UK ESG Real Estate Update - Winter 2025

Social value – what are we seeing which ticks the “S” of ESG?

The environmental – or “E” – aspects of ESG in real estate are now well-established. Indeed, green lease provisions are common, there are numerous green accreditations, and the industry is familiar with the implications of environmental legislation such as the EPC Regulations and MEES.

The “social” aspect of ESG is more opaque, there is less social regulation and measuring social value is more complex.

The social aspect of ESG is about the contribution a business or place makes to society and to the local community. Buildings have an impact on the lives of people interacting with them and the surrounding area, and so “social” in a real estate context is looking at how property assets and estate management impact and contribute to the local area.

Whilst these social considerations are more common in a planning context (e.g. s106 Agreements), industry-accepted drafting on social impact in leases is still in its infancy (and is often limited to certain asset types).

However, the social provisions we are starting to see include:

1. Obligations on occupiers to comply with workplace co-ordination policies and local employment initiatives
2. Requirements to observe delivery consolidation policies to reduce congestion
3. A commitment to engage local supply chains and local businesses
4. Apprenticeships offered to local residents
5. A commitment from occupiers to payment of the living wage, both in respect of their own employees and (where practicable) those engaged in their supply chains
6. Stricter protocols to deal with food waste, if the property is used for F&B purposes
7. Promotion of sustainable travel options
8. Requirements to implement diversity and inclusion initiatives
9. Agreements with local business and initiatives to use redundant space (e.g. pop-ups). This was common during COVID for community mobile testing agreements
10. Compliance with landlord estate management policies and initiatives, and regular reporting and meetings on social matters

Whether the commitment to these obligations is “hard” or “soft” will be a matter of negotiation.

Occupiers are also starting to implement stricter social requirements in the space they let. For example, buildings that do not meet certain accessibility or amenity thresholds may no longer be an option for certain tenants.

Social clauses will almost certainly become more common over the next decade, and estate management generally will also place a greater onus on social value initiatives.

ESG and data centre leases

There are a number of considerations that are unique to data centres which need to be taken into account when negotiating a data centre lease, including green lease considerations.

With the vast increases in data being consumed by the average individual, along with the recent exponential development of AI, data centres continue to be a fundamentally crucial asset class, with a number of specific features and characteristics. This becomes apparent when you start to consider data centre leases in the context of ESG related clauses.

Given how much water and energy data centres use, there is a push towards trying to make them “green”. This is no mean feat, given how much energy data centres consume. However, you will see in some data centre leases certain green lease provisions. For example:

• Some data centre leases may incentivise the use of renewable energy. In some cases, it may be possible for data centres to have direct access to solar energy generated from solar panels on the roof. However, in reality, this is not going to provide anywhere near the full energy requirement of a data centre.
• Like many commercial leases, there may be obligations in data centre leases requiring any construction works to be carried out in accordance with sustainable building standards, such as LEED (Leadership in Energy and Environmental Design) or BREEAM (Building Research Establishment Environmental Assessment Method).
• Some leases may include obligations relating to minimising water usage and/or re-using water.
• Some landlords and tenants will agree to monitor and report on energy and other resource consumption.

Also, while not something that is generally seen in data centre leases, there are specific examples of data centres being developed where the waste energy is to be used to power things such as swimming pools and homes. Waste energy from data centres is a major issue, and as more and more data centres find ways to re-use their waste energy, we are likely to see additional obligations and requirements in data centre leases relating to waste energy.

An earlier extended version of the above appeared in Estates Gazette.

Update on the Planning and Infrastructure Bill

In our Summer edition of the UK ESG Real Estate Update we told you all about the Planning and Infrastructure Bill’s proposal to introduce the Nature Restoration Fund. By way of a reminder, the intention is that developers can pay into the Nature Restoration Fund, in areas where an Environmental Delivery Plan is in place, to fund strategic conservation measures. The Bill is now passing through the Report Stage in the House of Lords and, as an update to our previous bulletin, Environmental Delivery Plans are now required to demonstrate that the conservation measures proposed will materially outweigh the negative effect caused by the environmental impact of development on the conservation status of each identified environmental feature (rather than being “likely to be sufficient to outweigh” as previously stated). There has also recently been a vote to limit the use of Environmental Delivery Plans to water and air concerns (so, for example, including nutrient neutrality but excluding wildlife impacts). This is now to be considered by the House of Commons. More detail on the proposals can be found in our Summer edition here.

UK Government's Solar Roadmap

This summer, the government published a new Solar Roadmap which outlines the UK’s strategy to accelerate solar energy deployment to meet the Clean Power 2030 target. The target is to reach 45–47 GW of installed solar capacity by 2030. Key highlights of the Roadmap include the goal of trebling solar capacity by 2030, supporting up to 35,000 jobs in the solar sector and enhancing energy security, reducing bills, and tackling climate change.

The Roadmap includes a significant push for a rooftop solar revolution across domestic, commercial, and public buildings. To assist with this goal, there will be new planning rights for solar canopies on car parks. Plug-in solar and battery storage are also under review. The Roadmap envisages major reforms to grid connection processes, fast-track approvals for small-scale rooftop solar and it aims to address delays and inconsistencies in grid access and bring about an increase in Transmission Impact Assessment (TIA) thresholds.

The Roadmap also highlights planning reforms to streamline solar project approvals, an increase in the NSIP threshold from 50 MW to 100 MW, a £46 million investment in planning system capacity, and floating solar and agrivoltaics are under consideration. The government wishes to support UK manufacturing, AI, and next-gen solar tech and establish a Solar Council to oversee progress and give support for local and community energy projects. Please see our new Hogan Lovells Real Estate global microgeneration hub if you are interested in the topic of microgeneration and sustainable energy solutions: Microgeneration and the Future of Energy: Global Hub

Greenwashing Risk in the UK

In the UK, ESG issues are highly topical for regulators, investors and consumers. Businesses are increasingly required to make disclosures about their ESG impact and expected or incentivised to promote their ESG credentials. These drivers increase the risk of companies overplaying their environmental or ESG performance through untrue or misleading statements, commonly referred to as greenwashing.

While greenwashing might be thought simply to be another form of mis-selling, which is not a new concept for many businesses, there are a number of features that make it a more complex risk to manage. There remains uncertainty around the meaning of generic terminology such as "green", "sustainable" or "carbon neutral", which if not clearly defined can be misunderstood. And risks arise not only from positive statements but also from omissions, images and general impressions.

This combination of growing scrutiny and continuing uncertainty increases the risk of regulatory enforcement action and litigation against businesses accused of greenwashing, and the associated reputational and commercial consequences.

The most enforcement action in the UK to date has been taken by the Advertising Standards Authority ("ASA"), which has issued rulings and banned multiple adverts across a range of sectors – including automotive, aviation, financial services, and retail – for misleading consumers about green credentials. The ASA has made clear that marketing claims featuring positive environmental claims, even if true on their own – such as a claim about planting trees – should present a balanced picture overall and should not omit material information about a company's negative environmental impact elsewhere. The Competition and Markets Authority is focused on this area too – it is investigating how products and services claiming to be "eco-friendly" are being marketed, and scrutinising the "green" claims made by several retail companies.

We also expect the UK's Financial Conduct Authority ("FCA") to become active on greenwashing enforcement. The FCA introduced a new "anti-greenwashing" rule ("AGR") in 2024 requiring that references in UK client communications to the sustainability characteristics of financial products or services are: (i) consistent with the characteristics of the product or service; and (ii) fair, clear and not misleading. The AGR is intended to have broad application – for example, it covers social-washing as well as greenwashing, and images as well as words – for the full life cycle of a product or service. And the FCA's Sustainability Disclosure Requirements regime is bringing in specific rules on product-labelling and the use of sustainability-related terms. Whilst it was already open to the FCA to bring action where it suspected greenwashing under general FCA principles, the introduction of a specific, widely applicable rule, coupled with requirements on particular terminology, send a clear signal that this is an area of focus.

There are also implications for litigation risk. As the standards that businesses must adhere to when making ESG statements become more stringent, there will be more scope for litigants to bring greenwashing claims by pointing to a failure to meet those standards. They will also be more able to prove loss – and therefore claim damages – as investors and consumers increasingly attach value to strong ESG performance, such that their investments or products lose value when that performance turns out not to be as promised.

We are yet to see greenwashing cases go through the UK courts, but it is only a matter of time. Existing English law causes of action could be used to bring claims in this area – for example for breach of contract or misrepresentation, or under section 138D of the Financial Services and Markets Act 2000 (which provides a private right of action for breach of FCA rules) for breach of the AGR. Claimant law firms and litigation funders will be focusing on this area and closely monitoring developments in other jurisdictions, such as recent greenwashing claims in the US, with a view to following suit in the UK.

Relevant case law

On 25 July 2025, the Court of Appeal handed down its decision in R (Rights: Community: Action Ltd) v Secretary of State for Housing, Communities and Local Government [2025] EWCA Civ 990 confirming that Local Planning Authorities do have the power to set higher energy efficiency standards than national regulations and establishing that Ministers must consider environmental principles at the outset of policy-making under section 19 of the Environment Act 2021. However we understand that the judgment is potentially being appealed to the Supreme Court so watch this space!

Our latest ESG training to clients

The team is always happy to give clients updates on any topics they would find useful such as BNG and conservation covenants.

Authored by Adam Balfour, Ben Willis, Rosie Shields, Paul Stones, Ingrid Stables, Hannah Piper, and Georgina Denton.