ESG strategies and sustainability in the UK Construction Sector

Environmental, Social and Governance (ESG) policies and sustainability continue to be commercial imperatives and a strategic opportunity for the UK construction sector. At our recent roundtable of construction industry experts, participants addressed the complexity of embedding ESG and sustainability into business-as-usual. They also emphasised its long-term value. This report distils the key takeaways and recommendations on sustainability and ESG and is an invaluable read for construction business leaders.

Whether you are just starting out on the road to sustainability or you are refining your ESG strategies, we’re ready to help. Get in touch to discuss how we can support you and your business achieve your ESG goals.

Market Outlook

Before we dive into the topics and recommendations covered by the roundtable, it is important to acknowledge that the sector is facing significant headwinds. The S&P Global UK Construction PMI dropped to 46.6 in May 2025, its lowest since 2020. New orders and project starts have decreased, with a 21% drop in construction starts year-on-year. With construction insolvencies averaging 450 per month, major failures such as ISG, Buckingham Group, MJ Lonsdale, and Henry Construction Group reflect the industry-wide instability. Many businesses in construction will be wondering whether they should prioritise ESG and environmental sustainability over economic sustainability.

ESG and sustainability in practice

In response to this challenging landscape, we heard from industry leaders about how they are adapting their ESG and sustainability strategies in sometimes surprising ways. Here are the core themes and takeaways from our roundtable discussion.

ESG and sustainability: a Board priority

The construction industry is responsible for a significant proportion of global emissions. Transformation of construction will make a significant contribution to the UK meeting its 2050 net zero targets.

However, progress is being slowed by the high cost of green innovation. The financial cost is largely being borne by contractors and developers, who already operate on razor-thin margins. The average salary of a ‘green collar’ worker has almost doubled in the past two years. The cost of sustainable materials continues to rise. Innovation, particularly in the development of low-carbon materials and digital tracking of contract emissions, is accelerating and this is to be welcomed. The financial burden is still significant.

Nonetheless, most construction company leaders confirmed that their ESG investment strategies remain unchanged and continue to be viewed by boards as integral to long-term competitiveness and value creation. ESG and sustainability remain a priority for boards across the sector.

Key observations:

Green investment requires access to finance including green bonds and sustainable loans
Companies are winning tenders based on lowest carbon emissions, not price which is new
Innovation is now a differentiator, but needs to be embedded across supply chains

ESG and sustainability strategy: the role of supply chains

A robust ESG strategy must extend to a business’s supply chain and suppliers. Construction leaders should consider how best to encourage and support sustainability initiatives across their supply chain. SME supplier may lack the resources to invest independently in sustainability. Our roundtable participants highlighted the need for collaboration to accelerate change.

Sustainability opportunities include:

Offering joint ventures or technical support to smaller suppliers
Providing introductions to corporate and innovation networks
Communicating sustainability minimum standards and helping suppliers meet them
Embedding ESG and sustainability due diligence into procurement

The sustainability skills gap - people, skills and leadership

The construction sector is facing severe skills shortages, particularly in sustainability roles. Salaries for ESG professionals are rising rapidly as demand outpaces supply. The challenge is most keenly felt at board-level where there is little to no representation for sustainability. This results in gaps in decision-making authority and limits the integration of ESG and sustainability considerations into core business strategy. There is also a lack of education and awareness around sustainability issues, internally and with wider stakeholders, that is hindering buy-in and progress.

Suggested actions:

Use secondments and cross-training opportunities to grow ESG capability
Engage schools and universities to position construction as a tech and ESG-driven sector
Encourage shared C-suite responsibility for ESG to reduce siloed leadership

Innovation, procurement and sustainability

As mentioned above, contracts are already being won on environmental value and carbon performance. This is a significant cultural change, and participants expect sustainability to become increasingly important commercially.

However, many innovative green solutions remain underused because of a combination of high upfront costs, insurance constraints and a lack of awareness among clients. Businesses can find it hard to pass on the costs of innovation. All too often, clients of construction businesses do not yet fully recognise or value the long-term environmental benefits these innovations offer. Traditional insurance models also make it difficult to insure new materials or construction techniques.

Way forward:

Educate workforces and clients on benefits and value of sustainability
Adopt and promote best practices on risk-sharing and collaborative procurement
Support industry-wide insurance innovation

Sustainable finance: How accessible is it?

While green finance is often seen as complex or inaccessible, there are practical opportunities for funding:

Upcycling green grant applications: reuse frameworks to unlock repeat opportunities
Circular economy; increased demand, especially in defence and electronics, driving reduced exposure to supply chain and tariff risks
VC/PE investors – especially thematic funds – looking for opportunities with scalable technologies that can decarbonise the construction sector
Sustainable lending: ESG-linked loans and KPIs are gaining traction even when interest rates benefits are still modest
Research & Development Expenditure (RDEC) claims remain a valuable incentive for ESG innovation even if companies must be careful following recent reforms

Net Zero Roadmaps: Clear but Contingent

Our roundtable discussion made it clear that not all firms feel confident in their net zero strategies. Even when robust plans are in place, success often depends on external stakeholders; suppliers, clients, or government bodies. Our participants also highlighted the importance of identifying, mapping and communicating them clearly with stakeholders. Being transparent about dependencies will help build trust and create a foundation for effective collaboration.

Clarifying the ‘E’, ‘S’ and ‘G’

There is a widespread need for a better definition of ESG within the construction sector. While environmental and sustainability goals are relatively well understood, the ‘Social’ and ‘Governance’ pillars are less well understood, receive less attention and are seen as harder to implement or measure.

Recommendations:

Establish discrete pillars and assign board-level responsibility for each
Educate on the value of non-environmental ESG actions such as workplace wellbeing, inclusive hiring practices and ethical governance frameworks
Educate all workforce on cross-functional ESG principles

Financial Reporting of ESG

It is essential to present a coherent and credible sustainability story, demonstrating through your financial statements that your business is actively working to reduce its carbon footprint in order to achieve net zero targets by 2050.

The narrative section of the accounts should clearly communicate the company’s sustainability framework, the rationale behind the selection of reporting standards, implementation processes and the financial impact of climate-related risks.

Construction industry collaboration

There is no shortage of collaborative initiatives across the industry, including the Better Buildings Partnership, the Supply Chain Sustainability School, the Green Construction Board, and the UK Green Building Council (UKGBC). Our discussion also revealed that this landscape can often feel disjointed.

Whether you are a contractor, client or consultant, your business should look for initiatives that align to its business model. You then use them as a vehicle to support shared learning, strengthen networks, and amplify your influence on industry-wide change. This is how to make to most of these opportunities.

You should address commercial considerations from the outset to reduce friction to collaboration. A recent example can be seen in the new Contracted Out R&D rules for RDEC claims. The new rules change who can claim for qualifying activity undertaken across supply chains and may disrupt existing arrangements linked to ESG-related collaboration. You should assess this early on and ensure there is the essential common understanding between all parties.

More Than a Box-Ticking Exercise

The construction sector is facing real pressures, from tightening margins and rising material costs to a widening skills gap. But despite these challenges, ESG isn’t going away. It’s becoming more embedded in how projects are financed, procured and delivered. Firms that treat ESG and sustainability as a long-term investment rather than a compliance burden will be better placed to adapt, attract talent, and remain competitive. Progress does not happen overnight, but by working more closely across supply chains and embedding sustainability into decision-making, the construction industry can make meaningful strides towards a more resilient and low-carbon future.

We regularly talk to leading firms in the construction industry about the issues and challenges they face, whether that is sustainability or access to funding ESG journey. What are your priorities for the next 12 months? Get in touch to be part of the conversation.