Contract Clause for a Purchaser to Obtain Undertakings from a Supplier in Respect of ESG

A new Environmental, Social and Governance (“ESG”) Standard Contract Clause is now available, together with explanatory notes as to how and when to use it. A business can adapt this clause as necessary and insert it in its purchase contracts with its suppliers. Under the provisions of such a clause, a supplier gives to the purchaser a contractual undertaking to meet the purchaser’s ESG requirements as referred to in that clause.

Use of a standard ESG and legal compliance contract clause can increase the likelihood and degree of compliance by suppliers with the business’ ESG and other legal requirements. It can also serve to demonstrate to a business’ wholesale or retail customers, staff, investors and other stakeholders that the business is serious about ESG and that, wherever possible, it only deals with suppliers who are prepared to meet stringent contract requirements relating to the business’ ESG standards and requirements.

The business’ detailed ESG requirements for its suppliers can be set out in an appropriate ESG Policy or ESG Code of Conduct created by the business, and the ESG contract clause can then expressly adopt and cross-refer to that Policy or Code (as this template clause does). Such a Policy or Code can set out, in as much detail as the business wishes, all of the ESG specific laws and other legal measures which the business requires its suppliers to meet.

The ESG suppliers’ standard contract clause is accompanied by a number of ESG-related templates, including an ESG Policy Checklist, available here. The Checklist contains a suggested structure for an ESG Policy statement - it highlights some key ESG areas and objectives which a business might wish to cover in its ESG Policy statement and it can help with the planning and writing of an ESG Policy statement for the business. The new standard contract clause can easily be amended to cross-refer to the Policy statement using the full title of the Policy statement.

The topic of ESG is very broad. It is being increasingly seen by many businesses as a top priority, and, in view of the importance of the topic, information pages about ESG are also available. It is recommended to read this information in advance for useful background and explanation of key ESG issues.