Pressure Mounts on Real Estate Firms to Include Environmental Clauses in Contracts

A recent investigation found that a building materials supplier working with a property developer was involved in serious misconduct. 

Although the developer had no direct role in those activities, the absence of environmental, social and governance (ESG) clauses in their contract left the firm unable to take legal action or exit the agreement without financial penalties. As a result, the company suffered reputational harm and became the target of consumer boycotts.

The case highlights growing risks for businesses that fail to include ESG standards in commercial agreements. Grace Waswa, ESG Lead at MMW Advocates, described the shift as significant. 

“What started as a nice-to-have kind of thing has now turned into a must-have thing. If you do not adhere to these standards, then you will face the repercussions,” she said.

Over the past two decades, expectations around corporate responsibility have changed. Where companies once focused mainly on legal compliance, there is now increased pressure to show proactive commitments to ethical sourcing, environmental protection and fair labour practices. The adoption of the United Nations Sustainable Development Goals in 2015 helped formalise these expectations at the global level.

In the property sector, these pressures are especially pronounced. Real estate is estimated to contribute around 40 percent of global carbon emissions, and developers are increasingly expected to demonstrate alignment with sustainability goals. According to Waswa, boardroom discussions now frequently prioritise the social and environmental impact of company operations alongside financial performance.

This shift is also being reflected in regulation. Governments, investors and consumers are demanding greater accountability, and businesses are under pressure to show that ESG commitments are more than public statements. For example, youth-led protests in Kenya in 2024 led to boycotts of companies perceived as unsupportive of peaceful demonstrations, illustrating how consumer behaviour can be influenced by perceived ethical conduct. Despite the widespread adoption of ESG policies, many companies have not embedded these standards into their legal agreements. Without binding contract terms, ESG commitments remain difficult to enforce. Experts argue that including ESG clauses in contracts allows firms to clearly define expectations, monitor compliance and take corrective action when necessary.

“When ESG clauses are embedded into the contract, a developer is now safeguarded from regulatory breaches, reputational damage and operational disruptions,” said Waswa. 

These provisions also help demonstrate accountability to investors, lenders and regulators.