From Aspiration To Execution'ESG Legal Risks In The UK Real Estate Sector

• Published date: 14 September 2023
• Subject Matter: Real Estate and Construction, Real Estate, Landlord & Tenant - Leases
• Law Firm: Jones Day
• Author: Ms Anna Cartwright, Gregory J. Barden, Giles Elliott, Linda Hesse, Sarah Batley and Seth E. Engel

ESG issues are front and centre in many sectors and many boardrooms. The UK real estate sector is no exception. Unsurprisingly, the principal focus has been on the "E", with the environmental aspects of developing and operating buildings in the United Kingdom being the most prominent. That is not to suggest that companies and investors are unconcerned by social or governance issues in the sector, but there has been much more written on the environmental impacts of the built environment. However, litigation risks, often resulting from the gap between publicly announced aspirations and actual achievements, are as relevant to the UK real estate sector as in many other sectors, such as fossil fuels or chemicals, which tend to attract more attention.

This White Paper explores recent legal challenges to companies based on gaps between aspirations and achievements and applies them to the UK real estate sector. It also considers environmental and other ESG risks (and opportunities) in the UK real estate sector. As companies formulate their own aspirations and plans for the future, they should keep these issues in mind.

FERTILE GROUND FOR LITIGATION: THE GAP BETWEEN ASPIRATION AND EXECUTION

The lessons of broader climate change litigation are evident. Whether based on alleged damage to the environment or claims of "greenwashing", novel legal theories have been deployed to pressurise, challenge and seek redress from governments and, more recently, businesses. First to be targeted were entities from the oil and gas sector, but now we are seeing claims being brought against companies in various sectors such as pension funds, banks, automotive groups, consumer groups and chemical groups. The UK real estate sector is not immune and may well be next.

Where is the greatest risk for those involved in the UK real estate sector? It is probably not in the direct climate change claims faced by fossil fuel businesses elsewhere. But it may well emerge as a result of the often well-intentioned, and wellpublicised, aims, aspirations or promises made by the real estate sector around sustainability.

There is a clear and, for many, long-overdue focus on sustainability within the wider economy and in the real estate sector. It is not as if environmental considerations are new to the real estate world—environmental impact assessments have been a feature of new developments in the United Kingdom since the late 1980s, for example, and, before that, building regulations have included limits on thermal energy performance since the 1960s. However, there is now an unprecedented level of attention on sustainability. Whether from regulators, third-party investors, consumers, tenants, shareholders or from within boardrooms, the emphasis on sustainability is everywhere. But with ESG litigation growing in many other jurisdictions, it is most definitely a case of "mind the gap"—any delta between words and deeds presents risk for those involved in the UK real estate sector.

So why does it matter if a company does not adhere to its own public ESG commitments? For companies listed in the United Kingdom, a good demonstration of this risk is the recent case of Autonomy and others v Lynch and another [2022] EWHC 1178. This...