Over the past few years, Environmental, Social, and Governance (ESG) considerations have gained significant importance in the business sector. Despite the perception that ESG compliance might be an added challenge during contract discussions, it is, in fact, a fundamental element of contemporary legal practice.
SMEs – Compliance requirements with third party policies
Even though it is not mandatory, small and medium-sized Enterprises (SMEs) frequently encounter ESG and Corporate Sustainability Due Diligence Directive (CSDDD) requirements when negotiating contracts, particularly with larger corporations. These demands can be intricate and daunting for SMEs, but we offer essential assistance to navigate these complexities effectively.
Drafting ESG policies
The traditional method of drafting ESG and CSDDD clauses often involves lengthy, intricate, and generic provisions that pose significant challenges for negotiation and enforcement. This complexity frequently results in overwhelming and confusing clauses for all parties involved, sometimes leading to extended and arduous negotiations. Additionally, one-size-fits-all clauses fail to adequately address the unique circumstances and risks of each transaction. They may lack enforceability and be disputable, struggle to adapt to evolving ESG standards and regulations, ultimately leading to decreased compliance and an increased likelihood of legal complications. Based on our experience, a more effective approach involves focusing on context-specific, risk-oriented and practical measures.
Negotiating ESG clauses
It is crucial to understand the specific context of the contract, including the size of the transaction, the parties involved, the duration of the relationship, and the nature of the goods or services provided. Identifying and evaluating the specific ESG and CSDDD risks associated with the transaction is essential. Begin with the mandatory ESG and CSDDD requirements relevant to the contract, such as compliance with the Bribery Act 2010, the Modern Slavery Act 2015, and the Corporate Sustainability Due Diligence Directive (CSDDD). Introduce additional ESG and CSDDD obligations judiciously, ensuring they are relevant, feasible, and enforceable. Depending on the contract and the relationship between the parties, it may be important to consider downstream compliance, ensuring ESG and CSDDD obligations are passed down the supply chain where necessary, including to subcontractors and raw material suppliers.
Monitoring compliance
Equally important is establishing clear mechanisms for monitoring and enforcing ESG and CSDDD compliance, such as regular reporting and specific metrics or KPIs. Avoid relying solely on generic policies. Instead, specify clear and actionable obligations within the contract to ensure effective compliance. This alternative approach helps create a more sustainable and compliant framework, reducing risks and enhancing the overall effectiveness of ESG and CSDDD measures.
How we can help
Our team can assist you in drafting and reviewing contracts, as well as ESG and CSDDD clauses, to ensure they are clear, specific, and tailored to the context of the transaction.
Our Key Services
High-Level Contract and T&Cs Review
Conducting a high-level review of existing contracts to identify any ESG and CSDDD compliance gaps
Examining terms and conditions (T&Cs) to ensure they align with ESG principles and CSDDD, and providing clear guidelines for compliance.
Drafting and Reviewing Contracts and Clauses
Drafting ESG and CSDDD clauses tailored to the specific needs of the SME
Reviewing contracts to ensure they are clear, specific, and compliant with ESG and CSDDD standards.
Negotiation Support
Assisting in negotiating ESG and CSDDD clauses with larger companies
Helping SMEs secure fair and achievable terms that align with their capabilities and resources.
ESG Compliance Assistance Pack for SMEs
1. Introduction to ESG
Overview of ESG compliance and its impact on business success.
2. Tailored ESG Strategy
Conducting a thorough ESG risk assessment.
Developing a tailored action plan for compliance.
3. High-Level Contract and T&Cs Review
High-level review of existing contracts to identify ESG and CSDDD compliance gaps.
Examination of terms and conditions (T&Cs) to ensure alignment with ESG principles.
4. Drafting and Reviewing Contracts and Clauses
Drafting ESG clauses tailored to the SME's needs.
Reviewing contracts to ensure clarity and compliance.
5. Negotiation Support
Assisting in negotiating ESG and CSDDD clauses with larger companies.
Securing fair and achievable terms for SMEs.
Pricing and Packages
We offer different pricing tiers to accommodate the varying needs and budgets of SMEs:
Basic Package: general advice and overview on ESG and Corporate Sustainability Due Diligence Directive (CSDDD).
Standard Package: customized ESG action plans, high-level contract review. Supply chain management guide, incorporating CSDDD.
Premium Package: comprehensive support, including training workshops, certification guidance, ongoing monitoring, negotiation support, and detailed contract review, with a focus on both ESG and Corporate Sustainability Due Diligence Directive (CSDDD) requirements.
Our packages are designed to provide the right level of support for SMEs to meet ESG and CSDDD compliance effectively
With our streamlined and focused approach, perhaps it’s time to reconsider ESG? It might just be your cup of tea after all.
This insightful article is written by Miriam Giorgioni and endorsed by our Head of Commercial, Technology and Data Protection, Sharon Zachariah.
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Disclaimer: This publication is provided by Laytons LLP for informational purposes only. The information contained in this publication should not be construed as legal advice. While reasonable care is taken to ensure accuracy, the materials may not reflect the most current legal developments. Any questions or further information regarding the matters discussed in this publication can be directed to Laytons LLP and its Commercial & Corporate team.
