UK property ESG regulation: what real estate and construction businesses should prepare for

Minimum Energy Efficiency Standards remain a clear risk for commercial landlords. In England and Wales, landlords generally cannot grant or continue a tenancy of a non-domestic property rated below EPC E unless an exemption applies.

The Government’s interim response of 18 June 2026 proposes that privately rented non-domestic buildings larger than 1,000 square metres may need to achieve EPC B from 2031, subject to secondary legislation. Smaller buildings would remain subject to the existing EPC E minimum, and the previously proposed EPC C milestone for 2027 would be abandoned.

That timetable should not encourage delay. Larger assets can require surveys, lease negotiations, planning, procurement and major plant replacement. Landlords should identify properties above the proposed threshold, test exemptions and payback provisions, and align planned maintenance with energy improvements. Poor energy performance may also affect lettability, financeability and sale value.

Mandatory Biodiversity Net Gain requires most qualifying developments in England to deliver at least a 10% improvement in biodiversity value. Gain may be delivered on site, through registered off-site units or statutory credits.

BNG can influence land value, density, layout, viability and planning timetables. Habitat enhancements usually need to be secured and managed for at least 30 years, creating long-term governance and funding obligations. From 6 August 2026, a new exemption applies to sites below 0.2 hectares unless onsite priority habitat would be harmed. Minor development rules are also changing, and the previous self build and custom build exemption is being removed.

Developers should involve ecologists and planning advisers early, model BNG alongside viability, and decide who will fund and oversee habitat management after completion.

Many construction businesses encounter ESG through procurement rather than direct regulation. Suppliers bidding for certain central government contracts may need a Carbon Reduction Plan showing a commitment to net zero by 2050, emissions data and reduction measures. The Social Value Model also requires bidders to demonstrate wider outcomes such as environmental benefits, local employment, skills, apprenticeships and community value.

Businesses that can evidence reliable emissions data, credible reduction initiatives and social value outcomes are likely to be better placed in competitive tenders.

The UK Emissions Trading Scheme places a carbon price on emissions from regulated installations, including sectors that supply construction materials such as cement clinker, lime, aluminium, iron and steel. Most property owners and developers are not directly regulated by it, but may feel its effects through material prices.

Embodied carbon is therefore becoming a procurement and financial issue. Although most developments do not yet face a mandatory embodied carbon reporting regime, planning policy, investor due diligence and major procurement exercises increasingly ask for Environmental Product Declarations, product carbon data and lifecycle assessments.

Businesses should distinguish operational emissions from embodied emissions associated with materials, transport and construction. Scope 1 and 2 baselines are useful, but Scope 3 emissions often represent the largest exposure for construction businesses.

Scope 1

Direct emissions from sources owned or controlled by the business, such as fuel used in company vehicles or onsite plant.

Scope 2

Indirect emissions from purchased electricity, heat or cooling.

Scope 3

All other indirect emissions across the value chain, including purchased materials, subcontractors, transport and waste. For many construction businesses, Scope 3 emissions represent the largest share of their carbon footprint.

The UK Carbon Border Adjustment Mechanism will apply from 1 January 2027 to specified imports from aluminium, cement, fertiliser, hydrogen, iron and steel. Its relevance to construction is immediate because several of these materials are central to buildings and infrastructure.

Registration can be triggered where a business expects to import at least £50,000 of CBAM goods within the next 30 days, or has reached that threshold during the previous 12 months. Even businesses that do not import directly may face higher prices or requests for emissions information from suppliers.

Businesses should map imported goods against commodity codes, identify the importer of record, obtain embedded emissions data and check whether contracts allocate cost and data responsibilities clearly.

The Building Regulations etc. (Amendment) (England) Regulations 2026 generally come into force on 24 March 2027, with separate timing for some higher risk building work and transitional arrangements. The standards are intended to deliver new homes and non-domestic buildings with low carbon heating, stronger energy performance and lower operational emissions. They also introduce onsite renewable electricity generation for new dwellings and buildings containing dwellings, subject to exceptions.

Developers should review specifications, design programmes and procurement plans now, including heating, fabric, ventilation, controls, solar generation, grid capacity, commissioning and installer capacity. Transitional provisions should be assessed scheme by scheme.

The FCA’s anti-greenwashing rule has applied to FCA authorised firms since 31 May 2024. Sustainability claims about financial products and services must be fair, clear, not misleading and consistent with the product’s characteristics.

The UK SRS S1 and S2 standards are currently voluntary, but they form part of wider corporate reporting reform and may influence future expectations for larger companies. Some quoted companies, large private companies and LLPs are already subject to mandatory climate-related financial disclosure requirements.

Property businesses should avoid broad claims such as “net zero building” or “green portfolio” unless the scope, methodology, baseline and evidence are clear. Claims should explain what is included, what is excluded, and whether performance is designed, modelled or measured in operation.

Social governance also matters. Businesses with turnover above £36 million may need to publish a Modern Slavery Act statement. Even where not directly required, construction businesses are increasingly asked to show labour standards, subcontractor oversight and supply-chain due diligence.

Many construction SMEs are not directly subject to climate reporting regulations such as SECR, ESOS or climate related financial disclosures.

However, larger developers, contractors, investors and property owners increasingly request information on emissions, energy consumption, waste management, labour standards and supply-chain practices from their suppliers.

This trend is likely to continue as larger organisations respond to their own reporting and governance obligations.

Businesses that establish reliable ESG data collection processes early may find it easier to meet future client requirements.