This month, Yolanda Walker and Kate Jordan of law firm, DWF examine ESG and requirements under different contract forms.

The question – ESG

We’re building a modest set of commercial units in Birmingham. The contract requires us to report on our carbon output, diversity, environmental impact and other related key performance indicators (KPIs), but I am worried we might not be able to achieve the goals that were set out at the start of the project. Am I opening myself up to a dispute?

The answer

In recent years, the construction industry has seen an increase in climate change drafting into construction contracts. This has included bespoke drafting as well as updates to standard form contracts, such as NEC4 and JCT 2024, to cater for the growing importance of environmental, social and governance (ESG) principles and climate change to a construction company’s green credentials.

ESG and climate change related clauses can include an obligation on a party to report on the progress of project-specific ESG and climate-related goals. But how might an obligation to report on a party’s progress towards such goals impact that party if the progress reported is not in accordance with the ESG and climate goals set out at the start?

NEC’S suite of secondary option clauses includes clause X20, Key Performance Indicators. KPIs are used to incentivise contractors based on performance, measured by reference to an incentive schedule. The items in the incentive schedule could relate to ESG or climate issues. However, typically there is no penalty for failing to meet a KPI.

In 2022, NEC published clause X29, Climate Change…

Read the full article over on the Construction Management website.  And should you need help with any of these issues, get in touch with one of the team today.