ESG Supplier Code of Conduct
The ESG Code of Conduct for Supplier (Customer Version) includes a checklist that a buyer can use as a starting point when creating an ESG supplier code of conduct.
A supplier code of conduct will contain a set of ESG-related principles, standards, processes, legal and other requirements that the buyer wishes a supplier to adhere to for so long as the supplier deals with the buyer. A copy can be given to each supplier with the request that the supplier signs and returns it to the buyer to indicate that the supplier accepts and agrees to its contents.
If a buyer routinely requires its suppliers to agree to its supplier code of conduct, that can serve to demonstrate to the buyer’s customers, staff, investors and other stakeholders that the buyer is serious about ESG issues and that, wherever possible, it only deals with suppliers who are prepared to meet the buyer’s ESG requirements.
Where suppliers agree to such a code of conduct, that can also help to increase the likelihood that suppliers will comply with ESG-related requirements set out in the code. Those requirements can not only include those independently imposed by law on the supplier but also those ESG-related principles, standards, codes and processes which the buyer chooses to adopt and include in it.
If a buyer imposes a range of requirements on suppliers under the code in that way, and suppliers then comply with them, that can help the buyer with its own compliance with ESG-related laws, principles, standards, codes and processes that apply to (or have been adopted by) the buyer.
A supplier code of conduct can be used by any organization that purchases goods, materials and /or services in the course of a business (i.e. where the buyer is not a consumer purchaser). So, for example, it may be used by a business (sole trader, partnership or company), by a charity or other voluntary sector organization, or by any public sector buyer when it deals with a supplier. However, the particular content of the buyer’s standard supplier code of conduct document will in each case depend on the specific type, size, circumstances and requirements of the buyer in question.
Whilst adopting such a code in dealings with suppliers might in practice promote compliance by a supplier with ESG requirements, use of the code in that way alone cannot (and is not intended to) create a legal obligation on a supplier. To give the code legal force, a buyer will also need to specifically address two issues. Firstly, each statement that the buyer chooses to include in the code as an ESG requirement to be met by the supplier needs to be carefully phrased to ensure that it is as clear and unambiguous as practicably possible. Secondly, the buyer will need to ensure that it adopts a legal mechanism whereby the code becomes legally binding. If a buyer adds a suitable contract clause to its agreement with a supplier that should create a contractual (i.e. legally binding) obligation on the supplier to adhere to the code if it refers to the code and states that the supplier must adhere to the code.
If a buyer does not have an ongoing purchase agreement with a supplier, it can instead include such a clause in its standard terms and conditions of purchase and then ensure that the supplier agrees to those terms and conditions as part of the order and order acceptance process. In this case, a buyer needs also to ensure that the supplier has a copy of the code and agrees to it before the buyer accepts its order. The ESG (Environmental, Social and Governance) and Legal Compliance Clause can be used for this purpose.
The particular content of the ESG compliance clause adopted in each case will depend on what the business is able to negotiate with any particular supplier. We recommend that buyers adapt the template clause as necessary (as well as the supplier code template) and then use the two documents in conjunction with each other wherever they wish to impose ESG requirements on suppliers.
ESG compliance is a very broad topic. It is being increasingly seen by many businesses as a top priority. There are information pages about ESG available here (including a section on supplier chain compliance). It is recommended that you read all of this information in advance for useful background and explanation of key ESG issues.
The contents of this Newsletter are for reference purposes only and do not constitute legal advice. Independent legal advice should be sought in relation to any specific legal matter.