Unpacking the Salesforce Sustainability ExhibitArticle
In April 2021, Salesforce became one of the first major companies to publicly announce that their in-house legal team had developed a Sustainability Exhibit, to be added to all supplier contracts. Tried and tested with a handful of suppliers, the Sustainability Exhibit will now be used with all of Salesforce’s suppliers. It formalises requirements with regard to carbon-reduction goals, and the offering of products on a carbon-neutral basis. Salesforce’s target is to at least meet the 1.5-degree Celsius reduction commitment in line with the Paris Agreement.
In addition to setting certain requirements, Salesforce also assists their suppliers on their journey towards becoming a more sustainable business. With these clauses and commitments, Salesforce is successfully addressing its Scope 3 emissions – namely, those resulting from everything outside its operations and energy use.
The Sustainability Exhibit
The Sustainability Exhibit is structured as an agreement in itself; with its own recitals and definitions.
The recitals set the scene for the remainder of the Sustainability Exhibit. From the get-go, both the Supplier and Salesforce commit to the key fact that the environment is an important stakeholder for both. Moreover, the recitals end with the following: “the Parties acknowledge their common intention in the fulfilment of their obligations under their Agreement to mitigate climate change”. This is an important statement, as it means that every single obligation they have under their regular supplier agreement, must be read in light of this Sustainability Exhibit.
An important definition used is ‘Climate Deficiency’, which basically means any major violation of the standards set in the Sustainability Exhibit itself. Any Climate Deficiency is considered ‘ongoing’ if the supplier fails to return to operating at the level as set by the Sustainability Exhibit during the next 12 months.
Climate Remediation Fee
Another section worth highlighting is that of the ‘Climate Remediation Fee’. This is a fee to be paid by the Supplier whenever a Climate Deficiency occurs. There are different kinds of fees involved. If the Supplier’s Climate Deficiency results from their failure to deliver their products/services on a carbon-neutral basis, then the Climate Remediation Fee will be equal to the cost of the carbon credits that must be purchased to offset the lack of carbon neutrality. This fee will be destined to go to Cool Effect, Inc., or the Gold Standard Foundation. For any non-carbon neutral-related Climate Deficiencies, the Climate Remediation Fee will be 0.5% of the fees paid by Salesforce to the Supplier during the last 12 months. In this last case, the fee can be paid to either two of the above recipients, or any tree planting project listed here.
Salesforce has also included a variant of the green termination clause in its Sustainability Exhibit. In Salesforce’s case, the clause gives them the right to terminate the contract with the Supplier if the Supplier’s environmental practices or impacts could have a negative effect on Salesforce’s reputation.
It would have been nice to see Salesforce go beyond reputational motivators here. In effect, the Supplier may still freely negatively impact the climate, as long as Salesforce’s reputation is not harmed, and the Suppliers pays a fee to a tree-planting initiative. Using green termination as a remedy, rather than relying on the remediation fee, would have been much more impactful. Especially with a massive and well-known company such as Salesforce, Suppliers are highly motivated to maintain their contracts with Salesforce.
When considering the research that planting of trees is not sufficient to offset carbon emissions, it makes even less sense have the Climate Remediation Fee as your only remedy. Namely, if we “maximised the amount of vegetation all land on Earth could hold, we’d sequester enough carbon to offset about ten years of greenhouse gas emissions at current rates. After that, there could be no further increase in carbon capture”.
Overall, the Sustainability Exhibit is a massive step in the right direction. Major companies trying to make their value chains more environmentally friendly by correctly using legal obligations is very much needed. Yet, especially when hailed as ground-breaking, these contractual arrangements should also be scrutinised to avoid thoughtless copying by other companies.