ABSTRACT
This chapter provides a general legal overview of model contract clauses to bring environmental, social, and governance (ESG) values into contracts in international supply chains. It is the lead analytical chapter in the book Contracts for Responsible and Sustainable Supply Chains. The book contains actual model contract clauses as well as chapters providing extensive legal analysis of virtually all relevant issues, from antitrust, corporate, and environmental law to international trade, and wide-ranging perspectives from in house counsel, law firms, the academy, NGOs, unions, and others.
This overview chapter explains the contractual strategy to render ESG policies legally effective and operationally likely. The goal is to meet company demand for effective implementation of ESG commitments. Investor and other market pressures as well as burgeoning mandates under US and European public law now often mandate successful implementation. The chapter exposes the mismatch between commercial law, which is focused on goods and money, and ESG commitments, which concentrate on non-product values. The analysis demonstrates how carefully drafted clauses can close this gap, how ESG values can be managed as product values are, and why a mere incorporation by reference will be ineffective, particularly under the law of warranties and remedies. The practical drawbacks of representations and warranties are also discussed, and the shift to human rights and environmental due diligence (HREDD) and shared responsibility is explained in both legal and practical terms, noting the movement away from seductive but ineffective strict warranty liability and toward a pragmatic tort-like standard requiring HREDD. This approach follows the UN Guiding Principles on Business and Human Rights, already adopted by many corporations, and OECD Guidance on HREDD.
Practical issues run throughout the chapter, which considers matters ranging from corporate politics to operational and management realities, in addition to the need to manage companies’ business and legal risks. Issues of liability shifting are thoroughly aired. The chapter discusses how the legal and operational force of contracts can play a central role in addressing the international governance problems inherent in supply chains, particularly when public law is absent or incomplete. The conclusion looks to the future, noting the power of coupling contract design with technological tools (eg, systems engineering) for supply chain management.
Snyder, David V, Contracts as an Instrument of International Management and Governance (August 3, 2023) in Contracts for Responsible and Sustainable Supply Chains: Model Contract Clauses, Legal Analysis, and Practical Perspectives, Susan A Maslow and David V Snyder, eds (2023); American University, WCL Research Paper No 2023-11.
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