A few years ago, a group of legal professionals got together to create a better world through better contract language. As the Chancery Lane Project puts it, their organization is “a collaborative effort of legal professionals from around the world whose vision is a world where every contract enables solutions to climate change.”
If you don’t see the immediate connection between contracts and climate, you’re not alone. People often assume that the most significant environmental benefit of digital contracts is the use of less paper.
Yet as the project shows, contract language itself can contribute to a cleaner environment by committing our network of partners and suppliers to the sustainable environmental standards supported by organizations.
And the Chancery Lane Project is not the only group that sees the connection. A recent Economist Impact survey, sponsored by Icertis found that 70% of companies consider contract language an effective tool in enforcing ESG standards, including climate commitments.
This makes sense. Contracts are a set of commitments companies make to each other. As such, contract language itself is a powerful tool to ensure the cooperation of business partners and suppliers in helping an organization meet its own mission and ideals.
Organizations can leverage contract clauses (an entire library of which are available from CLP) to meet their environmental commitments in business with third parties. For example, your contracts can include language ensuring that partners don’t support suppliers flagged for unsustainable practices or that they don’t engage in such practices themselves.
Potential vs. Reality
Unfortunately, despite this belief in the power of contract language to honor environmental commitments, a disconnect remains between the potential of contracts to foster environmental good and reality. The same Economist Impact survey found that while 70% of companies may support such contract language, only 30% of companies currently embed ESG language in their contracts.
Why the disconnect? Common challenges include:
- Lack of alignment of what environmental issues to focus on
- Insufficient visibility into who a company is doing business with to assess where environmental action would be applicable
- Inability to deploy new ESG clauses across contract templates in the organization
- Inability to track what environmental commitments partners have made and enforce them in practice
Put another way – it’s one thing to have a clause committing your partners to build a better world. It’s another to put the clause into action across complex organizations dealing with thousands or even millions of contracts.
How Contract Intelligence Can Help
This is why we at Icertis are so excited to build technology that ensures the intent of every business partnership is correctly captured in a contract and fully realized in practice.
With contract intelligence, companies can structure and connect contract data to realize more intelligent contract creation, insights, and automation. This makes it easier for companies to orchestrate the clauses created by CLP and others and enlist their business agreements in the critical work of protecting our planet for future generations.
We recommend a 5 step process to Accelerate Contract Transformation (ACT) for ESG:
- Assess your organization’s biggest environmental opportunities today: With so much work to be done, focusing on where you can make the most significant impact delivers alignment and actionability
- Determine what’s in your contracts today: Assess what provisions you have in your contracts today; you may have opportunities to scale efforts already underway rather than reinvent the wheel
- Deploy ESG contract language and negotiation playbooks: Leverage centralized and harmonized contract templates to quickly deploy environmental clauses across geographies.
- Make compliance easy and noncompliance hurt: Capture and track contract obligations, then make it easy for companies to document compliance while communicating clearly that noncompliance will be taken seriously – as seriously as a missed delivery or nonpayment.
- Establish a reporting cadence for progress – Commit to reporting what impact this contract language has.
At Icertis, we see contracts as promises. And when we promise each other to be better stewards of the planet, we make a commitment to creating a better world.
To learn more about how contract language can support an organization’s environmental commitments, please join us for our webinar, 5 Ways to ACT for ESG, featuring SAP and World Commerce & Contracting.
