Sustainability Clauses in International Supply Chain Contracts: Regulation, Enforceability and Effects of Ethical Requirements
31 Pages Posted: 22 Jun 2014 Last revised: 11 Jun 2015
Date Written: June 22, 2014
Our current society is not successful in mitigation of global social and environmental challenges. States lack legal tools, and sometimes also the will, to secure social and environmental interests transnationally and the existing soft and private regulation is criticized for its weak legitimacy, effectiveness and enforcement. Regardless of this regulatory gap, companies who do not comply with the globally accepted sustainability standards run reputational risks that can lead to long-term negative economic effects. Moreover, stakeholders expect companies not only to follow the standards themselves but also to do business exclusively with socially responsible partners. Unawareness, either intentional or negligent, of unethical behaviour within a company’s supply chain may lead to an assumption that the company is complicit in such a conduct.
The paper discusses a hypothesis that sustainability contractual clauses (SCCs) in international supply chain agreements may help to overcome the regulatory gap in relation to global sustainability while concurrently protect companies against potential social, economic and legal risks threatening in connection to unethical behaviour of their suppliers. As parts of enforceable business contracts, SCCs are considered to overcome the heavily criticized softness of other CSR regulation and, therefore, to be more successful in fostering ethical behaviour of suppliers who are legally independent but often in economic and business terms dependent on the sourcing companies. However, this hardening function is questionable face-to-face the lack of case law or another proof of SCCs’ formal enforcement. This article aims to shed a light on the question whether SCCs can be the efficient regulatory solution for global challenges we are looking for or whether they are yet another corporate social responsibility tool ‘without teeth’. The central questions are: why SCCs are presumed to be effective regulatory means for global sustainability, how these clauses are seen through the lenses of international contract law and whether they can actually contribute to a positive change in suppliers’ social and environmental performance.
Based on the analysis of SCCs’ features and the underlying regulatory framework, the author concludes that while SCCs would not be enforceable by courts in most cases, they can still be successful in regulating global sustainability. Their positive effects on suppliers’ behaviour will depend on how companies draft and use such clauses. It is suggested that the full potential of private contracting could be triggered by adequate governmental regulation.
Keywords: sustainability clauses, business contracts, supply chains
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