Why the UK’s ESG Future Should Be Buyer-Led, Not Regulation-Driven

As the UK accelerates its commitment to sustainability and responsible business practices, the debate over how to best implement ESG (Environmental, Social, and Governance) principles is gaining momentum. While direct regulation may seem like the fastest route to progress, a buyer- or demand-led approach offers a far more dynamic and growth-oriented solution. By harnessing market forces and encouraging corporate-led innovation, the UK can drive meaningful ESG outcomes while boosting economic productivity.

Let the Market Lead: The Power of Demand-Driven ESG

Rather than relying on heavy-handed regulation, allowing buyers—particularly large public sector bodies and major corporations—to dictate ESG standards creates a natural, competitive incentive for businesses to innovate and excel. The UK is already making strides in this area with models such as the Social Value Model (SVM) and associated Public Procurement Notes (PPNs).

Introduced in 2021, the SVM requires government suppliers to demonstrate how their services deliver social value, including tackling climate change, reducing inequality, and promoting innovation. This demand-driven system—covering £300 billion of annual public procurement spending—has compelled suppliers to embed ESG considerations into their operations, creating a ripple effect throughout supply chains.

The UK Procurement Act 2023 reinforces this approach by promoting greater flexibility in how ESG factors are embedded into contracts. It empowers public bodies to prioritize ESG outcomes without imposing blanket regulations, fostering competition and rewarding firms that genuinely deliver on sustainability and social impact.

Economic Growth Through ESG-Led Innovation

Allowing companies to drive ESG initiatives leads to agile, market-responsive solutions. Businesses, driven by customer preferences and public procurement demands, are more adept at identifying and scaling effective ESG practices than regulators burdened by bureaucratic red tape.

For example, a 2022 PwC report revealed that 83% of consumers think companies should be actively shaping ESG practices, with 76% willing to stop buying from companies that treat the environment, employees, or communities poorly. This clear market signal drives corporate innovation. When companies respond by offering sustainable products or improving labor practices, they not only gain a competitive edge but also create positive spillover effects for the broader economy.

In fact, research by the London School of Economics estimates that businesses adopting ESG-focused strategies experience, on average, a 6% higher profit margin and 10% faster revenue growth over five years compared to their non-ESG-compliant peers.

Driving Productivity and Job Creation

A buyer-led ESG approach also supports economic productivity by encouraging companies to invest in green technology, workforce diversity, and ethical supply chains. The Confederation of British Industry (CBI) predicts that if the UK embraces sustainability-led business models, it could unlock £37-57 billion in annual GDP growth by 2030.

By allowing the market to reward companies that prioritize ESG, the UK also fosters innovation and attracts investment. According to the Global Sustainable Investment Alliance, ESG-related investment grew by 34% globally in 2023, signaling a major opportunity for UK companies to tap into this expanding capital pool.

The Danger of Over-Regulation

In contrast, direct ESG regulation risks stifling growth. Blanket mandates often create compliance burdens that disproportionately affect smaller businesses, reducing competition and deterring investment. Moreover, regulatory rigidity makes it harder for companies to pivot quickly in response to evolving ESG challenges.

Conclusion: Harnessing Market Forces for Sustainable Growth

By doubling down on demand-led ESG through procurement frameworks like the Social Value Model and the Procurement Act 2023, the UK can achieve more meaningful, scalable, and sustainable ESG outcomes. Companies, motivated by customer demand and public sector contracts, are best placed to drive innovation, create jobs, and unlock long-term economic growth.

Rather than regulating ESG into existence, the UK should trust its businesses to build it—and reap the economic rewards.