Environment, social and governance (ESG) requirements have risen to the top of the agenda for businesses of all sizes, from small and medium enterprises through to the largest corporations.
By Norman Kretzmer, founder and CEO of Contract Understanding
One underappreciated challenge business face in implementing ESG is the impact it will have on the contracts they have with suppliers, commercial customers, business partners and other parties.
Companies throughout the supply chain are under pressure to monitor and report on ESG criteria to regulators, their business partners, and other stakeholders. A key part of getting this right is understanding the commitments an organisation has made to its business partners and their reciprocal obligations as expressed in post-signature contracts.
Examples might include:
* Your primary suppliers’ commitments to reduce carbon emissions in logistics and manufacturing to help you meet your commitments to your customers in turn.
* The performance standards enshrined in your contracts with diverse suppliers such as black-owned or women-owned businesses.
* The commitments you have made in return to support the growth of your diverse suppliers’ businesses.
* The terms of reference in your agreements with corporate social investment partners like non-profit organisations.
Ensuring alignment and compliance
With the regulatory environment moving so fast, it has become imperative for each business to align its contracts with new requirements imposed by its partners as well as with the latest laws and regulations. It’s also becoming essential to meet ESG requirements to avoid reputational damage, regulatory scrutiny, and even fines.
The challenge that most companies face is that they have numerous contracts with ESG-relevant clauses stored and managed in different siloes of the business. It is difficult to keep track of which ESG clauses already exist, monitor your own compliance with ESG clauses you’ve agreed to and manage compliance on the part of your counter signatories.
The increased legal and regulatory burden adds to the many reasons that automated, cloud-based post-signature contract management software is a must for any business with dozens or hundreds of contracts in place. Such a platform enables you to move what used to be a paper-based and manual process into an automated, digital workflow.
A post-signature contract management solution offers you a single online workspace to capture, store and manage signed contracts securely. All contracts are stored in a central database, allowing seamless access and easy searching capabilities. External contacts and representatives are also stored in a central database.
Building trust through transparency
During the digitisation process, artificial intelligence (AI) and machine learning (ML) are put to work to analyse and extract key fields during the contract management process. You will have full visibility of a powerful search engine that gives you a high-level understanding of your contracts and easily addresses frequently asked questions.
The benefits and obligations tracking features, meanwhile, make it easier to track whether you’re meeting your commitments and other parties are living up to theirs. Automated workflows, meanwhile, help you to easily manage processes and events such as renewals, terminations, price escalations, force majeure, cancellation, and breach.
ESG practices require transparency and accountability. The right contract management solution provides a centralised platform for auditing contract performance in relation to ESG criteria. With such a platform in place, you can more easily integrate ESG considerations into your contractual relationships, in turn, helping you demonstrate compliance and foster trust with your stakeholders.