Sustainability runs on agreements

• In September 2020, the World Economic Forum, in collaboration with the Big Four accounting firms, announced the world’s first common reporting framework for environmental, social and governance (ESG) standards, significantly accelerating momentum around the UN’s Sustainable Development Goals

• Against this backdrop, modern systems of agreement, long enablers of the paperless office, are increasingly powering the low-carbon shift to virtual work and the distributed enterprise

• And they can do more: sustainability, like business, runs on agreements. Modern systems of agreement give organisations the tools to enshrine their sustainability agendas in contracts and monitor compliance, keeping them accountable

• That’s agreeing more sustainably—and coming to more sustainable agreements

A call to action

In September 2020, the World Economic Forum’s International Business Council (IBC), in collaboration with the “Big Four” accounting firms Deloitte, EY, KPMG and PwC announced the world’s first common reporting framework for environmental, social and governance standards, urging all members to measure and disclose ESG performance in their mainstream annual reports.

The framework, which defines a core set of “Stakeholder Capitalism Metrics,” helps solidify commitments the IBC secured in 2017 from 140 of the world’s largest companies to align their corporate values and strategies with the United Nations’ Sustainable Development Goals (SDGs). With less than 10 years left to achieve the SDGs, and as sanitary, economic and environmental crises converge, business leaders are setting increasingly ambitious sustainability targets—and holding themselves publicly accountable.

The role of digital agreements

Change has proved difficult for many. A report by Bain and Company finds that just 2% of sustainability programmes achieve or exceed their goals, with 81% “settling for dilution of value and mediocre performance.” 16% fail to deliver altogether, producing less than 50% of expected results.

How to move the needle? According to Bain, the most crucial step is “making clear public commitments with quantitative targets.” But this is just the beginning. In order to effect real change, sustainable organisations “hardwire” sustainability into:

• Processes

• Accountability systems

• Incentives

This means incorporating ESG metrics into investment decisions, tying them to executive compensation—and of course, writing them into agreements.

Business runs on agreements, and an increasing number of businesses are codifying sustainability commitments in the same way they codify commercial commitments: in contracts. EcoVadis, the world’s largest provider of business sustainability ratings, finds that 70% of buyers, and 80% of suppliers, have signed a contract that includes an ESG clause. 41% of the latter group raised awareness of ESG issues as a result, and another 38% implemented concrete actions, hinting at significant potential for better performance. But many ‘green’ agreements still suffer from challenges of verification and enforcement.

Digitalisation helps close this gap. A modern system of agreement, the collection of technologies and processes organisations use to prepare, sign, act on, and manage agreements, not only drives resource efficiency by moving business processes to the cloud (agree more sustainably)—it also helps organisations drive transparency and compliance across the supply chain (more sustainable agreements).

Paperless, distributed, accountable

Modern systems of agreement underpin the rise of paperless, distributed, and accountable organisations.

E-signature has long been an enabler of the paperless office. Since 2003, Docusign has helped replace over 20 billion sheets of paper, saving an estimated 2.5 million trees, 9.5 billion litres of water, 0.9 billion kilograms of CO2, and 64 million kilograms of solid waste in the process. Today, as COVID-19 accelerates the shift to virtual work, modern systems of agreement increasingly power the shift to the distributed enterprise.

What is a distributed enterprise?

Distributed enterprises connect their systems of agreement to systems of record like CRM (customer relationship management), HCM (human capital management), and ERP (enterprise resource management), and digitise not just agreements, but end-to-end processes: 

• not just sales contracts, but account provisioning 

• not just employment contracts, but employee onboarding

The impact goes beyond ‘just’ telecommuting, which by itself may save 3.2 tonnes of CO2 per employee per year. Distributed enterprises can fundamentally reduce their need for business travel of all kinds, as well as their need for office space, customer-facing locations, and on-premise data centres (often improving customer experience along the way, as banks have done with digital branches).

Carbon emissions, waste, and even equal employment opportunity improve as a result. A recent United Nations roundtable hosted by Salesforce’s Chief Digital Evangelist Vala Afshar and VP of Customer & Market Insights Karen Magia found that the UN “believes 14 of their 17 Sustainable Development Goals can be solved or advanced through virtual work.”

That’s agreeing more sustainably. What about more sustainable agreements?

Modern systems of agreement give organisations the tools to enshrine their sustainability agendas in contracts and monitor—and even ‘automate’—compliance, keeping buyers, suppliers, and suppliers’ suppliers accountable.

With a modern system of agreement, businesses can design agreement templates, clause libraries, and AI-assisted review protocols around sustainability. They can automate reporting and trigger incentives by monitoring connected objects in the real world (what if a coworking operator could monitor carbon sensors in a building—and automatically trigger a contractual penalty if CO2 levels were too high?). And they can use AI to parse sustainability obligations, flag non-compliance, and develop best practices (see this article on decarbonisation and contract analytics by Ashley Norton, Customer Success at Docusign).

In short, modern systems of agreement help organisations prepare, sign, act on, and manage ‘green’ agreements in much the same way as ‘other’ agreements.

The result could be a higher share of contracts with best-practice sustainability clauses, a higher share of sustainability objectives met, and, ultimately, real improvements to metrics like carbon productivity—the volume of carbon employed per unit of GDP (the private sector accounts for as much as 46% of greenhouse gas emissions in the U.S., with 50-70% of that figure coming from supply chains).

Some organisations are already ahead of the curve. Consider the example of a leading aerospace manufacturer working towards ‘zero waste’ in its turbine supply chain. The manufacturer purchases raw materials such as titanium, and transfers them to second-tier suppliers for transformation into finished turbine blades used in engine production. In order to improve circularity, the manufacturer includes waste reduction incentives in its supplier contracts—but has had difficulty keeping track of contractual obligations.

With Docusign AI, the manufacturer uses natural language processing to analyse hundreds of agreements automatically. It can ensure supplier contracts include up-to-date ESG language, and that obligations are being tracked and managed accurately: that audits are conducted on the agreed schedule, and that incentives are applied—or revoked—as appropriate. Moreover, by making contract data more structured and accessible, the procurement team was able to develop best practices for transfer into other purchasing areas.

And this manufacturer is not alone. Today, organisations in industries as varied as energy production and furniture retail increasingly use Docusign to keep themselves and their partners accountable to requirements such as responsible sourcing, carbon offsetting, and fair labour practices.

As business leaders work to implement the UN’s sustainability agenda, reporting standards, technologies (see SAP’s carbon accounting system or Salesforce’s Sustainability Cloud), and business models (see Continental’s €4B green credit agreement) are converging to better address the sustainability imperative. Agreement clouds will help connect ESG targets to outcomes.

If you have any questions on creating a sustainable agreement process, contact our experts. 

Author: Andrey Muntyan, Value Engineer, EMEA.