Can contract clauses change the world? We think they can!

In June 2019 the UK was the first major world economy to make a legally binding commitment that the country should aim to be net zero in respect of greenhouse gas (GHG) emissions by 2050 (Net Zero). With the UK’s services centric economy, the F&B sector will need to demonstrate it is playing its part in moving towards a sustainable low to zero carbon economy.

Many businesses have already taken steps to measure the carbon footprint of their operations and have built reputations based on their sustainability credentials. But any hint of green-washing is likely to be damaging to those reputations in the face of increased regulatory requirements and consumer expectations.

For manufacturers in the F&B sector, GHG emissions direct from the manufacturing operations (“Scope 1” emissions) and from purchased utilities, such as electricity (“Scope 2” emissions), are likely to be significant. In some respects they’re easier to control.

It is the emissions from the value chain of F&B products and services (“Scope 3” emissions) which can be more challenging, to measure and attempt to reduce. These include:

• F&B ingredients, including emissions associated with farming, treatment and processing
• packaging materials, warehousing and distribution, including fuels and transportation
• disposal and waste streams generated throughout the value chain for all goods relating to the business operations.

If you’re a service supplier in the F&B sector these Scope 3 emissions may constitute by far the biggest percentage of the total carbon footprint of your business.

How do you achieve reductions here, all the way down your supply chain?

Bizarre as it may seem, we believe we have one of the ingredients to help.

Along with other lawyers over the last year we’ve been participating in a collaborative project (The Chancery Lane Project) to develop a large range of contract provisions that can be introduced into different aspects of a company’s business, but in particular into its supply chain. It is based on an appreciation that the world of commerce rests on a massive interconnecting network of contractual relationships. Introduce GHG reduction commitments into one part of that web and the result in time can be that they are spread throughout the network. For example:

• if you’re not yet measuring your scope 3 emissions, the introduction of GHG disclosure obligations into your contracts with suppliers will enable you to establish a benchmark for future performance measurement
• by requiring your suppliers to measure and disclose the carbon footprint of the product or service they’re supplying to you and committing to work to reduce (and report) that carbon footprint over time, that in turn obliges that supplier to do likewise with its own related network of suppliers
• if you are already committed as a business to achieving Net Zero, appropriately crafted contract clauses will help you achieve that target, which may include GHG reduction targets for your suppliers that are consistent with your own reduction trajectory, along with rights to switch from one failing supplier to another more cooperative one.

This approach need not be a stick with which to beat your suppliers but can be used by way of encouragement towards greater collaborative effort, particularly with your long term and principal suppliers.

If you’d like to hear more about how we can help you “rewire” your contracts in the fight against climate change please contact David Berry, or your usual Charles Russell Speechlys contact.