Adding corporate social responsibility (CSR) language into supplier contracts is becoming increasingly common for high-tech and electronics OEMs. It remains to be seen, though, if these sustainability clauses actually shift supplier behavior. A recent study from EcoVadis, which rates global supply chains for business sustainability, found that CSR clauses have the potential to improve supply chain sustainability performance but there’s a lot of room for improvement.
“As regulatory pressure and demands for transparency continue increasing and businesses are being held accountable for the practices of their suppliers, this study shows the pressing need to rethink how we use contract clauses to support CSR and sustainability practices,” said Pierre-Francois Thaler, Co-Founder and Co-CEO of EcoVadis.
The study, titled Sustainability Clauses in Commercial Contracts: The Key to Corporate Responsibility, looked at current regulations, contract laws, and various clause in hopes of understanding the potential for these clauses as well as to discuss operational considerations and practical application of them.
Seven out of ten buyers report that they include CSR clauses in their own contracts. Most, however, use generic clauses in their contracts. Just one quarter of companies said that they change the requirement to take the supplier size (for 37% of those who make adjustments) or sector (44% of those who make adjustments). Another one in four do not customize clauses proactively but say that they accept adjustments from their suppliers on a case-by-case basis.
A lack of relevance can make suppliers stop paying attention. “Customers require every employee entrusted with dealing with their orders to know their CSR requirements often comprising 40 pages,” explained one survey respondent. “It is not feasible in a medium-sized company to have employees read and comply with so much detail, particularly when the company has several such customers. For the most part, we have stopped reading each customer’s individual CSR documents/requirements.”
Half of suppliers say that they have encountered clauses where the requirements were impossible to achieve taking into the account the price/quantity of product being purchased and the timing demands. “As a small business manufacturing commercial components in the USA, we are committed to ethical and responsible conduct, but we do not have the internal resources to review and react to all of the overreaching and often not-applicable language and documentation requirements being flowed to us from a very diverse, international customer base,” said another survey respondent. At the same time, 41% reported that finding this type of language in contracts has resulted in a higher awareness for them on environmental, social and ethical issues.
Enforceability is one big stumbling block. In fact, three-quarters of CSR clauses are too vague to be enforceable, referencing generic regulations rather than measurable requirements. Often, there is also wide variance in how the clause is applied. Organizations should consider precision, verifiability, enforceability, and coverage depth to create more effective CSR clauses and reduce risk to the company. Reasonable terms may shift dramatically depending on whether an OEM is working with a manufacturer, distributor, or logistics provider, for example, as well as on which country the work is being done.
The study was conducted in partnership with Affectio Mutandi and polled 569 companies from November 2017 to January 2018. The research was supplemented with 20 in-depth interviews.
The infographic below highlights more findings from the survey. How is your organization using CSR clauses in its contracts? Let us know in the comments section below.
— Hailey Lynne McKeefry, Editor in Chief, EBN