dwt monthly cle series greening the supply chain january 11, 2012 haeryung shin and stephen ellis
TRANSCRIPT
DWT Monthly CLE Series
Greening the Supply Chain
January 11, 2012Haeryung Shin and Stephen Ellis
Why are we here?
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REI Dell Amazon
Exxon Mobil Walmart Proctor & Gamble
Pop Quiz
REI Dell Amazon
Exxon Mobil Walmart Proctor & Gamble
At __________, we know that being an efficient and profitable business and being a good steward of the environment are goals that can work together. Our broad environmental goals are simple and straightforward:
To be supplied 100 percent by renewable energy; To create zero waste; To sell products that sustain people and the
environment.
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Trends
2004
Number of publicly tradedU.S. companies with achief sustainability officer
1
2011
Number of publicly tradedU.S. companies with achief sustainability officer
29
“[W]e estimate that half of all shareholder resolutions in 2011 will center on social and environmental issues.”
Ernst & Young
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How’s Walmart Doing?
• To be supplied 100 percent by renewable energy
65% improvement in truck fleet
efficiency
Pledge to remove 20 million metric tons of GHGs from supply chain by 2015
Installed LED lighting in 350 store parking lots
in Central America
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Walmart from 2005 to 2010:
• To create zero waste
Eliminated> 80% of landfill waste from operations in California
Reduced47.95 million pounds of plastic bag waste globally
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Walmart from 2005 to 2010:
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• To sell products that sustain people and the environment:
Pledge to sell $1 billion of food sourced from 1 million
small- to medium-sized farms
To train 1 million farmers in sustainable techniques
Can I Ignore this?
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ANSWER:
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Integrated Manufacturing Model
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Supply Chain Management Model
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Common Fact Pattern
Acme makes Widgets …
… which it sells to Big Box retailer.
Widget
Buster
Chen
Acme uses two principal suppliers:
Buster, a US companyand Chen, a Chinese OEM
Chen supplies 90% of the Widgets. Acme then assembles the Widgets in the U.S. by combining one or two critical components supplied by Buster with Chen’s output.
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Green Supply Chain Contracts:A Few Practical Legal Provisions
Define your terms
State your intent
Use technical specifications and performance standards
Sustainable processes
Inspection and audit rights
Specific enforcement and damages
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Define Your Terms
Goals of contract are to allocate risk and define obligations.
Clearly define terms such as “Sustainable,” “Green,” and “Recycled.” For example:
To do otherwise is to ensure ambiguity.
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Rules of Construction
The default rule of contractual construction is that it is construed against the drafting party.
Consider providing your own contract construction rule.
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Technical Specifications and Performance Standards
OEMs are accustomed to meeting technical specifications.
Use specifications to require finished goods to meet client’s sustainability requirements.
Examples Require that lead is not be included anywhere within the product or its accessories (power cords, etc.)
Require that finished products to contain stated percentages of recycled materials
Require paperless ordering
Require suppliers to minimize packaging or to use recyclable packing materials
Require supplier to recycle or compost excess or waste material
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Improving Sustainability
Many OEM agreements require manufacturers periodically to suggest ways to lower costs.
Consider requiring the manufacturer periodically to suggest improvements in the product’s sustainability.
To do so, create a “sustainability profile” and include a process to enhance the sustainability profile.
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Language for Sustainability Profile
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Inspection and Audit Rights
How much policing do you want to ensure contract requirements are being met?
You could do without audit or inspection rights, but we believe the better practice is to include them.
Such provisions aren’t always popular.
How will you know if your supplier is complying with the contract if you don’t include these rights?
Similar to standard product or factory inspection provisions, with an emphasis on issues of sustainability.
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Relief for Breach – Part 1
The question of remedies is the most difficult legal issue.
Contract termination is always a possiblity, but is it desirable?
Specific performance may be possible in some jurisdictions.
If a supplier’s breach causes Acme to lose the Big Box contract, there are measurable damages but be careful with usual limitation of liability clauses customarily used in the US.
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Relief for Breach – Part 2
How do you measure monetary damages if only the environment is harmed? Can you legally claim damages in this situation?
Liquidated damages may seem an obvious answer, but liquidated damages need to be “reasonable” in light of client’s possible damages.
Learn to include creative damages provisions in your contracts.
We believe this will become an area of law which must “evolve”.
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Is This Far Fetched?
Funny honey?
California Transparency in Supply Chains Act of 2010
Notes on the FTC Green Guides
General environmental benefit claims
Green certifications and seals of approval
Degradable Recyclable Made with renewable
energy
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When you get back to the office …
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Inventory of your company’s current practices across factors like carbon emissions
• Have they implemented green requirements for vendors? • How would you score on those requirements? • How could you improve your score?• Would incorporating green contracting provisions into your upstream supply chain contracts improve your score?
Research your biggest/dream customer and answer
Consider whether it’s time to bring your green marketing materials into line with current/anticipated revisions to the FTC Green Guides
Thank you!
Haeryung ShinOf Counsel
Chair, Clean Technology [email protected]
206.757.8144 direct
Stephen C. (Steve) EllisPartner
[email protected] direct
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