Implementing Green Contracts

Context: An analysis on the scope of green contracts as an institutional tool for Indian corporations to define India’s sustainable growth story.

About green contracts:

• Definition: A type of commercial contracts which mandate that contracting parties cut down greenhouse gas emissions at different stages of delivery of goods/services, including design, manufacturing, transportation, operations and waste disposal, as applicable to the industry.
• Need for green contracts: Demand for an institutional mechanism for sharing (Between consumers and corporations) responsibilities relating to the loss of resources and reduce greenhouse gas emissions.
• Suggested stages of implementation:
  • At the bidding stage: ‘Green tender’ prescribing ‘green qualifications’ can be considered when awarding the contract to a bidder.
    • Green qualifications can range from using a pre-defined percentage of ‘green energy’ in service delivery to adequate on-site waste management etc.
  • Contracting agreement: including detailed ‘green obligations’, which shall be legally binding and enforceable contractual clauses. Contractual clauses may include
    • Providing for the use of good quality and energy­ efficient infrastructure for the production of goods/services,
    • Efforts in day­-to-­day operations such as reducing noise, air and water pollution.
    • Ensuring eco­-friendly means of transportation like bicycles on site, establishing and maintaining a sustainable waste management system.
  • Monitoring: Providing for measurement criteria and audit of the performance of the contractor with penalty provisions for non-compliance.
    • An organisation may also choose to contractually highlight non­performance of such obligations as a ground of contractual breach, with penalty prescriptions.
    • Make sure that they ?ow down to all levels of the supply chain engaged in the delivery of goods and services.

Challenges

• Absence of mandatory rules: With regard to green contracts.
• Higher economic costs: due to lack of effectiveness of methodologies for integrating environmental costs in economic decision-making frameworks.

Conclusion: While the massive levels of production, consumption and disposal of goods and services have their own set of benefits in a post-­industrial society, they have also slowed down the replenishment cycle of limited resources.  Corporations can contribute to cutting down emissions through the process of green contracting.