What does it mean for compliance officers concerned about environmental, social, and governance (“ESG”) standards to be able to turn contracts into data?
Sustainability is not a new concept, but it’s gaining momentum in the corporate world.
Following public outcry over the murder of George Floyd in police custody in 2020, many businesses made statements about their commitments to hiring diverse teams. There’s growing awareness in the business world that in order to serve a global consumer base, a business must have a workforce that reflects the same level of diversity — and compliance teams play a key role in promoting diversity, equity, and inclusion efforts in their businesses.
However, it’s difficult to set goals, let alone to measure progress toward those goals, without first establishing standards for businesses and compliance teams to target. That’s where ESG enters the picture.
Environmental, Social, and Governance Criteria
ESG criteria offer a way for investors to evaluate companies based on their long-term prospects for genuinely making the world a better place through business, rather than on short-term fluctuations and cost-cutting shortcuts. ESG entails how the business serves all of its stakeholders, from consumers and shareholders to workers, and its impact on broader communities and the environment.
With the world of ESG investing gaining traction, it’s important that businesses take note. Increasingly, it appears that business and finance leaders are serious about ESG, rather than just paying lip service to it — and they’re putting their money where their mouths are.
Silicon Valley’s Long-Term Stock Exchange (“LTSE”) is leading the charge by making it easier for investors to find and invest in companies that are truly committed to ESG practices. The LTSE makes it possible for companies to dual-list, attracting both mainstream and sustainability-focused investors through separate exchanges. The first two companies to list on the LTSE, Twilio and Asana, are prominent SaaS providers that are already listed on the New York Stock Exchange.
But it’s not as simple as just filing paperwork. To qualify to list on the exchange, companies must first adopt enforceable policies, subject to LTSE monitoring, on issues ranging from long-term business strategy to executive and board compensation.
What Is ESG Compliance?
Fortunately, it’s not up to business leaders to try to figure out everything on their own. To help businesses and investors navigate these new waters, third-party certification programs are emerging to help companies demonstrate their commitment to ESG principles. These programs can help companies develop processes and codes of conduct to drive compliance with ESG standards.
For example, a company that works with an array of suppliers will likely have to take steps to ensure that there are no issues with its supply chain in terms of impact on the environment.
The business must conduct due diligence to confirm not only that its own practices are in line with ESG standards, but also that it sources inputs only from vendors that engage in sustainable practices. If a company that uses plant-based products wants to claim that it is environmentally friendly, for instance, it shouldn’t buy from suppliers that use slash-and-burn farming practices.
In the area of corporate social responsibility, a company would need to assess how it treats and interacts with the communities of which it is a part, including its own employees. Diversity, equity, and inclusion efforts are a key part of ensuring that a company goes past simply counting numbers of employees from certain demographics, and instead provides real opportunities for talent of all backgrounds to thrive and develop their own careers while driving the company forward.
Internally, a company must address corporate governance issues such as compensation for its board members in order to maximize the value of its shares. Some lawsuits in recent years have questioned whether boards have compromised value for shareholders by awarding themselves excessive pay packages. Even if the company performs well, directors can still compromise that value by siphoning a higher proportion of cash to themselves or executives than the market dictates.
Other areas to address might include risk management, emissions, product packaging, volunteering, charitable giving, and more.
ESG and Your Vendor Agreements
So with this new focus on sustainability and corporate compliance, how can you ensure that your business is really walking the walk?
One key issue is whether your business partners, including your vendors, are ESG-friendly. It’s easy enough for your vendors to simply claim that they are compliant with ESG criteria. But how can you quickly confirm which of your vendors have made genuine commitments to long-term sustainability — for example, by obtaining ESG certification?
The answer is likely in your contracts.
Vendor agreements commonly contain ESG clauses detailing a company’s commitments to sustainable business practices. But when you have hundreds of suppliers, how can you efficiently sort through all of your agreements to find which of them include the ESG terms you need to see? Any good contract management software can serve as a central repository to store your files, but not all of them can help you analyze what’s in those documents. When it comes to contract compliance, you need a contract management system that can help you quickly spot and act on compliance issues.
Evisort’s contract intelligence capabilities offer a reliable way to comb through thousands of contract clauses in a short timespan to find precisely the information you need when you need it. As a compliance officer, you need data on the ESG commitments in your business contracts. Evisort does more than just store files — it turns contracts into data.
Using Evisort to Turn Contracts into Data
Here’s how Evisort’s artificial intelligence can help compliance officers generate full data on all of their ESG vendors and what types of certifications they have.
Let’s say you have a standard supplier diversity clause, and you want to ensure that each of your vendors has committed to similar contract terms. First, you’d upload the contract containing that language to Evisort. The platform would then quickly parse through the language in the contract and identify the supplier diversity clause, along with the other types of clauses contained throughout the agreement.
Next, you would simply run a new search in Evisort to find out how many and which of your other supplier agreements contain similar clauses. However, that’s not all Evisort can do.
The platform’s machine learning capabilities make it easy to compare clauses across existing contracts to see how they differ from one another. If you need to update older contracts to a newer version of the clause, you can readily identify which specific clauses need to be updated, and you can efficiently prepare and execute updated versions directly in Evisort.
If you need to run the same search again in the future in order to monitor ongoing compliance, there’s no need to start from scratch each time. You can simply save the search and come back to it anytime you need to run it for future contract audits. Evisort excels at eliminating repetitive manual tasks so that you can ensure compliance and focus on strategic decisions.
Ready to learn more about how Evisort can turn your contracts into searchable data and further your ESG and other compliance management goals? Schedule a demo today!