Translate sustainability performance expectations into clear and enforceable components of supplier contracts.
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Ensure that the sustainability objectives, specifications, and criteria defined in your procurement are realised by integrating them into contracts.
Once a supplier is selected you can begin formalising sustainability expectations in the contract. This process involves translating the technical specifications and award criteria from your tender documents into contract clauses and conditions. These clauses and conditions may apply to, product end-of-life management responsibilities, data sharing, and disclosure requirements.
Consider also making use of performance-based sustainability clauses based on measurable outcomes and associated KPIs. Performance incentives can include, supportive price adjustments, gain share payments, contract extensions, favourable payment terms, or flexible timelines.
EXAMPLE: Vodafone and CDP's finance framework encourages suppliers to reduce carbon emissions3
Vodafone and CDP created a framework offering preferential financing rates to suppliers to reduce carbon emissions. Suppliers' environmental performance determines their financing rates. Initially available to Vodafone's suppliers via Citi, the initiative aims to reduce carbon emissions and contribute to Vodafone's Scope 3 emissions targets. This model is expected to expand industry-wide.
EXAMPLE: Gain-Share Incentive for Reducing GHG Emissions4
Jess & Rory's Clause is template contract clause designed to encourage a counterparty to reduce greenhouse gas (GHG) emissions using gainsharing to reward performance. In this case supplier's that exceed the emissions reduction target are paid a percentage of the value of the goods or services provided.
If not already outlined in the RFx, establish reporting requirements in the contract to ensure that the supplier is providing regular updates on their sustainability performance.
Conditions can include regular sustainability reports or other relevant documentation. Make sure to define the frequency, format, and structure of the sustainability reports, including any specific metrics or standards that must be used. And clearly outline what data that must be collected and reported on for each sustainability performance indicator. You can also include methods for verifying the sustainability reports' accuracy and completeness, such as third-party audits or certifications.
Draw attention to sustainability risks by specifying relevant liabilities in the contract terms or using shared-risk contracts. For example, for climate change, these risks could be related to physical risks, such as flooding, heatwaves, and fires; or transition risks, such as regulatory changes and shifting markets, or termination of the agreement in the event of non-compliance.
Ensure desired outcomes are achieved by developing enforceable agreements and contracts. This requires defining corrective and remedial actions for non-compliance and enforcing them through contract provisions. You also need to ensure that the appropriate resources will be available to support and monitor performance outlined by the sustainability clauses. It may be helpful to bring together relevant advisors from other departments, such as legal and sustainability, to help inform compliance planning.
EXAMPLE: Telecom company adding emissions reduction clause to supplier contracts
In its effort to meet its supply chain emissions targets, BT Group introduced a climate clause for suppliers which commits them to make measurable carbon reductions across their value chain during the contract term. The clause started out as voluntary but became mandatory.5 The financial benefits of energy savings have helped the idea gain traction and it is now embedded in contracts with several key suppliers.6
EXAMPLE: BMW environmental and social purchasing conditions
Over 95% of BMW Group’s supplier contracts contain clauses relating to the company’s sustainability requirements. For instance, UK purchasing conditions include clause 29 on environment (REACH compliance) and clause 30 on social responsibility (International Labour Organisation (ILO) principles).7
EXAMPLE: Disney requires pre-authorisation of all potential subcontractors
Disney’s International Labor Standards (ILS) program requires that contracts with independent licensees and vendors’ facilities and subcontractors that manufacture products or components incorporating Disney-branded products must be declared to Disney and receive prior authorisation to manufacture.8, 9
This project addresses human rights challenges in global supply chains by creating practical contractual tools. It has developed a Responsible Contracting Toolkit, that includes model contract clauses, to support more balanced and cooperative relations between buyer and suppliers enabling better outcomes for workers. It also aligns with major international human rights frameworks.
The Toolkit includes:
Sector-agnostic and sector-specific model contract clauses
Templates and guidance for developing codes of conduct that adopt a shared-responsibility approach for buyers and suppliers
Guidance on the how, what, and why of Responsible Contracting adapted for different stakeholders and supply chains
Policy briefs on legislative developments
The Chancery Lane Project’s Net Zero Toolkit includes ready-made contractual climate clauses that you can incorporate into commercial agreements with suppliers to deliver climate solutions.
This project by the American Bar Association is designed to support human rights due diligence in business contracting. They offer a number of resources including model contract clauses, reports, and guidance.
This tool by Ecovadis provides a practical overview of current practices related to supplier sustainability clauses, including formal considerations for what should be included as well as operational considerations.
This guide from Verité outlines how you can address the risk of foreign migrant worker exploitation in your supply chain through your supplier contracts (Pages 10-19).
The WorldCC Foundation’s database of contract related guidelines, explanations, and examples is designed to help you create more user-friendly and fair contracts through simplification and visualisation.
Creative contracts uses comic strips to creates easily understandable legal contracts. Their website includes examples of how contracts can be designed as easily understood and remembered, comic contracts which are especially useful to communicate in cross-cultural contexts or with partners who have low literacy skills.
This explainer from Chapter Zero explores what climate contracting is, how to use it, and why it may be a critical part of your businesses decarbonisation journey.
This report from WBCSD and PwC offers practical guidance on incentivising supplier decarbonisation. It explains how to identify, select, and implement decarbonisation levers within your business context. These include leveraging your procurement process to embed decarbonisation commitments and expectations through rewards and penalties.
This section of UNGC's Decent Work Toolkit for Sustainable Procurement provides an overview of responsible contracting. It will help you integrate human rights and environmental obligations into commercial contracts. The resource explains how this approach differs from traditional contracting and why it is important; how it aligns with compliance frameworks; and offers a summary of key learnings.
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