ESG and CLM: How they partner for organizational success

How do different departments within an organization benefit from ESG compliance and how does this create a competitive edge? Read on to find out more.

ESG and CLM – two very common acronyms in the business world yet they seem worlds apart. How can a Contract Lifecycle Management system possibly assist Environmental, Social, and Governance efforts? George Serafeim shares fantastic insights on the value of social impact in his Harvard Business Review article. But how do you make these insights a reality in a business? One place to start is by leveraging your CLM to help deliver this value through contracts.

PwC outlines a few ways to measure ESG compliance so you can find those results. If you take a sampling of each of the areas PwC defines, you can easily see how contract data can help with these measurements. But that’s more about the what, let’s talk about the how.

Much of the measurable data you’re seeking is inside all the contracts stored in your repository. Organizing the contracts themselves would be a tedious task and then how do you easily extract that data so that it’s usable? Here’s where CLM meets ESG. The data in contracts has for too long been considered something to be created, get signed off on, highlight a couple of obligations to maybe track, set it and forget it. This is not broad enough thinking. Imagine contract data becoming the one source of truth for many different departments in your organization. There would be no more delays in requests for information, each department could work within their own known applications through proper integration, and there would be only one source of data that everyone pulls from – contract data. Contract data holds all the goodness for any business. Every relevant piece of information can be extracted and made available on its own, and as a broader blueprint of the organization’s credits and debits.

How would different departments get the ESG benefit that they’re seeking from a CLM?

A CLM system can help ensure that each contract reflects corporate ESG goals. You can use a clause library with AI assistance to find contracts that need to be updated with new ESG language. AI redlining provides the capability to suggest proper ESG-compliant wording from your clause library when drafting.

According to Christine Uri, prominent ESG Consultant, “In-house legal departments are critical to ensuring that companies meet their ESG goals and obligations. By integrating ESG requirements into contracts, in-house teams can build a measurable legal framework for ESG targets.”

If you automate the closing of a contract with pre-defined, approved, and required ESG language, you can avoid mistakes in ESG language. The speed of business can be increased with this CLM capability and other features such as real-time collaboration and automated e-signature workflows, no matter how intricate.

With the CLM integration into other operational systems, you can automate the monitoring of ESG compliance as defined within your different policies and contracts. This mitigates the risk of non-compliance for a variety of vendors, suppliers, and partners that would possibly impact your ESG credibility.

With contract metadata centralized and accessible, extensive reporting and analysis can reveal any issues in historical contracts and provide confirmation of progress toward goals. This lowers the risk of invisible or unexpected problems that could pop up during an audit or investigation.

Combining your ESG goals and your CLM capabilities, will provide a competitive advantage by enabling you to:

  • prove, through data, that you are ESG compliant in ways that matter to stakeholders.
  • attract a broader pool of investors that are focused on sustainable and responsible investing.
  • benefit from the increased access to capital and lower borrowing costs available to companies with strong ESG performance.
  • proactively address ESG concerns and stay ahead of the regulatory requirements, reducing the risk of non-compliance.
  • increase revenue by attracting consumers who are seeking products and services that are environmentally conscious and socially responsible.

Look at your contract data in a new light with ESG compliance as a competitive differentiator. All you need to do is centralize your contract data in a fully capable, end-to-end CLM solution.

If you’d like to know more, please join us on March 14th for How to Guarantee ESG Success as a CLO.

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