Net Zero - New Regulations, Emerging Risks

Tuesday 6th October 2026

Net Zero, New Regulations and Emerging Risks: What Businesses Need to Know

Posted by Angus Nanan, Head of Construction, Kerry London Ltd

The journey to Net Zero is no longer a future ambition. It is already reshaping how businesses operate, invest, and manage risk. From changing regulations and funding requirements to evolving construction methods and technologies, organisations across the built environment are facing one of the most significant transformations in recent decades.

The transition to Net Zero represents one of the largest economic and industrial transformations in modern history. Governments, developers, contractors, and businesses are consistently being asked to rethink the fundamentals of how they operate, from design to construction. While the environmental benefits of achieving Net Zero are evident, the transition has introduced new financial, regulatory, and operational risks. Understanding these challenges is essential for businesses looking to stay ahead and remain resilient.

But why has the construction sector found itself at the centre of the conversation?

Construction’s role in the climate challenge

When people think about climate change, emissions from vehicles and power stations are often considered the primary contributors. However, construction is also one of the largest contributors to greenhouse gas emissions. The UK Parliament’s Environmental Audit Committee states that the built environment accounts for around 25% of the UK’s greenhouse gas emissions. From material production through to building demolition, construction plays a significant role in the climate challenge. Construction occupies a unique position because it is responsible for both operational carbon emissions from building use and embodied carbon emissions generated during the manufacture, transport, and construction process. The industry’s contribution is substantial.

Furthermore, once buildings are occupied, operational emissions become a key focus for reduction efforts. A significant proportion of a building’s lifetime emissions can be locked in before the doors even open.

Why the Net Zero transition matters

Achieving Net Zero is undeniably important. While the need to address climate change is well established, some businesses may still question why the energy transition is so important. Extreme weather events are becoming more frequent and costly, a direct impact of climate change. Reducing dependencies on fossil fuels can help stabilise energy markets. Investors increasingly favour organisations with credible ESG strategies.

As the construction sector is responsible for delivering the buildings that will be used for decades to come, the decisions made today will have a lasting impact on future environmental outcomes. Together, these factors demonstrate why the energy transition is both necessary and urgent. With the impact of construction becoming increasingly difficult to ignore, governments have begun introducing legislation to accelerate progress towards Net Zero.

Why governments are tightening the rules

In the UK, two key legislative frameworks are driving the transition to Net Zero. The UK Climate Change Act established a legally binding target of achieving Net Zero emissions by 2050, with Carbon Budgets ensuring the nation is consistently cutting emissions year on year throughout the 2030s to remain on track to hit this target.

Several government regulations and policy initiatives have been introduced in recent years, including:

Future Homes Standard – new homes are expected to be energy-efficient, reducing reliance on fossil-fuel heating.
Higher energy efficiency requirements & reduced carbon heating systems – more stringent efficiency expectations and a greater emphasis on energy performance.
Improved building performance standards
Whole-life carbon assessments – focusing not only on operational emissions but also on emissions generated throughout a building’s lifecycle, from material manufacture to occupation and eventual demolition.

As the Government converts these climate ambitions into legally binding legislation, compliance is more important than ever. It has become a commercial necessity rather than a sustainable aspiration. So, what does this mean in practice for businesses operating within the construction sector?

A fundamental shift in how we build

Historically, projects have been measured based on cost, quality, and the programme through which they are built. However, due to government targets and legislation, carbon is increasingly becoming a fourth project metric alongside cost, quality and programme. For contractors, developers and businesses operating across the sector, adapting to these changes is becoming essential.

Design changes

One way the industry can adapt and remain compliant is by adopting design changes that improve energy efficiency and reduce emissions. By utilising energy-efficient insulation, heat pumps and solar technology, developers can construct buildings that reduce overall carbon emissions.

Material changes

It is equally important that construction materials align with long-term energy and sustainability requirements. Utilising low-carbon concrete, recycled steel and timber can dramatically reduce your environmental impact. A circular economy that recycles and reuses materials is the most sustainable way to build a greener economy. As manufacturers increasingly produce such materials, there has never been a better time to make the switch.

Construction process changes

Organisations are also changing how they operate on a day-to-day basis. Companies are expected to produce carbon reports, be transparent in their supply chain, adopt modern methods and constantly assess their end-to-end lifecycle. Carbon is increasingly being measured alongside cost, programme and quality as a key project outcome.

Beyond compliance

Beyond regulatory compliance, there are significant commercial and societal benefits to supporting the energy transition. By adopting internal policies that reduce carbon emissions, businesses can realise energy–efficiency savings and extend the lifespan of their assets. You can also appeal to a wider variety of investors, with ESG becoming increasingly important, as well as differentiating from your competitors.

Organisations that adapt early to these changes and are proactive in responding to regulatory developments will be better positioned than competitors that delay investment until compliance becomes unavoidable.

Every transformation creates new exposures

As with any major transformation, the transition to Net Zero presents both opportunities and challenges. While the benefits are evident, businesses should also be aware of the new risks emerging alongside changing regulations and technologies. These climate-related challenges are unlike anything the industry has previously experienced.

Technological risks

Modern technologies often appear risky due to their limited long-term data; they are less transparent because there is less evidence of their operational value. While low-carbon technologies offer significant environmental benefits, some businesses are adopting systems without fully understanding maintenance requirements, performance limitations, or long-term costs.

Supply chain risks

As more and more companies are making the switch to Net Zero, the demand for low-carbon materials, specialist contractors and renewable technologies has increased. This can create delays, cost inflation, and availability challenges. Effective planning and appropriate risk management measures can help businesses mitigate these exposures.

Regulatory risk

As standards rapidly evolve, regulatory details can change, creating constant uncertainty. You may face retrofitting costs, compliance failures, approval delays, and even contractual disputes. Many businesses need reassurance in understanding these regulations and in mitigating any non-compliance.

Financial and investment risks

These changes can create significant financial risks due to the adoption of multiple expensive procedures, such as rising retrofit costs, property obsolescence, and funding requirements tied to ESG. Moving towards a low-carbon future requires significant investment, making effective risk management essential.

Reputational risks

Customers, investors, and regulators increasingly scrutinise sustainability claims. More and more, we are seeing ESG reporting and visible green policies becoming vital to your company’s reputation and public opinion. Transparency has become an expectation, with all eyes on businesses, asking, “What are you doing to reduce your impact on the climate challenge?”.

Risk mitigation during the transition

As projects become more complex, risk management needs to evolve with these sustainability ambitions. Before adopting new systems, ensure you understand their performance requirements and review the credentials of new zero-carbon suppliers. To help manage these risks, ensure responsibilities are clearly allocated, contractual obligations are realistic and progress towards Net Zero can be effectively measured. You may wonder whether critical materials are available or whether suppliers are stable.

Alongside sustainability planning, organisations should ensure their risk management and insurance arrangements evolve to reflect innovative technologies, changing regulatory requirements and emerging liabilities. This is where Kerry London can help.

With over 40 years’ experience in the construction industry, our insurance specialists are best placed to help you navigate this changing landscape. Environmental challenges are complex and navigating them can be difficult. However, addressing them has never been more important. A partnership with Kerry London can provide peace of mind, whilst also supporting the transition to a more sustainable future.

Get in touch to chat with our Construction team and ensure you’re covered during these changing times.

Conclusion

The transition to Net Zero is no longer a future consideration. It has begun reshaping the construction sector through legislation, investment, and evolving stakeholder expectations. The environmental argument is compelling, but businesses must recognise the operational and commercial risks associated with these rapid changes. Organisations that combine sustainability goals with a robust risk management partnership will be the ones best placed to navigate this transition successfully.

While the path to Net Zero presents new challenges, it also offers businesses the opportunity to future-proof operations, strengthen resilience and contribute to a more sustainable built environment.