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21 Essential ESG Clauses For Third-Party Contracts
21 Essential ESG Clauses For Third-Party Contracts
Clauses for
Third-party
Contracts
Temiloluwa Lawal
Environmental
Performance
/1
Standards
Define the environmental
standards and targets
that third parties should
meet. These include
emissions reduction,
waste reduction, and
Biodiversity
conservation.
Labor and
Human Rights
/2 Compliance
Include clauses that
require third parties to
adhere to fair labor
practices, ensure safe
working conditions, and
comply with international
human rights standards.
Ethical Sourcing
Requirements
/4 Obligations
Require regular reporting
on sustainability metrics,
like carbon emissions,
water usage, and social
impact, to ensure
transparency in the
supply chain.
Supply Chain
Traceability
/5 Require suppliers to
provide full traceability
of products and
materials to promote
accountability.
Auditing and
Inspection
/6 Rights
Specify the right to audit
supplier facilities and
records to ensure
compliance with
sustainability standards.
Also, outline the process
for auditing supplier
facilities and records.
Renewable
Energy and
/7 Energy
Efficiency
Encourage the use of
renewable energy
sources and energy-
efficient practices in
third-party production
processes.
Sustainable
Packaging
/9 Development
Encourage or mandate
investments in
sustainable product
innovation. This fosters
sustainable practices in
supply chains.
Intellectual
Property Rights
/11 Engagement
Mandate third parties,
especially suppliers to
engage with and
contribute positively to
the well-being of local
communities where they
operate.
Sustainable
Transportation
/17 Requirements
Encourage and specify
that suppliers continually
improve their
sustainability practices
and technologies.
Insurance
Incorporate insurance
/18
provisions into ESG
contracts to mitigate
ESG-related risks
effectively, covering
areas such as
environmental liabilities,
cybersecurity, product
liability, etc. Also,
ensure insurance
coverage is regularly
reviewed and updated.
Limitation of
Liability
/20 Mechanisms
Establish procedures for
resolving disputes
related to sustainability
breaches, such as
mediation or arbitration.
Termination for
Non-Compliance
#
contract clauses aren't a
shield against corporate
liability. They require
ongoing due diligence to
hold third parties
accountable. Mere
inclusion without follow-
up can be construed as a
move in bad faith,
potentially making clauses
ineffective, especially in
legal disputes where a
lack of due diligence is
evident.
Bonus Tip 2
These clauses should be
#
selected and customized
according to your specific
industry, location, needs and
sustainability objectives.
Temiloluwa Lawal