Navigating the Green Horizon

With the retail sector undergoing a transformative shift towards sustainability, Jamie Swan from national law firm Clarke Willmott LLP looks at what practical considerations there are for contracting in the green economy from a construction perspective.

Companies are increasingly looking to boost their green credentials driven by increasing awareness of environmental issues and a growing demand for eco-friendly products and services.

As retailers strive to embrace green practices, the construction industry is set to play a pivotal role in supporting the transition towards this ‘green economy’.

Greenhouse gas emissions

Organisations are increasingly recognising the importance of addressing not only their direct emissions, but also the indirect emissions.

In the pursuit of environmental sustainability, the UK has implemented mandatory reporting requirements for certain companies.

These include: London Stock Exchange listed companies, entities within the European Economic Area, those trading on the New York Stock Exchange or NASDAQ, and large UK companies or Limited Liability Partnerships (LLPs) as defined by the Companies Act 2006.

Greenhouse gas emissions have been categorised into three ‘scopes’ which provide standards and tools that help countries and cities track progress toward climate goals.

Scope 1 refers to the direct emissions within a company’s ownership or control, while Scope 2 and 3 encompass indirect emissions stemming from the company’s activities but originating from sources outside its ownership or control.

Depending on total UK energy use (as a minimum electricity, gas, and transport fuel), either a statement or a Director’s report on Scope 1 and 2 emissions will need to be filed at Companies House by any of the above entities. Reporting on Scope 3 emissions is currently optional.

Greenwashing

When interpreting and disclosing the information mentioned above, companies must take measures to avoid the perception of “greenwashing.”

Greenwashing involves companies making false or misleading statements about their environmental credentials, whether unintentionally or as a deliberate marketing strategy; engaging in such practices may prompt an investigation by the Competition and Markets Authority (CMA).

If green claims are unfounded, enforcement action from the CMA could potentially follow.

Equally, companies will not want to be found guilty of “green-hushing” – the act of not publicising science-based net zero emissions targets, if they do not appear favourable.

Consumer focus

Another important part of the green economy relates to how companies attract and retain their consumer base, which is an increasingly important consideration in the age of raised awareness of sustainability and green issues.

In its fourth annual survey undertaken in 2023, professional services network, Deloitte, reports on how consumers are embracing sustainability.

The following findings are worth noting for retail corporations:

• A heightened emphasis on sustainability driven by the belief that embracing more environmentally friendly purchasing decisions will yield long-term cost savings; this includes goods that have a reusable selling point or are easily repairable.
• One in six consumers (16%) believe measurable carbon footprint data is a core part of what makes a product or service sustainable, and 11% make decide on their purchases because of the carbon footprint data available to them.
• Consumers prefer retail institutions that make it clear to customers how sustainable their products are and the steps they are taking to ensure environmental sustainability. Transparency is therefore a key when marketing products and services.

Summary

Retail companies must ensure they have a robust decarbonisation policy in place which includes how they will contract in line with their decarbonisation aims. They should also guarantee their position is protected against allegations of green-washing/green-hushing, which could have a negative impact on attracting and retaining customers.

Clarke Willmott is a national law firm with offices in Birmingham, Bristol, Cardiff, London, Manchester, Southampton and Taunton. The firm is this year celebrating its 135^th birthday.