Responsible Contracting in Sustainable Procurement

We’ve learned:

• Responsible contracting refers to the practice of integrating human rights and environmental (HRE) obligations into commercial contracts in a way that commits both parties to work together to uphold HRE standards.
• While there is no one-size-fits-all contractual template for every context, the responsible, shared-responsibility, contracting approach can be operationalized in all contracts, whether for the sale and manufacturing of goods or for services and in all supply chains.
• Although contracts are widely used to manage supply chain risks, they are often misused for purposes of managing HRE risks. When companies include HRE obligations in their supply contracts, they often shift all the risks, obligations and costs associated with upholding HRE standards on the supplier. Traditional, risk-shifting contracts are unrealistic, dangerous and ineffective.
• Risk-shifting is not the same thing as risk-management.
• A shared responsibility approach, supported by responsible purchasing practices, is more effective for achieving positive HRE outcomes and legal compliance.
• Traditional, risk-shifting contracts are unlikely to meet the appropriateness requirement of the Corporate Sustainability Due Diligence Directive (CSDDD) and other mandatory human rights and environmental due diligence (HREDD) legislation. They may also undermine efforts to comply with new disclosure regulations and avoid trade sanctions under the U.S. Tariff Act, the Uyghur Forced Labour Prevention Act (UFLPA) and the EU Forced Labour Regulation.
• By contrast, responsible contracting supports more transparency and cooperation along the supply chain, which in turn supports more effective risk-management and HREDD, more effective implementation of companies’ HRE policies and more effective achievement of companies’ Environmental, Social & Governance (ESG) objectives.
• Responsible contracting focused on preventing adverse impacts and, if needed, remedying impacts that were not prevented, can support compliance and reduce litigation risks.
• There are numerous additional benefits to adopting responsible contracting, including strengthened stakeholder relationships, fewer disruptions and better supply chain resilience. By integrating global responsible business conduct standards, responsible contracting can also help build consumer trust and attract investment leading to sustainable business growth.