The Missing Link: Commercial Incentives for Adopting Corporate Sustainability Contractual Assurances

Companies are increasingly expected to address human rights and environmental risks across their value chains, yet many of the contractual assurances envisioned under the Corporate Sustainability Due Diligence Directive (CS3D) are not strictly mandatory. This creates a practical tension: if firms are not legally required to adopt these clauses, what motivates them to do so? Understanding the commercial incentives, ranging from risk mitigation and market access to supply chain stability and reputational gains, is essential to explaining why voluntary uptake may be beneficial. This blog explores those incentives and why they matter for the effectiveness of the CS3D in practice.

Contractual assurances under the recently approved and amended CS3D are an optional tool used to embed Human Rights Due Diligence (HRDD) obligations into contracts, requiring one party to meet specified standards or behaviours. However, extant academic and policy discussions on HRDD contractual assurances have overlooked the commercial realities of contracting, especially the widespread use of standard form agreements and boilerplate clauses. Insufficient attention has been devoted to the fact that firms seldom renegotiate core terms across their supply networks due to efficiency, scalability, and administrative burden. 

Contracts form the links of all value chains. Traditionally, contractual assurances serve to manage risk and protect contracting parties but under the CS3D, HRDD’s ultimate aim is to safeguard third parties, such as employees, contractors, and affected communities, from adverse value chain impacts. By enabling these obligations to cascade through value chains via commercial agreements, the CS3D seeks to promote privately enforceable responsibilities across multiple tiers of suppliers and buyers. The European Model Clauses (EMCs) are designed complement the CS3D’s articles on contractual assurances, offering ready-drafted clauses to support implementation. However, some industry practitioners maintain that these model provisions will not significantly change their existing contracting practices.

This is because a fundamental contradiction exists: contractual assurance is primarily a risk allocation mechanism, which contradicts the broader HRDD objective of fostering shared responsibility, transparency, and remediation. At its core, the CS3D is about sharing responsibility but since it does not mandate contractual assurances, businesses see no obvious reason to adopt them — even so, such motivations are rarely evident in practice, not least because supply contracts tend to be confidential. From such a vantage point, to shift from one‑sided terms to shared‑responsibility provisions or heightened due diligence obligations, raise fears of increased transaction costs, slow negotiations, and undermine commercial predictability. Consequently, well-meaning contractual assurances that bind parties to share the burden of adverse impacts are often formalistic or superficial add-ons, with companies preferring established and familiar approaches than fundamentally restructuring agreements to benefit unknown third parties. This illustrates a gap between regulatory expectations and commercial practice, suggesting that soft legislative recommendations and contractual tools are unlikely to achieve meaningful HRDD.

It is vital to address the underlying commercial incentives for reconsidering risk distribution. By allocating responsibility more evenly in contracts, firms may improve both commercial outcomes and risk management. Highly one-sided clauses tend to prolong negotiations, increase legal costs, and raise the likelihood of disputes, whereas shared responsibility may streamline contracting and reduces friction. It requires firms to look internally at their own capacity for risk and enable suppliers to price more accurately and competitively, as they no longer need to build in extensive risk contingencies or maintain costly safeguards. Over time, this approach could foster trust, transparency, and collaboration, strengthening long-term relationships and creating opportunities for joint innovation. A more balanced allocation of risk also reduces the chance of disputes escalating into litigation, as obligations are more realistic and easier to enforce when things do go wrong. Operationally, shared accountability improves coordination, encourages better information flow, and allows risks to be addressed earlier, leading to more efficient delivery. Supporting a shared-responsibility framework that minimises harm of third parties can also strengthen reputation by signalling fair and ethical contracting practices, which is increasingly important in Environmental, Social, Governance (ESG) -driven commercial decision-making and risk management. 

Considerations for the UK

While the UK has not yet adopted a comprehensive mandatory HRDD regime, recent developments show growing political, business, and civil‑society recognition of the need for robust HRDD frameworks that align with emerging international standards. The House of Lords Select Committee on the Modern Slavery Act, found that the UK had “fallen behind” other jurisdictions and recommended mandatory modern slavery due diligence obligations to align with CS3D. Debates surrounding the Commercial Organisations and Public Authorities Duty (Human Rights and Environment) Bill reflected similar concerns that the UK should introduce binding legal duties covering human rights and environmental impacts across value chains and by aligning with global standards, such as the UN Guiding Principles, would improve corporate accountability, and access to justice for victims. 

While the impulse for alignment with the CS3D is strong, time is not of the essence. The UK should take a considered approach to embedding HRDD in the cut-throat world of commercial contracting and confront the fundamentally important yet underexamined question of commercial incentives in reforming established contracting practices.

Dr Lisa Hsin is a Senior Lecturer in Law at the University of Surrey and an Associate Fellow of the Bonavero Institute of Human Rights, Oxford.