Environmental sustainability has seen an increased focus across the UK commercial horizon, including organisations operating in the construction, engineering and real estate sectors. As well as legislated reporting requirements for UK companies, and the recently published voluntary UK Sustainability Reporting Standards, there’s growing pressure from investors, development partners, employees, and other stakeholders for such organisations to be transparent about their environmental impact. Many businesses are turning to technology to help meet the challenge.

In this article, we look at current environmental sustainability reporting standards, risks associated with misrepresenting (or ‘greenwashing’), and key considerations for procuring technology to help drive your organisation’s environmental sustainability journey.

Greenwashing risk and environmental reporting – What do I need to know?

With increased requirements on sustainability reporting and disclosure, greenwashing risk has increased. With that comes real liability concern for UK companies and directors. For example:

• directors can be personally liable for losses from misstatements in statutorily required reports which they know to be untrue or misleading; and
• UK companies can be liable for civil claims for misrepresentation, breaches of advertising and consumer protection law, and/or fraud offences.

Whether an organisation is required, or volunteers, to carry out environmental sustainability reporting depends on the size and the nature of the organisation. In general, UK companies preparing their annual reports in accordance with the Companies Act 2006 have different reporting requirements depending on whether they are a quoted, listed, large, medium-sized, small, or micro-entity company.

Quoted companies with more than 500 employees must:

• in their annual report, make climate-related financial disclosures which comply with the recommendations set out in the Task Force on Climate-related Financial Disclosures on a comply or explain basis;
• in their strategic report, include a non-financial and sustainability information statement on environmental matters;
• in their director’s report, provide energy and carbon reporting.

Listed companies with more than 500 employees must:

• in their strategic report, make climate-related disclosures; and
• in their director’s report, provide energy and carbon reporting if they exceed two or more of the thresholds for turnover, balance sheet, and employees.

Large companies must:

• in their strategic report, make climate-related disclosures if they have more than 500 employees and a turnover of over £500m; and
• in their director’s report, provide energy and carbon reporting.

Medium-sized companies must:

• in their director’s report, provide energy and carbon reporting if they exceed two or more of the thresholds for turnover (£36 million), balance sheet (£18 million), and employees (250).

UK Sustainability Reporting Standards – What are they and how will they impact my organisation?

The recently published UK Sustainability Reporting Standards (UK SRS) are intended to be the footings for the UK’s future environmental sustainability disclosures regime. The UK SRS are based on the standards published by the International Sustainability Standards Board (ISSB) in June 2023. The ISSB standards and now the UK SRS core objectives should help organisations that are mandated, or voluntarily choose, to:

• embed sustainability and climate-related considerations into their business plans and strategies; and
• disclose sustainability-related data to focus on the risks and opportunities associated with sustainability factors for the benefit of their lenders, investors and other creditors.

The UK SRS comprise:

• UK SRS S1: disclosure requirements for reporting sustainability-related risks and opportunities that could reasonably be expected to affect cash flows, access to finance or cost of capital over the short, medium or long term; and
• UK SRS S2: details the reporting requirements for disclosing information about climate-related risks and opportunities that could reasonably be expected to affect its cash flows, access to finance or cost of capital over the short, medium or long term.

Whilst the UK SRS are intended to be used voluntarily by any organisation that chooses to do so, the government and the Financial Conduct Authority (FCA) are currently considering whether to introduce requirements for certain UK entities to report against the UK SRS.

As well as the UK SRS, the Royal Institution of Chartered Surveyors has published the fourth edition of its global professional standard on ESG and sustainability in commercial property valuation. This new edition sets out a framework for how ESG factors should be reflected in valuation advice.

Technology and sustainability reporting – What should I know?

Technology can enable organisations to improve their environmental sustainability and reduce greenhouse gas emissions. Building management systems, smart energy metering, and sustainability data platforms can help organisations understand how they use energy, track emissions in detail, and take informed steps to accelerate their sustainability journey. This not only supports reporting requirements, but can also mitigate the risk of greenwashing.

These systems track real-time electricity, gas, and water use to monitor costs and inform smarter energy decisions. Connected platforms visualise the data and show where energy is being supplied from at any moment.

When contracting for these technologies, there are some key considerations which organisations should bear in mind:

• Interoperability
• Milestones and milestone acceptance
• Service levels and levels of availability
• Intellectual property ownership in the system and/or solution
• Viruses and other technical vulnerabilities

We’ll look at each in turn.

Interoperability

Interoperability is the ability of computer systems or software to exchange and make use of information between existing systems and other new systems. Failure of new technologies to integrate seamlessly with existing systems can result in an organisation not being able to use the technology to its full potential. This may mean accepting certain (unplanned) limitations or incurring extra spend to fix the problem. So, when implementing a new system, it’s advisable to:

• Consider whether a trial period is necessary to fully understand the system or solution;
• Understand what devices, equipment or solutions are already in place and ascertain the requirements (if any) for connection with existing systems; and
• Particularise the deadlines for any implementation and connection with existing or other new solutions.

Milestones and milestone acceptance

When implementing a new system or solution, it’s important to consider whether a timed/staged deployment is necessary. If so, specific milestones towards implementation should be identified, as should how completion of each milestone will be judged.

Likewise, it’s key to consider the implications and consequences of any missed milestones, whether the supplier will be offered any extension to meet a missed milestone, and whether/to what extent liquidated damages for missed milestones will be payable.

Service levels and availability

Where a supplier provides an incident response support service for hardware or software, service levels may include an initial response to a fault and the time to resolve a fault.

Where a supplier is providing software as a service or a fully managed service for a system, service levels may refer to the availability or the uptime of the service. This is usually set out as a percentage of time in a given period. Other specific service levels might also apply depending on the scope of service.

Organisations need to:

• Review service levels to ensure they match expectations/requirements;
• Scrutinise any exclusions to ensure they’re sensible for the scope of service; and
• Request the provision of service credits to enable the organisation to receive recompense if a service level isn’t met, but also to push the supplier to meet the service levels.

Intellectual property

Where a supplier is providing software or a managed system, intellectual property provisions will determine who owns, and who can use, the software and any outputs generated by it. This may include rights in data, reports, analytics or other materials produced through use of the system. The allocation of IP rights, and the scope of any licences granted, can have a significant impact on how the organisation can use the solution both during and after the contract term.

Organisations need to:

• Confirm ownership of IP, particularly in relation to outputs generated by the software or system;
• Ensure the licence rights granted are sufficiently broad to support intended use (including internal use, group sharing or commercialisation, where relevant);
• Seek appropriate warranties and indemnities to protect against third‑party IP infringement claims arising from use of the software or its outputs;
• Be able to terminate the agreement without liability if the supplier is unable to make the necessary; and modifications to avoid further infringement.

Viruses and other technical vulnerabilities

When implementing new technology, organisations must consider the security of both the new systems and the existing systems and infrastructure it connects with. Key considerations include:

• Protection against viruses and vulnerabilities;
• Prompt notification and collaboration if issues arise; and
• A clear process for resolving and rectifying any security issues.

In some cases, it may be advisable to require virus and vulnerability testing before the system is supplied.

Deploying tech to support sustainability reporting – How we can help businesses operating within the built environment

The procurement and implementation of different technologies such as building management systems, smart energy metering systems, and other similar platforms or solutions, can be complex and time consuming. It can seem daunting when your day-to-day is already dominated by the varied and competing demands of today’s real estate and construction industry. However, the direction of travel with ESG reporting is clear, and tech solutions have significant potential to improve your organisation’s environmental impact and reputation.

Ryan Doodson and Kyran Clarke, in our Commercial and Technology & Digital team, have significant expertise in all aspects of PropTech and ConTech. As well as helping to keep you up to date on key legal and regulatory developments around tech and sustainability reporting, they can provide thorough, commercially-focused advice on all elements surrounding the procurement and operation of sustainability tracking, management and reporting platforms and solutions. Please contact Ryan or Kyran to discuss.