Sustainable Contracting: How To Green Your Business Agreements

As countries strive to meet their sustainability targets, including the Sustainable Development Goals (SDGS) and combat climate change, businesses are increasingly recognizing their integral role in this mission. As businesses shift gears towards sustainable business practices, the need to embed sustainable practices throughout a business lifecycle and in every aspect of the business is essential.  

A key aspect of this integration is considering the environmental impact of contracts. The result of this evaluation is that businesses can make more informed decisions that align with their environmental and social goals. Incorporating a sustainability criteria into contracts can encourage suppliers and partners to adopt greener practices, thereby promoting a collaborative approach to environmental responsibility. 

Why embrace sustainability? 

Sustainable businesses are well placed to gain from the rise of eco-conscious consumers whose services and products choice are based on environmental impact. Eco friendly businesses are more attractive to investors and can access the growing pool of green funds. Additionally, businesses that embed sustainability in their operations can benefit from the enhanced brand loyalty, improved operational efficiencies among other advantages. 

Strategies to transforming your contracts for a greener future 

Incorporating sustainability in your business contracts thereby greening them presents a path towards sustainable business. This you can do by: 

1. Negotiating and incorporating sustainable/green clauses 

As contract negotiation and drafting sets the stage for business performance, it is crucial to negotiate and incorporate sustainability clauses in the various contracts, thereby ensuring sustainability from the start. This may be in the form of clauses such as environmental accountability, social or ethical responsibility, governance and integrity, provisions for green termination, representations and warranties on sustainability of goods or services, sustainable sourcing, provision for green remedies for breaches related to sustainability, performance monitoring, reporting and improvement. 

2. Green procurement or ethical sourcing 

As a key consideration when vetting business suppliers, businesses should consider entering into business agreements with parties who incorporate sustainability in their undertakings. This implores sourcing parties to not only look at their prospect’s financials but also on the relationship with other stakeholders and impact of their business to the environment. Thus prior as part of due diligence the procuring entity will require potential suppliers or parties to supply evidence and requisite certifications or documentation to verify compliance.  

3. Performance targets 

In the path towards sustainability contracting parties need to set targets or metrics related to sustainability for which parties undertake to improve on in the course of the contracting period. 

4. Performance monitoring 

Having set targets, contracting entities should consider regular reviews to monitor performance at different stages and time agreed upon by parties. This review will help parties identify areas of collaboration, challenges and address them. 

5. Performance reporting 

Depending on the nature of activities to be undertaken, a contracting party may be required to furnish the other with its performance, ESG or Sustainability report in the course of the contract duration. 

6. Undertaking high level due diligence  

In order to evaluate a potential partner’s sustainability practices and compliance levels prior to entering into a contract. This process helps identify risks and ensure alignment on sustainability goals. 

Conclusion 

As global objectives shift towards a greener future, low carbon emissions, greater sustainability and impact investing, businesses that align with these goals will have greater competitive advantage, attracting investors seeking to invest in environmentally conscious businesses and participating in the carbon markets.  

How we can help 

The Sustainability, Climate Change and ESG Practice Group at CM Advocates LLP is comprised of lawyers with diverse experience in laws affecting various industrial sectors. The team is proficient in navigating the complexities of Sustainability and ESG integration in organizations to ensure compliance with relevant regulations and standards.  

We are equipped to ensure a well-rounded evaluation of a company’s social, governance and environmental impact, fostering responsible and ethical conduct in alignment with established global standards and frameworks. We assist in the preparation of ESG and Sustainability reports, statements and policies, as well as drafting green contracts ultimately enhancing your business’s sustainability initiatives. We offer ESG and related trainings and also assist in ESG reporting and transaction advisory.