Climate Contract Playbook Edition 3
55
[Austen’s clause] NEW
The Origin Story
Child’s name
Austen’s clause
Full name
Sustainability Clauses in Supply Chain Contracts
Practice Area / Sector
Commercial, Public Procurement
Climate change is a global issue. While some countries are prepared to commit to measures that mitigate climate change (e.g. carbon emissions reductions), other countries are less willing or able to do so. This is at odds with the operation of international supply chains and multinational corporate carbon reduction targets.
Issue
‘Supply chain emissions are on average 5.5 times as high as a corporation’s direct emissions’ 26
Using supply chain contracts to extend positive climate change measures adopted in one country to contracting parties in other countries that may have less of a legislative focus on climate and environmental matters.
Solution
Contractual provisions have always been used to drive outcomes, deliverables and influence ethical supply chain behaviour. The Bribery Act is a recent example. Implementing carbon and other sustainability requirements is no different.
The need for private entities to comply with industrial or corporate codes of conduct on reporting, monitoring, and auditing schemes improves climate change mitigation efforts at all levels of the supply chain. It is often information that ESG investors and shareholders are seeking.
Context
Suppliers that do not comply with these provisions may run the risk of losing a valuable source of business due to non-compliance with the environmental requirements in the contract.
These contractual provisions are often accompanied by different monitoring and enforcing mechanisms ranging from softer requirements to tough contractual sanctions. Adopting a bottom-up approach by way of supply chain requirements addresses the imbalance in regulatory activity between regions. If adopted within certain sectors the scale of carbon saving through a supply chain can be significant. For example, it has been reported that if 125 multinationals increased the renewable electricity used by their supply chains by 20%, over one billion metric tons of emissions would be saved 27 .
Impact
26 & 27 https://www.cdp.net/en/articles/media/supply-chains-hold-the-key-to-one-gigaton-of-emissions-savings-finds-new-report
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