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ESG (Environmental, Social and Governance) and Legal Compliance Clause


ESG (Environmental, Social & Governance) is more and more being seen as a top priority for businesses and, in view of this, they need to tackle ESG issues relevant to them. As part of their efforts to do so, businesses might take steps to try to ensure that their suppliers also do so.

A business can create an appropriate ESG policy or code of conduct that it wishes its suppliers to adhere to. It can then insert in purchase contracts with its suppliers a suitable clause whereby the supplier undertakes to meet the ESG requirements of that policy or code. Further, the clause can set out specific laws and other legal measures which the business requires the supplier to meet in addition to ESG requirements. Such a contract clause can increase the likelihood and degree of compliance by suppliers with the business’s ESG and legal requirements.

It can also serve to demonstrate to a business’s 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 ESG and other requirements of the business.

This ESG contract clause assumes that a business will have an ESG supplier policy or code of conduct that can be attached to the contract. (See the accompanying template code of conduct.) The clause will need to be tailored to each business’ own needs and circumstances. The particular content of the clause adopted in each case will also depend on what the business is able to negotiate with any particular supplier.

Optional phrases / clauses are enclosed in square brackets. These should be read carefully and selected so as to be compatible with one another. Unused options should be removed from the document.

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