Blog Post

Climate-Aware Contract Management and Why It Matters

September 21, 2021

Climate change represents a “catastrophic” risk to the global economy. Here’s how lawyers can help manage the risk and align with corporate sustainability efforts

Climate change will have the second greatest impact on the global economy over the next decade, second only to infectious disease, according to the World Economic Forum’s latest Global Risks Report 2021.

It’s already having a huge impact on businesses; international non-profit group CDP’s report in 2019 stated that the 215 biggest global companies reported almost $1 trillion at risk from climate impacts, with many likely to hit within the next five years.

One of the most effective ways to manage climate change risk and create a more sustainable organisation is through Climate-Aware Contract Management (CACM). According to a study by Pace University and the Institute of International Commercial Law, nearly 80% of companies require climate-aware contracts and almost 70% cite sustainability clauses in the contract as highly or very important.

Top three reasons to engage in Climate-Aware Contract Management:

1. Stay compliant across the supply chain with fast-changing regulations

According to McKinsey, “The impact of supply chains account for more than 80% of greenhouse gas emissions and more than 90% of the impact on air, land, water, biodiversity and geological resources.”

Government regulators across the world are aggressively addressing this staggering statistic with mounting regulations to help countries meet the requirements covered in the 2015 Paris Agreement. A strategy is needed to adapt accordingly to this raft of regulations. Contracts should persuade supply chain partners to be more sustainable, including clauses that require them to legally meet certain green standards.

2. Protect and enhance your corporate reputation

It’s not only about your supply chain; look across your organisation, from awareness in R&D to contracts with packaging and manufacturing, to product delivery.

Consumers are climate-savvy, especially Gen Z who are more health, climate and socially aware than any previous generation. The risk to your organisation or your clients for not meeting consumer expectations around sustainability is costly. Almost half of the consumers have ditched a brand that they didn’t feel met their own values.

Real estate is often a big opportunity. Energy efficiency, new construction and facilities management practices are areas that can be better managed with climate-aware contracting. Meeting or exceeding industry standards are all opportunities to enhance your reputation with investors, employees and consumers.

3. Save time and money

When the pandemic hit, lawyers across the world scrambled to locate contracts with force majeure clauses. With paper contracts, this was virtually impossible. Digital contract management systems are essential for strategic risk management. They provide the ability to find vital clauses in real-time and adapt and negotiate contracts proactively.

Going digital is more than strategic convenience. Digitizing helps minimise paper consumption and prevents pollution caused due to the improper disposal of paper.

What’s your CACM strategy?

Mitigating climate change is a strategic imperative, thanks to growing regulatory and consumer pressure. The way lawyers use contracts can be a powerful weapon in the fight against environmental impact – helping reduce carbon footprints and supporting real, accountable and sustainable action.

Contact us to discuss how Exigent can help with your CACM strategy.