Adapting Anticorruption Frameworks for ESG – Negotiating Contractual Clauses With Suppliers
- Dave Lee
- 6 days ago
- 2 min read
Environmental, Social, and Governance (ESG) considerations have become an essential part of modern business strategy, but managing those considerations can have pitfalls and challenges.
Anticorruption frameworks provide a tested approach to mitigating risks in business dealings, and offer valuable templates for managing ESG-related concerns. Just as anticorruption clauses are negotiated after thorough due diligence and risk assessment, ESG-related clauses can be incorporated into agreements to address risks associated with environmental degradation, labor practices, and governance concerns.
When negotiating ESG-related clauses, organizations can use anticorruption clauses as a model. As a starting point:
Anticorruption Example: Businesses often require assurances that no bribes or improper payments will be made when acting on their behalf, to comply with strict US and UK laws imposing vicarious liability.
ESG Parallel: Similarly, companies can require assurances from partners regarding ESG concerns, such as commitments to avoid environmental degradation or unethical labor practices.
However, if there are concerns about ESG practices in the supply chain, it’s not enough for a counterparty to merely represent that no improper practices take place. Organizations should ensure that the counterparty has systems to monitor and manage compliance across their own suppliers. Hence:
In Anticorruption: Require counterparts to implement and maintain appropriate policies and procedures that prevent bribery, and examine how those controls are carried out.
In ESG: Seek out similar representations, and look for appropriate control mechanisms such as regular supplier reviews, due diligence, and compliance training to prevent issues like environmental harm or labor violations from emerging within the supply chain.
Other representations that organizations can borrow from the anticorruption space include:
Inspection rights: Granting the right to review records or conduct site visits to monitor compliance.
Independent audits: Including provisions for third-party audits to verify adherence to agreed-upon ESG standards.
Reporting obligations: Requiring regular updates on ESG compliance and progress.
“Push down” requirements: Imposing and enforcing similar obligations of parties further down the supply chain.
Cure provisions: Requiring the counterparty to proactively cure any material breaches.
These measures help promote accountability and provide organizations with the tools to identify and address potential risks proactively. As with anti-corruption clauses, being able to agree to and comply with ESG provisions can bring commercial advantages for suppliers. Indeed, the parallels between these contractual clauses also extend to their negotiation strategies. TRACE members can explore further details on ESG contractual clauses here.
By adapting anticorruption frameworks for ESG due diligence, organizations can manage risks more effectively, align with regulatory expectations, and uphold their commitments to sustainability and ethical practices. This proactive approach can help protect an organization from potential liability or reputational harm using a proven framework for managing risk.
FCPA Compliance Consultant