There’s no escape – new regulations and consumer demands are increasingly putting pressure on businesses to be more transparent about how they are addressing environmental, social and ethical concerns. As a result, more and more companies include sustainability clauses in contracts with their trading partners. But are these clauses effective?
Our recent study conducted in partnership with Affectio Mutandi, leading consultants in Legal, CSR, Corporate & Public Affairs, surveyed more than 560 businesses around the globe to see how they use contracts to address transparency in their supply chains.
CSR Clauses Popular Across the Board
We found that as many as many as 70 percent of buyers include a CSR clause in their contracts with suppliers. This is in line with the International Association of Contract and Commercial Managers (IACCM) figures, which show that nearly three-quarters of companies include a sustainability clause in their procurement contracts.
However, even though sustainability practices are becoming the norm there is still plenty to be done to ensure they are effective. As it appears, CSR clauses currently used in contracts are either too generic or in some other way inadequate.
CSR Clauses Are Too Generic
We found that as many as 75 percent of clauses reference generic regulations rather than covering the specific procurement situation they are referring to. On top of that more than 50 percent of suppliers say they have come across CSR requirements that could not be met, whether the problem was to do with product price, quantity or timing. Only a quarter of buyers adapt CSR clauses, taking sector and size of the supplier into account.
How to Ensure Effectiveness?
These two problem areas, referred to by our researchers as “precision” and “contextualization,” were identified along with three others (“verifiability,” “enforceability,” and “coverage depth”) as features relevant to any CSR clause – regardless of where in the world the contracts are drawn or what industry they pertain to. To analyze the effectiveness of CSR clauses our researchers came up with three categories — “basic,” “progressing” and “advanced” — to describe them.
A clause with basic precision, for example, would express general principles in contrast to advanced precision, where specific objectives are set. A basic level of verifiability refers to self-assessment or no assessment at all, and an advanced level would require regular third-party assessments.
Each of the five features can be examined on its own – and one could potentially argue that enforceability is more important than precision. But as the authors of the study point out, all five criteria are intrinsically connected with one another and when assessing effectiveness of a CSR clause it is best to look at them all at the same time.
Below is an infographic highlighting the key findings of the study.
And if you would like more detail, feel free to read the whole report.