Businesses increasingly demand that their suppliers help them meet their own sustainability goals (e.g. reductions in greenhouse emissions) by including contract terms which require suppliers to:

• Meet sustainability goals.
• Report metrics showing attainment of goals.
• Allow auditing of metrics.

Such contract provisions, currently well-established with many leading consumer products companies, will only become more commonplace with companies in other industries as they face continued scrutiny of their Corporate Social Responsibility (CSR) bona fides by investors, consumers, governments, and other stakeholders. Thus, proactive assessment of your supply contract terms to be ready to partner with customers to meet their CSR goals provides a real opportunity to build new and solidify existing customer relationships.

Traditionally, suppliers have focused on their manufacturing processes and their own upstream suppliers in managing toward their customers’ sustainability goals. We believe that, as stakeholders continue to demand better and more accessible information regarding the sustainability of a product, companies will be rewarding suppliers who can help the end users assess the downstream impact of purchasing from the supplier. To anticipate this demand for downstream impact information, suppliers should:

• Evaluate the downstream impact your product will have on your customers’ sustainability goals.
• Determine how to accurately communicate those downstream impacts (including whether they present an advantage not available to your competitors).
• Develop metrics for measuring the downstream impacts that can be integrated along with more traditional supply chain metrics.
• Make sure that your supply contract allows you to take credit for those downstream impacts in meeting your contractual obligations regarding the customers’ sustainability goals. 

The current emphasis on reducing the amount of plastic packaging entering the environment illustrates how thoughtful consideration of downstream impacts can help end users better evaluate which suppliers can legitimately help them meet this important sustainability goal. Ultimately, whether less plastic packaging is entering the environment is essentially measured downstream of the customer. Thus, capturing in enforceable contract terms, how the suppliers’ product will help the customer meet this goal will require very different contract terms than those contract provisions which traditionally focused on the supplier’s operations. The distinction is illustrated by looking at the ways suppliers are trying to address the goal of reducing the amount of their customers’ plastic packaging that enters the environment:

• Elimination - Reduce plastic packaging through substitution, e.g., using aluminum cans or paper based containers. In the case of aluminum, suppliers can point to what is considered a more reliable downstream recycling supply chain than currently exists with plastic.
• Reusable Packaging - Suppliers are starting to offer consumer packaging that can be returned and refilled. Obviously, in addition to the new packaging design, such a solution presents the additional challenges of (a) managing the logistics of the package return and reuse process and (b) fostering consumer acceptance.
• Recycling Reality Check - Ensure that the plastic packaging can be recycled. This includes making sure that the consumer purchasing the product ‘discards’ the package into the recycling supply stream rather than the environment. This may involve working with the customer on developing consumer education solutions through labelling, in store or online education and other efforts. One challenge here is how to measure the downstream success of the efforts.
• Biodegradable Reality Check - Make sure claims that packaging will biodegrade address: (a) under what conditions, (b) in what timeframe and (c) into what compounds the packaging will biodegrade. Like the recycling reality check, consumer education may be needed to ensure that packaging is “discarded” into conditions where the packaging will biodegrade.
• Compostable Reality Check - A package that is “commercially compostable where accepted” is not compostable in the typical backyard compost pile. Thus, while many compostable packages eliminate fossil fuel based plastics, they may still enter the environment if there is not a system for making sure that customers are able to place them in the right compost waste stream.

Successfully focusing on the outcomes downstream of the customers in addressing the plastics packaging challenge will allow a supplier to: 

• Differentiate it from competitors.
• Compete on sustainability values rather than solely on price.
• Create more customer loyalty.
• Attract downstream investment/partners who will also benefit from their product downstream.
• Get smarter about its product life cycle.

To achieve both your and your customer’s sustainability goals, it is imperative that your contracts terms align with those goals. 

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