Responsible Contracting in Sustainable Procurement

Frequently asked questions

• What is responsible contracting and why is it important?

  As the legal links of the supply chain, contracts are a key mechanism for managing human rights and environmental (HRE) risks. They serve to set the parameters for supplier-buyer relations and to allocate rights and obligations between the parties. However, not all contracts are created equal. How supply contracts are negotiated, the terms they contain and how the parties behave toward one another in performing their obligations can affect HRE outcomes in the supply chain. Fair – and fairly performed – contracts are critical for carrying out effective human rights and environmental due diligence (HREDD) and achieving better HRE outcomes.

  Responsible contracting is not only more effective for preventing and remedying adverse impacts, but also for achieving compliance with rapidly evolving legal requirements, including new HREDD laws in the European Union, non-financial reporting laws and trade sanctions laws in the United States.

• Responsible contracting sounds nice, but how far can contracts really go toward addressing human rights harms?

  Responsible contracting can incentivize better behaviors, better human rights and environmental (HRE) outcomes and legal compliance. Contracts set legally binding parameters for the parties’ relationship and are therefore an obvious place to outline expectations on how to uphold HRE standards. Additionally, commercial contracts are a key vehicle by which companies can legally implement their HRE policies across their supply chains. By importing HRE policies, commitments and codes of conduct into the contract, the latter become binding and are more likely to be put into practice as a result.

  That being said, contracts are not a cure-all and alone are not sufficient to ensure good HRE outcomes, but improving outcomes is much harder if not impossible to do without improving contracts.

• How does responsible contracting work for environmental obligations?

  Environmental rights and human rights are closely interrelated, with environmental degradation often being linked to adverse human rights impacts and vice versa. For example, rising temperatures in factories due to climate change represent an increased risk to workers’ health and safety.

  The responsible contracting principles are relevant regardless of whether the risk being managed is related to human rights or the environment. For both environmental and social standards, traditional contracts that shift the risks, costs and obligations related to upholding those standards onto suppliers (e.g., factories and farms) often increase commercial pressure, which can result in adverse impacts on people and planet.

  For example, upholding environmental standards often requires significant investments in technical infrastructure and expertise at the supplier level. Suppliers may struggle to meet these standards without the necessary resources, a problem that is aggravated when buyers (e.g., brands and retailers) engage in poor purchasing practices, such as cost-squeezing or delayed payment. The RCP Toolkit can address this dynamic by outlining buyer obligations to engage in responsible purchasing practices, including fair pricing and adequate support to suppliers.

• Will responsible contracting support compliance efforts with new regulations on mandatory human rights and environmental due diligence? If so, how?

  Responsible contracts support alignment with new regulations on mandatory HREDD. Contracts are one of the key tools that companies are expected to employ in meeting their HREDD obligations and contracts and codes of conduct continue to play an important role in companies’ implementation of due diligence within their supply chains.

  The transposition of the EU CSDDD will further increase the relevance of contracts as tools for implementing HREDD in supply chains and companies should, in preparation, fundamentally rethink how they design these instruments because traditional risk-shifting approaches do not meet the CSDDD appropriateness requirement. Responsible contracting also supports compliance with forced labour regulations such as the U.S. Tariff Act and the EU Forced Labour Regulation.

  Note that RCP’s model clauses serve as a tool to support responsible business conduct and alignment with new human rights and environmental regulations. However, use of the clauses does not guarantee compliance.

• How can responsible contracting help operationalize human rights and environmental due diligence (HREDD)?

  Contracts are the legal links of the supply chain. They are essential vehicles for companies to legally implement their human rights and environmental (HRE) policies across their supply chains. Without contracts, it would be very difficult if not impossible for companies to implement HREDD. However, traditional contracts are not fit for purpose with respect to managing HRE risks or supporting HREDD. A more effective model is needed, one that operationalizes the shared responsibility principles enshrined in the UNGPs and the OECD Guidelines.

  It is important to understand that contracts are not a silver bullet for addressing HRE issues in supply chains. Companies cannot expect their HRE risks to be managed simply by changing their contracts. human rights and environmental due diligence (HREDD) is a comprehensive process that extends far beyond contracts and requires continuous engagement and monitoring. Likewise, contracts are an important component of a robust HREDD process, but they are not a proxy for it – companies cannot expect to meet the requirements of HREDD legislation simply by adding certain clauses to their contracts. See toolkit section on regulatory compliance for more information.