Spring forward: the current trends shaping responsible business

Since we published our article last year, political upheaval across Europe and the US has turned not only the term "ESG", but also the practices it encourages, into a point of contention. Economic pressures, such as inflation and market instability, have led many businesses to prioritise short-term financial survival over long-term sustainability. Yet, as the corporate landscape faces uncertainty, corporate governance is becoming even more critical, with investors and customers continuing to support sustainable and responsible businesses, despite the political backdrop we have seen. It is therefore important that businesses adapt quickly to position themselves for long-term success in a climate in which corporate activism is likely to increase, tech will lead the charge, and more rigorous regulations focusing on transparency, accountability and sustainability will continue to be introduced.

So, with spring having finally sprung, bringing with it a feeling of change, renewal, and positivity, Farrer & Co’s responsible business experts highlight key insights and current trends for private businesses to consider as part of their governance practices.

For businesses as employers:

• Look out for changes in legislation: since October 2024, employers are under a duty to prevent sexual harassment which includes being required to take reasonable steps to prevent sexual harassment and being liable for third-party harassment. The Employment Rights Bill (ERB) also introduces "day one" rights against unfair dismissal (as opposed to the current requirement to have two years’ service to bring an unfair dismissal claim in the Employment Tribunal), and restrictions on "fire and rehire" practices. The ERB also proposes changes to zero-hour contracts to provide more stability for employees by requiring employers to offer guaranteed hours and providing compensation for cancelled shifts or those which end early.
• Resolve disputes amicably: as the country continues to face economic challenges, the number of claims in employment tribunals rose by 13% in Q2 2024. With the proposed changes to day one unfair dismissal rights mixed with increased economic uncertainty across a range of sectors, employers can expect to see a continuing increase in employment tribunal claims. Through judicial mediation, judicial assessment, the services of ACAS and dispute resolution appointment, employers will continue to be encouraged to explore ways of alternative dispute resolution to find amicable resolutions with claimants.
• Balance protected beliefs and workplace rights: in the much anticipated case of Higgs v Farmor’s School (a full brief of the case can be found here), the Court of Appeal ruled that dismissing an employee for expressing protected beliefs can amount to unlawful discrimination. Going forward, employers should work to carefully balance the expression of protected beliefs with the rights of other individuals in the workplace and, crucially, remember that the bar is low when it comes to deciding whether a belief is protected or not.

For businesses monitoring their responsible commitments:

• Check your supply chains: The Modern Slavery Act 2015 (MSA 2015) requires larger organisations (with a turnover of £36 million or more) to publish an annual “modern slavery statement” which reports on actions they have taken to address modern slavery in their supply chains (eg by carrying out due diligence). Last year, the House of Lords MSA 2015 Committee published a report on the impact and effectiveness of the MSA 2015. The report recommended various improvements, including:
  
  
  • strengthening corporate accountability for modern slavery in supply chains;
  • introducing new legislation to require certain companies to undertake mandatory supply chain due diligence; and
  • revisiting and strengthening the Modern Slavery Bill to: (a) make the content of modern slavery statements and their publication to a central registry mandatory; (b) introduce sanctions for non-compliance; and (c) bring public bodies within the supply chain reporting requirements.

In December 2024, the Government confirmed it would undertake a wider review of measures to tackle forced labour and to increase transparency in global supply chains, including by consulting on effective ways to prevent environmental damage and human rights abuses.

• Focus on sustainability in public procurement: The Procurement Act 2023, which came into force on 24 February 2025, promotes a greater focus on sustainability in public procurement. For example, the Act shifts the basis on which contracts are awarded from a “most economically advantageous tender” approach to a “most advantageous tender” approach. The change seeks to clarify that public bodies can consider social, environmental and other non-economic factors when awarding contracts, and that price need not take precedence as the overriding consideration. The Act also introduces a new statutory requirement for contracting authorities to "have regard" to the Government’s National Public Procurement Strategy, which lists social and environmental impact as key considerations and requires contracting authorities to ensure suppliers are actively working to reduce greenhouse gas emissions in their operations and minimise waste. 
• Get rid of greenwashing: next month, the Competition and Markets Authority (CMA) will acquire substantial new powers under The Digital Markets, Competition & Consumers Act 2024 (DMCCA) to enforce breaches of consumer law, including deliberately misleading consumers about the responsible and/or sustainable characteristics of products. For example, the DMCCA will enable the CMA to impose fines of up to 10% of a company’s global turnover. In September 2024, the CMA also introduced new guidance on making environmental claims in the fashion retail sector, drawing on the conclusions from its investigations into ASOS, Boohoo and George at Asda.
• Don’t forget DE&I: we have recently seen an increasing trend in companies, particularly in the US, reassessing and reducing their diversity, equity and inclusion (DE&I) efforts, influenced by political shifts and financial pressures. Target, for example, announced it would end its DE&I initiatives, including support for minority-owned businesses, Walmart has withdrawn from LGBTQ+ surveys, and Meta (the parent company of Facebook and Instagram) has dissolved its DE&I team. UK businesses may therefore wrestle with whether to follow their US counterparts. However, DE&I can help grow opportunities, create success and foster a positive and healthy culture, so we expect UK businesses to continue to focus on data-driven DE&I strategies and prioritise employee wellbeing to leverage inclusion metrics as a competitive advantage.
• Keep a close eye on your directors: the King's Speech, delivered to Parliament on 17 July 2024, included the draft Audit Reform and Corporate Governance Bill designed to strengthen audit and corporate governance. The recent high-profile collapses of BHS (resulting in the loss of 11,000 jobs) and Patisserie Valerie (where over 70 stores closed and 900 jobs were lost) have put directors’ actions in the spotlight. Two former BHS directors found liable for wrongful and misfeasance trading and misfeasance over their management, and were ordered to pay at least £18m to creditors. Separately, in the Patisserie Valerie case, a sustained and collusive fraud went undetected by directors. As a result, there have been calls for reform to bolster the trust of investors and the public in the financial practices of major businesses.
  
  The Bill therefore plans to establish a new accounting regulator, the Audit, Reporting and Governance Authority (ARGA) to replace the Financial Reporting Council. ARGA will have a new range of statutory powers to uphold standards and scrutinise companies’ accounts. Crucially, the Bill gives ARGA the authority to investigate and impose sanctions on directors for significant failures in financial reporting and auditing. Currently, directors making incorrect financial statements can only be held accountable if they are members of an accountancy body. The new Bill widens the accountability net to include all directors of significant UK companies, regardless of their membership. It is hoped that the introduction of these measures will deter misconduct and promote greater transparency and stronger corporate governance.
  
  Although there is no official timeline for the Bill’s implementation, a draft is expected by the end of 2025.

• Beware of the rapid rise of AI in the context of misinformation and disinformation: there has been an increase in coordinated AI-generated campaigns against businesses and their investors. We have seen how disreputable parties will seek to harness AI to damage their counterparties in the eyes of key stakeholders (particularly in the context of disputes). This may be a means of seeking to gain leverage or may simply be vindictive. Various AI tools are making it easier than ever for nefarious parties to create and circulate misinformation and disinformation. Plausible deepfakes or damaging, defamatory articles containing fabricated quotations from fictitious journalists (lending ostensible credibility to the publications) targeting businesses are an increasingly regular occurrence.  

For businesses that are owners or occupiers of real estate:

• Share your data: setting aside pure sustainability considerations, there are significant commercial drivers for both owners and occupiers to improve energy efficiency in their buildings – occupiers benefit from reduced operating costs, while owners see increased market value, rental income and rental viability. Accurate and transparent energy data is crucial for assessing a building’s environmental performance and enabling the owner and occupier to calculate baseline emissions and establish an action plan and targets. The energy data conundrum was explored in the British Property Federation research which we co-sponsored, Closing the Data Deficit. There is a growing trend for more data-sharing obligations to be imposed on landlords and tenants in leases, as they recognise that sharing information and collaboration is essential to improve energy performance in their buildings. This is likely to gain further momentum in 2025. 
• Comply with new sustainability standards: in our last article, we highlighted the need for an industry-wide recognised ESG assessment for real estate. This need continues to gain attention and is expected to be a key focus moving forward.
  
  
  • Embodied carbon: embodied carbon has become an increasingly important factor in determining a building’s sustainability credentials in recent years, and this will grow with the adoption of two key industry assessments.
    
    In July 2024, the Royal Institution of Chartered Surveyors released the second edition of its RICS whole-life carbon assessment (WLCA) standard. 
    
    This was closely followed by the launch of the pilot Net Zero Carbon Buildings Standard, the result of a collaboration between key industry groups, which has produced a test version of the UK’s first cross-industry methodology for “net zero carbon” buildings. 
  • Energy performance: at present, the only statutory regime for assessing and regulating energy efficiency is through energy performance certificates (EPCs) and a reassessment of EPCs has been sorely needed, since they measure energy efficiency based on a building’s design rather than its actual performance.
    
    The Government is currently consulting on the metrics used to produce EPCs for domestic buildings and is separately consulting on its proposal to raise the minimum energy efficiency standard for let domestic premises from Grade E to Grade C by 2030.
    
    The commercial real estate sector is still in limbo about what to expect for non-domestic buildings, but the Government has committed to publishing a response to its 2021 consultation on minimum energy efficiency standards for commercial property early in 2025. Hopefully this will bring both clarity on minimum energy efficiency standards for commercial real estate and improved EPC metrics for assessing this. Watch this space…

• Consider smart tech: the development and uptake of technological solutions to facilitate the collection and analysis of energy data is key to improving energy performance in buildings. We are expecting an increase in the use of AI in the commercial property sector, particularly in smart building tech to collate data on responsible business. Manual energy data collection tends to lead to inaccurate and incomplete information. Technological solutions, like automated data collection and analysis, can help address many of the issues. Nevertheless, these technological solutions can be expensive, their installation can interfere with a building’s operation (eg requiring a power down) and their ongoing maintenance can be costly. The industry also struggles with the proliferation of providers and the limited interoperability between different providers. The development of wider knowledge and more interoperability in market solutions will assist owners and occupiers to choose the right option for their buildings.

For businesses as borrowers:

• Bolster sustainable targets to secure sustainable finance: we expect to see financial institutions continuing to commit to sustainable finance. In late 2024 and early 2025, Societe General and BBVA raised their sustainable finance targets to €500 billion and €700 billion respectively – and this is a trend that promises to remain. However, alongside this expansion in the availability of sustainable finance is a heightened focus by financial institutions on combating greenwashing. We expect loan documentation to continue evolving to ensure that sustainability metrics and KPIs are met. For example, this may include ‘declassification’ clauses, which remove the sustainability-linked label from loans that lenders no longer consider truly sustainable, and possibly even more radical default clauses where a loan breaches its sustainability requirements. Ultimately, however, lenders who are looking to expand their sustainable loan book need to ensure that these protective measures don’t discourage borrowers from seeking sustainable loans.
• Welcome updated green lending criteria: commercial real estate lenders and borrowers are still hesitant to engage with green lending despite its significant growth in global economies over the past five years. As we know, green loans offer a means for the commercial real estate sector to significantly reduce its carbon emissions allowing lenders to profit by assisting borrowers in making their real estate portfolios more environmentally friendly. In order to assist market participants in the EMEA area and encourage more activity in the green finance space, the Loan Market Association (LMA) published its Green Loan Terms on 9 January 2025 (Green Terms) which accompany the Draft Provisions of Green Loans (Green Loan Provisions) which were published in November 2024.
  
  The Green Loan Provisions build upon and supplement the LMA’s Green Loan Principles (published in 2018 and updated in 2023). Both the Green Terms and the Green Loan Provisions have been a welcome and valuable addition to the LMA’s existing arsenal of green and sustainable finance guidance, aligning with best market practices from the outset of negotiations and paving the way towards standardising green lending. We anticipate that market practice in green lending will continue to evolve, and we look forward to further updates by the LMA to their guidance in response to these emerging trends. Hopefully, we will start to see an increase in green lending activity in the commercial real estate lending space as a result.

This article was produced by our responsible business group, representing our specialists from across the firm including Simon Ward, Christina Tennant, Tasneem Bhindarwala, Genna Morgan, Suzanne Conticelli, Charlotte Elliot, Caroline Tatham, Oliver Lock and Sophie Giblin.

This publication is a general summary of the law. It should not replace legal advice tailored to your specific circumstances.

© Farrer & Co LLP, March 2025