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Developed by the Responsible Contracting Project and the Interfaith Center on Corporate Responsibility (ICCR), the Investor Guidance on Responsible Contracting equips investors for their engagements with portfolio companies on how they integrate human rights and environmental due diligence (HREDD) into their commercial contracts. The tool comprises an overview of key concepts, templates of a corporate engagement letter and a shareholder resolution, corporate engagement questions and frequent pushbacks.
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Why are contracts important to HREDD?
Contracts are the most widely used tool for managing supply chain risks, transforming a company's policies on human rights and environmental protection into legally binding and enforceable obligations. When companies incorporate these policies into contracts, they ensure that their commitments extend across global supply chains, binding parties across legal jurisdictions, turning soft policies into hard obligations that can be enforced wherever the supply chain operates.
Beyond legal enforcement, contracts are mechanisms for allocating risks, rights, and responsibilities between buyers and suppliers. How supply contracts are negotiated, the terms they contain, and their performance directly influence how well workers' human rights are protected and how environmentally safe their communities remain. When used effectively, contracts serve as a key component of HREDD.
However, many traditional contracts today fall short of supporting a robust HREDD approach. They often focus solely on mitigating risks to the company, overlooking the distinct human rights and environmental risks within the supply chain. Effective HREDD recognizes that a buyer's own behavior, including purchasing practices, can significantly contribute to adverse impacts. It requires that both buyers and suppliers collaborate in remediating harm to affected stakeholders. Companies cannot contract out of their human rights and environmental responsibilities if they aim to manage these risks effectively. This is especially important now, as new legislation increasingly makes HREDD a legal requirement, raising the stakes for investors concerned with responsible and sustainable supply chain practices.
Beyond legal enforcement, contracts are mechanisms for allocating risks, rights, and responsibilities between buyers and suppliers. How supply contracts are negotiated, the terms they contain, and their performance directly influence how well workers' human rights are protected and how environmentally safe their communities remain. When used effectively, contracts serve as a key component of HREDD.
However, many traditional contracts today fall short of supporting a robust HREDD approach. They often focus solely on mitigating risks to the company, overlooking the distinct human rights and environmental risks within the supply chain. Effective HREDD recognizes that a buyer's own behavior, including purchasing practices, can significantly contribute to adverse impacts. It requires that both buyers and suppliers collaborate in remediating harm to affected stakeholders. Companies cannot contract out of their human rights and environmental responsibilities if they aim to manage these risks effectively. This is especially important now, as new legislation increasingly makes HREDD a legal requirement, raising the stakes for investors concerned with responsible and sustainable supply chain practices.
What this tool offers
This Investor Guidance is intended to help investors introduce responsible contracting principles into their corporate engagements. It includes the following resources:
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a primer on what is responsible contracting
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a template corporate engagement letter
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a template shareholder resolution
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questions for companies and frequent pushbacks
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