A push for sustainability

This article was co-authored by Philip Nyakudya, Trainee Solicitor, Manchester. 

Following on from the challenges presented by the COVID-19 pandemic, private companies are seeking to better position themselves and take steps towards promoting and practising meaningful sustainability.

COP26 cemented this direction of travel with a significant number of businesses at the event making net zero pledges that includes a move to sustainable business practices. With this in mind, companies are reconsidering their policies, relationships and supply chains and are increasingly asking for their lawyers to ensure their documents provide a strong contractual basis for these changes.

What is sustainability?

To gain an understanding of sustainability drafting, it is important to appreciate what sustainability means in this context. Broadly speaking, sustainability can be understood as the ability to endure and maintain at a positive rate or level. Companies evaluating their sustainability must take into account the environmental, social and governance aspects and impacts of their business.

Lawyers can be integral in helping companies be sustainable by formulating and negotiating supplier and other contracts with sustainability baked in.

Why consider sustainability drafting?

Amid increased focus on sustainability practices, it is now more important than ever for companies to reconsider their policies and contracts. Those failing to practice and promote sustainability are at risk of reputational impacts and falling behind regulatory standards. With public opinion at stake and growing regulatory pressure, an increasing number of companies are voluntarily utilising sustainability services in an attempt to differentiate their brands.

Companies are being forced to review their traditional contracts to ensure that they address sustainability concerns or risk being exposed to sustainability risks, which traditional contracts fail to address directly.

In line with the contemporary practices, we may anticipate an increasing role for bodies such as EcoVadis and Achilles. These agencies provide holistic sustainability rating services to businesses that cover various criteria across four key themes:

  • Environmental
  • Labour and human rights
  • Ethics
  • Sustainable procurement impacts

EcoVadis and other similar authorities, such as the United Nations Global Compact and the Global Reporting Initiative base their ratings on leading standards.

Scope of clauses?

With growing pressure from consumers and other stakeholders demanding sustainable action from their partners, suppliers and the brands they buy, clauses that address ethical and environmental issues can position a business as a market leader. They can also increase trust in that company and cement its reputation as a responsible business.

In line with the current trend, many companies have turned to The Chancery Lane Project’s (TCLP) model sustainability clauses which can be adapted for use in common commercial contracts and transactions. As well as providing various sample clauses, TCLP’s Playbook identifies the issues to be addressed, lists the benefits of addressing these issues and also explains the implications of adopting each clause.

One such current issue is disclosure of climate risks. From 6 April 2022, it is now mandatory for Britain’s largest companies to disclose climate related financial information in line with recommendations from the Task Force on Climate-Related Financial Disclosures (TCFD).

In that regard, TCLP provides varying disclosure clause options for incorporation into contracts and commercial transactions depending on the size of the business, such as Archie’s clause or Kitty’s clause for smaller organisations.

The clauses in the Playbook also cover various sectors including; planning, real estate, construction, employment, energy and transport, legislation and public procurement. As a partner to TCLP, we recently held a workshop to explore the use and promotion of TCLP clauses in construction contracts, supplier contracts and insurance policies.

Adopting sustainable contracts

Companies aiming to embrace sustainability and adopt sustainable contracts should consider the following points:

  • It is important to identify stakeholder expectations in regards to the four key themes listed above. As environmental and social considerations become increasingly paramount, it is more important for companies to review their stakeholder expectations and take the necessary steps to satisfy these.
  • In order to identify and meet stakeholder expectations, companies should examine their supply chains to ensure they are in line with or exceed the current sustainability practices.
  • Whilst reviewing their current practices and policies, companies should consult their lawyers to identify any sustainability related risks and any agreements that could boost the company’s sustainability and benefit the business.
  • Companies should examine their existing contracts/agreements to ascertain whether they are compatible with the company’s sustainability targets. Companies should also consider how specific sustainability clauses could be more compatible with business objectives. New contracts may be drafted to include clauses aligned with the company’s objectives. Conversely, sustainability clauses may be added to existing agreements to help better align the agreement with new sustainability objectives.
  • Companies should consider creating a committee or a board which will specifically address sustainability within the business. Members of this board should include regulatory, legal and commercial professionals with experience in sustainability and commercial contracts.

Comment

With the growing prominence of sustainability in commercial matters, sustainability drafting can benefit private companies. The Playbook can be used as a starting point when advising businesses and it must be noted that the applicability and enforceability of any of the Playbook’s clauses depend on jurisdiction.

Drafting contracts in a way that embraces and encourages sustainability can be daunting, especially when you consider the consequences of neglecting sustainability or getting it wrong.

That being said, if you are looking to include sustainability clauses to your agreements and contracts, we recommend you seek counsel from Kennedys Law LLP, a TCLP partner. Our commercial lawyers will advise on how to integrate sustainability into your business.

Read other items in the Commercial Brief - May 2022

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