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The role of contracts in delivering sustainability

September 1, 2016

Sustainability and ‘corporate social responsibility’ are the new, fourth dimension of supplier selection criteria (the other three being price, quality and time).

That’s according to Sylvain Guyoton, Vice President of Research at EcoVadis, who spoke today on an IACCM webinar. Sylvain described the evolution of sustainability and the extent to which it is now becoming integrated into procurement practices and, increasingly, a fundamental issue for suppliers. One element of this is the ability to demonstrate CSR standards; another is  acceptance of additional contract terms and obligations.

EcoVadis has seen strong growth as corporations deal with the challenges created by high risk global supply chains, geopolitical instability and increased regulatory pressures and reporting requirements. Cost pressures force business to operate in this complex environment; CSR is the tool through which they manage the resulting supply and reputational risks.

In reality, sustainability has proven to be about much more than compliance. As the discipline has grown, it has resulted in major areas of cost reduction (for example, in more creative approaches to packaging or to logistics) and value creation (for example, through competitive differentiation). But this, to me, is where it becomes interesting that sustainability is still perceived as an area driven by Procurement / Supply Management, whereas in my mind it is much more about Marketing. To succeed, businesses need increasingly to be able to show their CSR credentials and to demonstrate their capabilities proactively. Therefore, I see a growing interest by those responsible for sales contracting, as they look to anticipate market needs and embed CSR principles as a source of competitive difference.

Going beyond this, we are also observing a growing realization that good CSR practices demand different thinking about contracts. Sustainability depends on embedded behaviors and practices within a business, not just words on a contract. This need is adding to the momentum for contracts as effective tools for communication – in other words, they need to be designed and written in ways that ordinary people can understand. It is this which is driving momentum for user-based contracts and the evidence suggests that compliance rates soar as a result.

Therefore I believe the issues that are driving sustainability are indicative of a much wider change in society and business, towards greater openness and transparency – and this means not only new terms and conditions, but also quite fundamental rethinking of the way we develop and communicate our contracts.

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