With sustainability increasingly being folded into corporate strategy, supply chain transparency and accountability are front of mind topics. Suppliers and vendors are critical partners in day-to-day operations, and their sustainability, sourcing, and sub suppliers play a significant role in a company’s overarching sustainability and social assessment. The expanding importance of environmental and social reporting means that companies should ensure they have both the capabilities to monitor compliance and ensure accountability, and the contractual and legal rights to demand it from their suppliers. The days of relying on representations and warranties to ensure supply chain compliance may be fading away in favor of supplementing these terms with more complicated audit and reporting contractual obligations. These terms provide companies varying levels of access and visibility into suppliers while balancing the need to protect the suppliers’ confidential and proprietary information.
The need for supply chain transparency and modernized contracts is highlighted by the proliferation of approved and proposed regulatory frameworks governing supply chain. From forced labor regulations to proposed due diligence directives, companies should be updating standard contract terms now to account for the supply chain transparency, accountability, and reporting obligations of the future. This may include everything from access to physical operations for labor related audits to disclosing information on sustainable sourcing. Evolution of operations, processes, and products is also likely to lead to evolution of the types and locations of suppliers. This, in turn, will create new needs at companies to set up the internal and external systems for supply chain monitoring and compliance within those geographies and industries.
The United Nations previously published a Supply Chain Sustainability Guide to assist companies in auditing and improving their supply chains. The guidance emphasizes practices that companies may already implement, including defining expectations and monitoring compliance in their supply chains. Companies can also audit and review their standard contracts to determine which provisions they can leverage for reporting and monitoring, and which terms will need to be updated to account for their evolving supply chain transparency needs.
