How lawyers clean up the supply chain

Multinational companies are digging deeper into the legal channels of their organizations to maximize their sustainability certificates and meet climate or social commitments.

As organizations reassess their supplier network to meet environmental, social, and governance (ESG) commitments, in-house lawyers can play an important role in helping achieve these goals by renegotiating supplier contracts and managing regulatory compliance.

“The supply chain has become closer to the center of corporate sustainability commitments,” said Daniel D’Ambrosio, senior assistant at DLA Piper Law Firm. He explained that this means that the legal department needs to be involved in the procurement and reporting and disclosure processes to help further achieve ESG goals.

Under pressure to improve the resilience and sustainability of their operations and their suppliers, many organizations have strengthened their commitments.

In 2020, Swiss pharmaceutical company Novartis stated that it hopes to achieve complete carbon neutrality in its supply chain by 2030. Also last year, Applied Materials, a US chip manufacturing supplier, launched a plan to reduce emissions, switch to recycled packaging, and increase contracts with women-and minority businesses.

Companies that made this mistake are now at risk of being condemned by the public for their lax supply chain practices. Fast fashion retailer Boohoo Forced to reorganize the board of directors Last year, after an investigation found dangerous working conditions and low wages for workers. At the same time, its competitor H&M is also in trouble. A war Conflict between the Chinese government and Western NGOs concerned about human rights in Xinjiang, China’s cotton-producing region.

Damaged reputation: Fashion retailer H&M is embroiled in a war between Chinese and Western NGOs © AFP via Getty Images

“For ESG, we are beginning to see contract terms or links to supplier codes of conduct,” said Vanessa Havard-Williams, partner of Linklaters and head of global environmental and climate change business. “This is often caused by [key performance indicators] It is also obligated to notify and allow audits when problems arise. “

She said these regulations include requiring energy suppliers to report the percentage of renewable energy used for power generation and requiring suppliers to report information about the diversity within their organization. Havard-Williams added that if the company violates supplier guidelines, in-house lawyers may be involved in advising on investigations and potential solutions, which may include termination arrangements.

David Young, managing director of Boston Consulting Group, said that ESG considerations are becoming more and more important for companies trying to differentiate themselves from business-to-business customers, and he leads the company’s society. Impact and sustainable development work.

In some parts of the world, there are mandatory reporting requirements for supply chain practices. The European Union and the United States require disclosure of “conflict minerals”, which forces companies to abandon unethical tungsten or gold suppliers from Central African countries. The EU also requires supply chain reporting for timber.

Disclosure of “conflict minerals” forces companies to abandon unethical suppliers © Kuni Takahashi/Getty Images

EU requires timber supply chain reporting

EU requires timber supply chain reporting © Roni Rekomaa/Bloomberg

In-house lawyers said that the procurement process usually starts with a supplier’s request for advice, which is an important way for companies to start inquiring about ESG standards. Therefore, the company began to distribute long questionnaires on environmental and social practices to suppliers.

The global hotel chain Hilton is incorporating social and environmental standards into its supplier registration and search process. Kristin Campbell, Hilton’s general counsel and chief ESG officer, stated that suppliers must comply with the responsible sourcing policies contained in all property contracts. The policy includes labor rights, humane treatment of animals, and encouraging suppliers to provide sustainably sourced wood and paper products.

The company has partnered with EcoVadis, a Paris-based ESG rating provider, to measure supplier sustainability risks and performance.

In some cases, in-house lawyers also play a vital role in promoting cooperation with competitors to achieve sustainable development goals that do not violate anti-competitive laws. For example, Clare Wardle, the general counsel of Coca-Cola Europacific Partners, stated that legal and safe cooperation helps competitors comply with the German bottle can deposit return program.

“As a group, GC can play a huge role in establishing a contractual framework that drives behavior,” Wardle said. “The addition of some content that requires GC permission to change into the standard clauses of CCEP means that it is unlikely to be challenged and promote our sustainable development agenda.”

However, Veronica Villena, assistant professor of supply chain and information systems at Penn State University’s Smill School of Business, said that forcing suppliers to comply with environmental and social standards may not work. She studied environmental and social practices in the supplier network of Philips, a Dutch healthcare technology company, and believed that many of the companies involved were too small to comply. “Most of these suppliers are located in developing countries and have no capacity-they don’t have a chief sustainability officer,” she pointed out

Villena concluded that multinational companies should provide training to cultivate good environmental and social practices at their suppliers. “The carrot method is a better way to motivate suppliers to solve their own environmental and social problems.”

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