By Tammy Vallejo and Swantje Pabst
Contracts are a key tool to support effective human rights due diligence in increasingly complex global supply chains. Based on its work with leading global companies, including a deep dive practice group focused on supply chain due diligence that the Responsible Contracting Project joined, Shift has gained important insights into the limitations of traditional, compliance-driven contracting approaches and identified practical steps toward a more collaborative, shared-responsibility approach between buyers and suppliers to uphold human rights standards together.
1. Why is responsible contracting needed?
- Cascading vs. burden sharing: Contractual clauses, along with supplier codes of conduct, are among the most widely used instruments companies rely on to implement aspects of human rights due diligence. But they are not a silver bullet and need to be complemented by other tools. Research shows that many suppliers — particularly SMEs — lack the support needed to help them meet contractual expectations. The numerous requirements placed on them during tenders are poorly followed up on, and dialogue during the contractual relationship is limited. Suppliers also point to tensions between contractual expectations and buyers’ own commercial practices, such as price pressures, late payments, changing specifications, and tight delivery deadlines, which hinder suppliers’ ability to uphold the contractual standards for human rights and environmental protection.
- Contracts can have two very different effects: either to reinforce negative impacts or to drive positive change for people. Traditional contracting practices often contain zero tolerance and strict penalties for (even minor) non-compliance, including immediate termination. This perfect compliance approach can drive issues underground and incentivize unrealistic assurances that adverse impacts either don’t exist or have been eliminated. Such an approach is not in line with new regulatory expectations or the UNGPs, which encourage companies to work with suppliers to surface risks to people and support improvement, rather than cut and run. Alternatively, contracts can be crafted to promote shared responsibility, including through responsible purchasing practices, mutual trust, transparency, and constructive engagement to mitigate and remedy adverse impacts on people.
- Evolving regulatory expectations: Under CSDDD, companies must take ‘appropriate measures’, i.e., measures that effectively address sustainability impacts and drive changes in behavior and practice. The Directive is clear on what this means for contracts: due diligence obligations cannot simply be transferred to suppliers; each party’s responsibilities must be spelled out clearly; buyers are expected to examine whether their own commercial practices — including on pricing and delivery timelines — undermine the very standards they are asking suppliers to meet; and severing a supplier relationship should only happen, as a last resort, once other options have been exhausted ( Articles 10, 11 and 12). As CSDDD comes into force, regulators will consider responsible contracting practices as one factor in determining whether a company’s due diligence is appropriate. Taking a collaborative approach to contracting will also help companies to score well in investor assessments that look at how companies are integrating Human Rights Due Diligence into their contracts.
2. Four core principles for moving from traditional to responsible contracting
The Responsible Contracting Project identifies four core principles for moving from traditional to responsible contracting.
- Shared responsibility: joint commitment to carrying out human rights due diligence.
- Responsible purchasing practices: buyers commit to responsible purchasing practices that support positive human rights and environmental outcomes
- Remediation-first: if harm occurs, remedy to victims is prioritized over conventional contractual remedies such as termination or money damages.
- Responsible exit as a last resort: contract termination can be pursued only as a last resort and must be done responsibly
These principles are captured in the European Model Clauses (EMCs) — a still-draft set of model contract clauses that seek to track the requirements of the CSDDD into binding contractual commitments. The EMCs are expected to inform the European Commission’s forthcoming practical guidance for companies on CSDDD-aligned contracting (under Article 18 of the Directive). The EMCs, to be finalized later in 2026, apply a risk-based approach that sets higher expectations for prioritized suppliers.
3. Steps towards more responsible contracting
- Build effectiveness and resilience: the best form of risk management is credible risk assessment and prevention, which ultimately can help protect from liability. Delaying or failing to take action on risks can aggravate the situation in the long term, whereas fostering more cooperative supplier relationships, with a shared responsibility for addressing adverse impacts, leads to more resilient supply chains.
- Engagement is key: some suppliers perceive there is little space for dialogue with buyers, including when problems arise, and have little capacity to adjust the objectives and tools used to mandate their performance. Engaging early with high-risk suppliers, in particular, to explain why certain requirements are included in contracts creates a higher level of trust and allows more granular, realistic data to be collected.
- Find the right balance: contracts that incorporate lengthy details leave more room for conflicts over their content. This can be particularly burdensome for companies that have prioritized engagement with a large number of direct suppliers. While extensive detail is not required, contracts must establish a foundation for a more collaborative buyer–supplier relationship. This structure keeps the contract itself concise and stable, while allowing the more detailed operational expectations in the CoC to evolve without requiring full contract renegotiation.
- Emphasize a risk-based approach: assigning risk categories to suppliers can enable companies to take a more targeted approach to responsible contracting that incorporates general HRDD expectations in all contracts and elevated requirements for the riskiest suppliers. Enhanced clauses could include more requirements for information sharing, governance, impact assessments, including an overview of their likely salient human rights risks, resources, and transparency, including being more concrete in terms of what suppliers would need to put in place (governance structure, resources, tools, training), and what support the company will provide.
- Maturation over time: mutual understanding clauses emphasize that HRDD is not about perfection but rather about supporting maturity and alignment with international reference frameworks over time. Each party must do its part to uphold the standard set out in the contract. This includes rewarding improvements rather than punishing non-compliance. Suppliers should not be expected to be perfect, but rather to be diligent.
- Consider industry-wide alignment: aligning with other buyers can be a great way to support suppliers, so that they can have similar expectations from multiple actors. e.g., adopting aligned contractual language or referencing a common supplier code of conduct. For example, many global companies adopt or reference the Responsible Business Alliance (RBA) Code of Conduct, providing suppliers with a single, consistent set of expectations for labor, health and safety, the environment, and ethics.
4. Tips for rolling out new contracting processes
Change takes time: setting the right parameters for implementation and ultimate effectiveness is important, and this includes ensuring that communication to suppliers from the top (e.g., the Chief Procurement Officer) places the necessary weight and emphasis on the overall process of transitioning from traditional to responsible contracting. Implementation steps could include:
- Providing the company’s own staff (especially buyers) with an FAQ on how to respond to questions from suppliers, or offering training to introduce them to the new approach and process.
- Developing tools to monitor and support the implementation of contractual terms about suppliers’ own HRDD systems to ensure respect for human rights beyond tier-1, as well as to identify what resources, tools, staff, training, and expertise suppliers have in place and what support they need.
- Focusing on collaborating with suppliers to identify, prevent, and remedy harm instead of cutting them off. This is particularly important to ensure that suppliers are not afraid to share honest and accurate information about risks or violations, which is essential to ensure that negative impacts are tackled at the earliest possible moment and that preventive and remedial action is as targeted as possible. Include relevant departments in the decision-making process and consider how exit clauses can be used to build leverage.
- Using contracts as a communication tool. Contracts are not just transactional. They can also serve as a means for communicating with suppliers/buyers. Even if ambitious clauses don’t make it into the contract, there is a clear value in discussing them with suppliers, triggering fruitful exchanges and receiving valuable information that helps inform the due diligence process for both parties.
- Pricing in sustainability as a fixed requirement in awarding contracts. As a prerequisite for contracting, encourage bidders to specify the costs required for them to live up to the standards they are asked to comply with (“frontloading”). Reflecting these costs (or the processes for establishing costs) in the contract from the outset helps ensure that financial incentives and human rights expectations are aligned throughout the supplier relationship.
From risk transfer to shared responsibility
As expectations around human rights due diligence continue to evolve, contracts can no longer function simply as liability shields. Increasingly, they are becoming a test of whether companies are prepared to align their commercial practices with their human rights commitments.
The shift from traditional to responsible contracting is therefore not just a legal or procurement exercise. It is a broader shift in how companies understand business relationships, leverage, and accountability in global supply chains. Companies that approach contracting as a collaborative tool for identifying and addressing risks, rather than simply transferring them downstream, are likely to be better positioned to build resilient supplier relationships and deliver more effective human rights outcomes over time.
