Integrating CSR Criteria Into Contract Clauses

September 23, 2016 EcoVadis

Contract law can contribute to the enforcement of voluntary Corporate Social Responsibility (CSR) commitments throughout the supply chain, but CSR clauses should first and foremost stay a proportionate tool to engage suppliers on CSR issues.

 

CSR is generally understood as “going beyond” the legal obligations imposed on companies, but that does not mean that legal tools cannot be used to push CSR forward, and this is especially true when it comes to driving CSR performance in the supply chain.
While more and more environmental and social regulations are adopted worldwide and as a result shift the boundari
es between soft law and hard law, many international CSR principles remain ingrained in international conventions or initiatives with no or limited binding force, be it the OECD Guidelines for multinational enterprises, the Ruggie principles or the 10 principles of the UN Global Compact – and no legal binding force also means no enforcement.

 

Are these CSR principles doomed to stay voluntary, and thus, unenforceable? Not necessarily, if procurement teams choose to render them binding through contractual force. By inserting contractual clauses formalizing CSR principles and commitments suppliers are required to comply with, buyers can choose to make voluntary CSR commitments binding, which is in line with the European Commission’s belief that CSR should be company-led.

 

Inserting CSR clauses in supplier contracts serves to provide precise criteria on which the CSR performance of the supplier will be assessed, as well as determining what a material breach is. It also helps to formalize best practices, which over time can be considered as customs specific to an industry and eventually even influence rulings. Finally, contractual clauses help prevent “CSR washing”, as it transforms CSR communication into actual operation.

 

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This case study on Heineken describes how they enforce CSR Score thresholds they set for suppliers as part of their business relationship

 

It should be noted however that contract clauses should first and foremost stay a tool designed to engage suppliers. Procurement teams wishing to drive significant CSR improvements throughout their supply chain should keep in mind that success is often achieved with long-term relationships and that dialog is key.

 

Suppliers are often confronted with contracts that not only set high environmental or social expectations, but also include clauses with strict conditions in terms of quality (high), price (low) and delivery (fast). When faced with seemingly contradictory clauses, suppliers will tend to favor the latter. Cleverly drafted clauses will therefore strive to find balance between both aspects. CSR clauses should not overburden suppliers (e.g. by stating they have to support the entire costs of CSR assessments or audits for instance) nor excessively threaten the stability and durability of contracts.

 

Some procurement teams will be tempted to make automatic use of termination clauses when a non-compliance is brought to their attention, but this is actually often the perfect opportunity to lay the foundation for a balanced and effective dialog, by favoring a corrective action-based approach over a purely compliance-based one.

 

Supplier capacity building, the success of which depends significantly on the buyer, is a deciding factor. Building a relationship of trust and transparency, in which the supplier is provided with a solid base to implement the necessary actions to improve its CSR performance, is the first step to driving CSR performance and innovation in the supply chain.

 

For more information, make sure to view the recording of the recent webinar, The Impact of Sustainability on Commercial Policy and Practices, with EcoVadis Vice President of Research, Sylvain Guyoton, who presented on what Sustainability and CSR means for Contract Management, what leading companies are doing to integrate Sustainability and CSR into Contract Management, and how collaborative platforms can support this integration.

If you do not have time to view the recording, the presentation slides and other related content is also available for download.

REQUEST THE SLIDES

Reporting by Bettina Grabmayr
CSR Analyst at Ecovadis

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