to ‘extremely’ important within the sector.
The report also uncovered a lack in ESG training within the construction industry. 100% of younger (18–24 years) survey respondents claimed to lack training in this area while only 48% of respondents aged between 45–54 said they had received any form of training.
Along with its findings, the UCL report also sets out some key recommendations including a need for greater collaboration between construction trade bodies and universities to develop accredited training programmes that are available to all demographic groups working within the industry.
As well as calling for greater integration of ESG elements, the UCL report also recommends more rigorous and accessible academic and policy-related research on ESG and calls for standard metrics and tools for gauging ESG to be established across the construction industry. Arguing how the ’urgency for transformative action has only intensified,’ the report also highlights significant legal challenges around these points that need to be addressed raising concerns about barriers preventing many companies, especially smaller firms, in adopting technology. Its authors conclude that incorporating ESG principles into the UK construction and legal industries is ’now crucial for long-term sustainability’.
With the construction industry accounting for an estimated 38% of global energy-related CO2 emissions, the UCL report further underlines the significant commitment towards ESG required here in the UK. While this undoubtedly brings a financial burden, there are a range of other measures which companies should be embracing to help them meet the ESG challenge starting with the need to get ahead of the regulatory curve.
Some aspects of ESG reporting are already mandatory for UK businesses with further requirements on the way. While challenging, companies that can be proactive in understanding and addressing the currently required levels of performance as well as those coming down the tracks will find themselves in a stronger position.
Financing is another key area. By pivoting towards innovative funding mechanisms, including loan facilities with interest rates dependent on meeting ESG targets, UK construction businesses have been successful in attracting investors and funders who are increasingly looking for high-quality ESG-focused investment opportunities.
Incorporating the human factors around ESG into risk management frameworks is also an important consideration for construction companies. This approach can enhance corporate reputation, lower insurance costs and improve bidding access to projects as ESG issues have an ever-growing influence on procurement decisions.
To maximise the benefits of an ESG strategy, it’s vital that companies engage closely with all stakeholders, from investors, funders and regulators, through to suppliers, customers, the wider community and, perhaps most importantly, employees, who are becoming increasingly tuned into ESG matters.
A further area where construction firms can make an impact is by identifying ESG baselines and KPIs. With industry regulators looking to introduce compulsory reporting across all areas of ESG, it’s advisable to begin implementing these procedures, reflecting national regulatory reporting requirements, where these exist, and a baseline taking account of key non-regulatory requirements.
An investment in robust ‘data credibility’ is also key in developing strong ESG practices. This involves the adoption of effective data tracking and reporting practices which can be verified through an audit. Transparency about data sources and methods used for data collecting will help safeguard its reliability and accuracy.
Once targets are set, establishing key performance indicators as well as monitoring and reporting on ESG progress becomes the final but essential piece of the jigsaw. Reporting these updates is increasingly becoming a requirement for company accounts, wider shareholder communications, contract tendering, and for retaining access to any sustainability-linked funding.
As the UCL report shows, there is a strong desire across the UK construction industry to further develop ESG practices. Balancing ambitious goals with a credible and demonstrable approach will help companies continue to make meaningful progress as the regulatory landscape continues to develop. ESG will increasingly sit at the heart of this evolving industry landscape.
