Under my Umbrella: Seeking Shelter Under an ESG Clause

Abstract

Environmental, social, and governance (hereinafter “ESG”) issues are no longer merely a matter of decorative corporate policy. Soft law standards, and increasingly hard law requirements, oblige companies to report on and comply with environmental, social and governance standards, and to take into account their entire upstream and downstream supply chain when assessing ESG compliance. Contractual clauses with business partners thereby become a crucial aspect of meeting ESG requirements.

Rapidly evolving regulation, the relative novelty of ESG clause drafting and challenges associated with ESG metrics mean that ESG clauses are a likely basis for future disputes.

This contribution will introduce ESG as a concept, and set out relevant ESG hard and soft law requirements. It will examine several initiatives providing model contractual clauses to address ESG issues. Consideration will also be given to different types of ESG clauses, whether drafted in “umbrella” style or with specific representations, warranties and covenants, utilising performance targets, or taking a due diligence approach.

While contractual ESG disputes are only beginning to emerge, this article will analyse some likely features of such disputes, based on the interpretation of ESG clauses, the proliferation of regulation, the measurability of ESG compliance, supply chain requirements, remedies and causation.

Keywords: ESG, compliance, human rights, environmental, social, governance, regulatory, sustainability, CSR, due diligence