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Supply Chain (ESG)

ESG Policy and Supply Chain Compliance

For many businesses, being able to meet some of the aims set out in their ESG policy depends to a significant extent on taking steps to ensure that companies in their supply chain comply with aspects of their business’ ESG policy.

A business might carry out due diligence checks or take other steps to assess prospective suppliers’ management of ESG issues. Some businesses have a supplier code of conduct (covering a range of ESG criteria) to which they require suppliers to sign up. Many businesses include a standard “compliance with ESG and other policies” clause in their contracts with suppliers that obliges suppliers to comply with ESG-related policies which the business lists in a schedule attached to the contract. This might be combined with a “self-certification” clause whereby the supplier certifies periodically that it, and its subcontractors, are meeting the compliance requirements. Some businesses include an audit clause in their supply agreements, giving them a right to audit aspects of the supplier's provision of the goods or services under the contract. In each case, the contract can specify the consequences (e.g. termination, remediation) of the supplier’s non-compliance with ESG clauses in the contract.

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