Transnational Private Regulation of Environmental Sustainability through Commercial Contracts. Reassessing Contractual Governance in Global Supply Chains

Abstract Sustainability standards are integrated and applied in global supply chains through transnational commercial contracts that have come to play a regulatory function in addition to the conventional exchange task. The design of the architecture of contracting, the coordination among contracts, and the content of sustainability terms along the chain is the result of the cooperation of different actors, led by one or more transnational corporations. The paper describes the distribution of private regulatory power according to the structures of the chains- hierarchical, relational, market -and its impact on the compliance with sustainability standards. It considers the qualification system that regulates entry, exit, and permanence in the chain and the Suppliers codes and General principles of sustainability specified in the general terms and conditions. These represent complementary direct and indirect private regulatory instruments that can be deployed to ensure compliance. The choice of instruments depends on the distribution of regulatory power among the private actors and their exercise. Privity of contract makes it often difficult if not impossible direct regulation by the chain leader and obliges decentralization of regulatory power. The analysis shows that only the complementarity between the two sets of instruments enables control of compliance in complex chains whose actors operate across different jurisdictions with the use of sanctioning and remedial powers. The article analyzes how 26 principles of effectiveness, proportionality and dissuasiveness may contribute to a fair and non discriminatory exercise of private regulatory power related to the implementation of sustainability standards through contracts.