The contract that changed the world?

Who knew supplier contract clauses could prove so interesting? But BT’s new five year contract with telco technology giant Huawei is not just interesting, it is a potential game-changer, an emissions-saving behemoth that all businesses, large and small, should consider.

Exclusively revealed by BusinessGreen today, the ‘world first’ clause that BT incorporated in its 2016 contract with Huawei requires the Chinese technology powerhouse to review the carbon performance of its own supply chain and then deliver emissions savings. With initial and understandable reservations overcome, the forecasted results are remarkable.

By simply including the clause and asking about progress at every supplier meeting BT has helped unlock all the energy and carbon-saving investments in Huawei’s supply chain that all parties should have been making anyway. As a result, more than 130,000 tonnes of carbon dioxide are expected to be saved over the course of the contract and the firms in the supply chain have cut their energy costs by an average of eight per cent.

Crucially, the savings have been delivered through investments, primarily in energy efficiency, which have delivered paybacks in less than 18 months. No one has been forced to make capital-stretching investments by a swaggering multinational customer, they have simply been nudged to make sensible run-of-business investments they should have been making anyway and which enhance their competitiveness.

The emissions savings are set to be so significant, they should actually exceed the original carbon footprint of the products BT has ordered. Everyone ends up benefiting through a combination of environmental, reputational, energy, and financial benefits.

It is easy to see why BT is now talking about extending the clause to 20 to 30 of its main suppliers, just as it is easy to see why those suppliers would be wise to accept the clause.

But what is more exciting here is the precedent it sets. One of the biggest challenges faced by efforts to tackle climate change is the cultural and institutional inertia that blocks or delays investments in the low-hanging fruit of decarbonisation – the energy efficiency and low cost renewables projects that still don’t proceed at scale even when they offer compelling returns on investment.

As Caroline Hill of Landsec explained to me recently, even in real estate, a sector where properties are built to last a century or more and investors are seeking long-term stable returns, there is “a lot of low hanging fruit” that has a pay back of one to two years that is still not being picked. LED lighting is the most obvious example, but there are others, such as building controls, insulation, and even well-located renewables that should be a no-brainer for any business. And yet, while all these technologies are making progress, an underlying market failure means deployment is not as rapid as it should be.

It is against this backdrop that BT’s use of a simple supplier contract clause is so important, so welcome, and potentially so revolutionary. By flexing its muscles as a major customer it has the ability to act as the trigger that forces multiple businesses to look at the emission saving investments that already make sense. It can have a multiplier effect far beyond its organisation. It can scale emissions savings and clean tech deployment, and all in a way that benefits its suppliers, partners, and customers.

At a time when the world urgently needs to accelerate the pace of emissions reductions, the identification of the trigger points where you can deliver exponential savings is of absolutely critical importance. Supplier contracts are one such area, green procurement rules, green finance requirements, and the new Taskforce for Climate-related Financial Disclosures are others, where an outwardly arcane mechanism can have an outsized impact on business models and emissions savings. Anyone interested in tackling climate change needs to urgently identify these trigger points and push hard against them.

Imagine a scenario where measuring and cutting carbon emissions becomes a standard clause in supplier contracts from all those multinationals who have vocally committed to supporting the Paris Agreement. Imagine if those big businesses then properly enforced that clause.

Millions of businesses would have to respond to the risk of losing favour with their largest customers. They would quickly recognise that the clause was not a burden, but a means of delivering cost savings and boosting competitiveness. Banks would flock to offer green finance in support, confident in the knowledge the suppliers were set to reduce costs and cement a contract with key customers. The surge in demand for clean technologies and resulting economies of scale would force costs down still further. The economic and environmental benefits would quickly snowball, and all thanks to a simple contract clause.

It turns out supplier contract clauses are not just interesting, they might even save the world.

Source: https://www.businessgreen.com/bg/blog-post/3026823/the-contract-that-changed-the-world