News
Tuesday 14th October 2025
ESG appears in more construction contracts
Environmental, social and governance (ESG) has been around for a long time, and the concept will certainly not be new to anyone in the construction industry. As the urgency to transition the economy towards net zero by 2050 heightens, construction contracts are increasingly including requirements relating to ESG standards.
What is ESG?
ESG refers to three pillars by which a company is assessed to determine its societal impact beyond financial turnover. By combining environmental, social and governance factors, an organisation’s impact on local communities and national obligations can be calculated.
Environment: The construction industry impacts the environment through greenhouse gas emissions, resource consumption and waste generation. In response, companies are taking environmental impacts into account when developing projects.
Social: Construction projects impact communities and other stakeholders. On the positive side, they bring employment and housing, as well as public amenities. To be a socially responsible business involves prioritising worker safety through compliance with relevant employment laws and health and safety regulations, plus other labour laws on wages, working hours and conditions.
Governance: Good governance is critical to construction. When things go well, all parties remain accountable for their roles and responsibilities. By following best practices, companies can make sure that projects are delivered effectively, ethically and in compliance with UK laws and regulations.
Why is ESG entering contracts?
The construction industry has put greater emphasis on ESG factors in the past decade. The need to mitigate climate effects, plus legal pressures on corporate responsibility prompt companies to focus on ESG.
The UK built environment is responsible for around a quarter of the country’s total greenhouse gas emissions. In recognition of the sector’s capacity to help the UK meet net-zero targets, ESG is now increasingly included in construction contracts.
As such, winning contracts in many cases now relies on having strong ESG credentials. Non-compliance can lead to a range of legal, financial and reputational risks, while demonstrating strong ESG credentials can help firms stand out in a busy market.
Examples of ESG in construction contracts
Ways in which ESG has been incorporated into construction contracts include requirements to:
- Protect the environment during the works
- Comply with environmental impact statements
- Inform the employer of any dangerous substances
- Ensure there is no release or disposal of dangerous substances
- Ensure there is no contamination of the site
- Notify of any breach of environmental consents.
Additionally, some contracts now specify the use of eco-friendly materials like recycled or low-carbon concrete or non-toxic and energy-efficient building materials.
Socially, there are clauses that set specific goals related to employment, skills development and community impact, such as the need to implement and deliver the employer’s social value delivery strategy before the expiry of the completion period for the works.
With regard to governance, employers are including express obligations on contractors to comply with their corporate polices and minimum requirements. Contracts are also requiring the contractor to ensure that its subcontractors and all other parties for whom the contractor is responsible also comply with these policies.