Governing ESG in UK Construction: Corporate Duties, Supply Chains, and Dispute Risks

ESG targets are no longer mere aspirations; they have become a regulatory, financial, and reputational necessity across diverse sectors, including the construction industry and the legal profession. In the United Kingdom, these developments have affected the construction industry, which is a critical pillar of the economy, providing new projects worth approximately £139 billion in 2023. Consequently, there is an increased need for companies and individuals in the sector to focus on ESG issues due to the industry’s adverse impacts on the environment, complex labour relationships and supply chains. In our recently published article, ‘Governing ESG in UK Construction: Professional Perspectives and Dispute Risks’, we discuss the adoption and management of ESG targets in the construction sector. We argue that the legal framework for ESG is evolving yet parts of the existing legal framework are capable of regulating ESG commitments. Therefore, the risk of ESG-related litigation impacting UK construction companies is growing. 

Harnessing the Statutory Framework 

Existing statutes, although not designed as a single ‘ESG Act’, are still capable of providing strong enforcement mechanisms, strictly enforced in a coordinated manner. For instance, the Bribery Act 2010 provides a potent strict liability model through its section 7 corporate offence; the statutory defence of ‘adequate procedures’ demands governance systems, risk assessment and due diligence necessary to manage broader ESG risks. As R v Skansen Interiors Ltd (Southwark Crown Court, 8 February 2018) demonstrates, these obligations impact even smaller firms, dispelling the idea that strict compliance is only for multinationals. In the same way, the UK’s Modern Slavery Act of 2015 is an important element in the framework as well. Labour supply chain due diligence breaches have the potential to lead to extreme exploitation. In the Lupu brothers case, the SFO identified human trafficking rings that were using false documents to employ forced labour in building sites. The Lupus were given long terms of imprisonment. We also look at the effect of s 172 of the Companies Act 2006, which in essence calls for directors to take into account impacts on communities and the environment even though it’s not explicitly stated in the Act. The progression of litigation, as reflected in ClientEarth v Shell Plc ([2023] EWHC 1897(Ch)), shows that failure to address climate risk can also be subject to greater scrutiny. 

The Governance Chasm 

Although these paths for legal recourse exist, there appears to be a gap in their application and use. The ESG in Construction Law Survey conducted by Castro and El Daouk in 2024, in collaboration with the Society of Construction Law, found that while 71% of legal professionals consider ‘Governance’ as the most important aspect of ESG, only 47% of construction professionals consider it as such. This is alarming since it is an important aspect of ESG as it entails the mechanisms by which an organisation includes environmental and social factors in its governance. It covers the systems in place that govern legal compliance, as well as alignment of business practices with sustainability goals. Another interesting finding of the survey is that social issues such as labour practices or diversity are the least important factor of ESG, despite the high risks of slavery in this particular industry, as evidenced in the case of Lupu brothers. This neglect indicates that while the environmental pillar receives focus from a technical lens, the governance and social pillars tend to be less emphasised and mainly employed for the purposes of managing legal risks. 

The ESG Dispute Horizon 

In the article, we also examined how the gap between corporate statements and operational reality creates a landscape of potential litigation. The most immediate liability risk is greenwashing and the misrepresentation of environmental or social claims without sufficient basis or evidence. Similarly, litigation risks are also on the rise as construction contracts are increasingly incorporating specific ESG provisions. In case of a breach of ESG provisions, liquidated damages provisions are often included to provide consequences for non-compliance with ESG provisions. The case law position is that, as demonstrated by the case of MT Højgaard A/S v E.ON Climate & Renewables UK Robin Rigg East Ltd ([2017] UKSC 59), the court will enforce technical and measurable ESG provisions. The Procurement Act 2023 also includes the ‘maximising public benefit’ objective and the ‘Most Advantageous Tender’ (‘MAT’) framework. Although this does not diminish the importance of cost as a factor, more flexibility exists for non-cost factors, including ESG. However, as with any factor, the lack of clear guidance and enforcement will likely result in arguments regarding ‘public benefit’. 

Conclusion 

We propose that the current body of law provides some of the core legal principles needed to enforce ESG commitments in the UK. In fact, there has been growing judicial willingness to uphold sustainability-linked obligations. ESG effectiveness, however, depends not only on future developments in case law or an overhaul of the statutory framework, but also on the industry’s capacity and, crucially, its willingness to translate these obligations into practice in order to align professional priorities with long-term sustainability goals. At present, there remains a clear gap between black-letter law and how things are done in real practice. This gap is compounded by sector-specific pressures, including fragmented supply chains, limited resources, and inconsistent ESG training. It is, therefore, evident that the legal profession has an important role to play. This includes not only managing risk and responding to emerging ESG-related disputes, but also actively championing best practices. Moving forward, lawyers will need to assist clients in accessing strong, transparent, and sound ESG governance structures that can address current and emerging challenges, rather than simply being ‘compliance-focused’. 

Access the authors’ article.

Dr Armando Castro is the Director of the UCL Centre for Sustainable Governance and Law in the Built Environment, Associate Professor at the Bartlett School of Sustainable Construction UCL, and a barrister. 

Dr Mohamad El Daouk is a Lecturer in Construction Law at the Bartlett School of Sustainable Construction UCL and a member of the UCL Centre for Sustainable Governance and Law in the Built Environment.