Essential ESG

Clauses for
Third-party
Contracts

Temiloluwa Lawal
 Environmental
Performance

/1
Standards
Define the environmental
standards and targets
that third parties should
meet. These include
emissions reduction,
waste reduction, and
Biodiversity
conservation.
 Labor and
Human Rights

/2 Compliance
Include clauses that
require third parties to
adhere to fair labor
practices, ensure safe
working conditions, and
comply with international
human rights standards.
 Ethical Sourcing
Requirements

/3 Specify that suppliers

must source materials
and products ethically,
avoiding conflict
minerals and ensuring
responsible sourcing
practices.
 Transparency
and Reporting

/4 Obligations
Require regular reporting
on sustainability metrics,
like carbon emissions,
water usage, and social
impact, to ensure
transparency in the
supply chain.
 Supply Chain
Traceability

/5 Require suppliers to
provide full traceability
of products and
materials to promote
accountability.
 Auditing and
Inspection

/6 Rights
Specify the right to audit
supplier facilities and
records to ensure
compliance with
sustainability standards.
Also, outline the process
for auditing supplier
facilities and records.
 Renewable
Energy and

/7 Energy
Efficiency
Encourage the use of
renewable energy
sources and energy-
efficient practices in
third-party production
processes.
 Sustainable
Packaging

/8 Include provisions that

promote or mandate eco-
friendly packaging
materials and practices
to minimize waste and
foster sustainable
practices.
 Sustainable
Product

/9 Development
Encourage or mandate
investments in
sustainable product
innovation. This fosters
sustainable practices in
supply chains.
 Intellectual
Property Rights

/10 Address any intellectual

property issues related
to sustainable
technologies or processes
developed during the
contract.
 Local
Community

/11 Engagement
Mandate third parties,
especially suppliers to
engage with and
contribute positively to
the well-being of local
communities where they
operate.
 Sustainable
Transportation

/12 Include provisions that

Promote eco-friendly
transportation methods
in upstream and
downstream activities.
 Anti-corruption
Provisions

/13 Include strict anti-

corruption clauses to
guide third-party
business conduct. This
fosters effective
governance.
 Sustainable
Finance

/14 Mandate that any funds

allocated or provided
must be exclusively used
for sustainable
objectives and projects,
aligning with predefined
ESG criteria and goals,
and require transparent
reporting on the
allocation and utilization
of these funds. This is
especially important for
Banks and other financial
institutions.
 Renewal and
Review

/15 Specify how the contract

will be renewed or
revised to adapt to
evolving sustainability
goals and regulations.
 Force Majeure
and Sustainability
/16 Clarify how force majeure
events (unforeseeable
circumstances) may impact
sustainability commitments
and responsibilities.
 Continuous
Improvement

/17 Requirements
Encourage and specify
that suppliers continually
improve their
sustainability practices
and technologies.
 Insurance
Incorporate insurance

/18
provisions into ESG
contracts to mitigate
ESG-related risks
effectively, covering
areas such as
environmental liabilities,
cybersecurity, product
liability, etc. Also,
ensure insurance
coverage is regularly
reviewed and updated.
 Limitation of
Liability

/19 Determine and state

explicitly, the extent of
each party's liability for
sustainability-related
incidents.
 Conflict
Resolution

/20 Mechanisms
Establish procedures for
resolving disputes
related to sustainability
breaches, such as
mediation or arbitration.
 Termination for
Non-Compliance

/21 Specify the consequences of

sustained non-compliance
with sustainability
standards, which may
include contract
termination.
 Bonus Tip 1
Kindly note that ESG

#
contract clauses aren't a
shield against corporate
liability. They require
ongoing due diligence to
hold third parties
accountable. Mere
inclusion without follow-
up can be construed as a
move in bad faith,
potentially making clauses
ineffective, especially in
legal disputes where a
lack of due diligence is
evident.
 Bonus Tip 2
These clauses should be

#
selected and customized
according to your specific
industry, location, needs and
sustainability objectives.

Consult with legal experts

experienced in sustainable
supply chain contracts to
ensure thorough and effective
agreements. Better yet,
constitute a solid legal team
team as part of your third-
party risk management
program.
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Temiloluwa Lawal