The 29th Conference of the Parties (COP29) is approaching. This year, businesses face mounting pressure to demonstrate their sustainability efforts and prove the credibility of their environmental initiatives. The urgency is underscored by a 2023 study by the European Commission, which found that over 53% of environmental claims made by companies in the EU were potentially misleading or unsubstantiated. These claims were often characterised by vague, false, or exaggerated statements about their products’ environmental attributes. This troubling trend highlights the pressing need for organisations to shift from mere promises to verifiable actions. AI in contracting offers a potential path forward. It may enable businesses and their suppliers to uphold their commitment to ESG (environmental, social, and governance) obligations and policies.
The Greenwashing Problem
The pressure to demonstrate genuine environmental responsibility has never been higher. For example, the UK’s commitment to achieving net zero by 2050 and the Financial Conduct Authority’s (FCA) new Sustainability Disclosure Requirements emphasise the need for businesses to deliver on their environmental promises and mandate demonstrable impact or risk hefty fines and reputational damage for greenwashing claims.
The regulatory landscape is evolving rapidly. More and more, businesses must prove that their commitments are not merely superficial but deeply integrated into their operations. Scrutiny from regulators, investors, and consumers is increasing. Businesses that fail to meet these expectations risk being labelled as irresponsible or untrustworthy.
Navigating ESG with AI
Contracts are the backbone of financial transactions and obligations between businesses and their suppliers. Research indicates that 70% of executives see contract language as an effective tool for enforcing ESG standards. However, only 30% of businesses embed ESG language into their contracts. Many cite the complexity of managing these commitments at scale as the reason why. This gap presents a significant challenge for businesses aiming to navigate ESG pressures effectively. So, how can businesses successfully demonstrate their sustainability efforts?
By structuring and connecting contract data with core systems across the enterprise, and applying AI, businesses can unlock insights and ensure that what’s agreed to in the contract is carried out in the real world. We call this contract intelligence.
For example, AI can analyse thousands of contracts to capture which suppliers have agreed to carbon reduction targets, identify contracts that require updates to comply with new regulations, and pinpoint risks that may result in bottom-line impact. Through contract intelligence, organisations can make data-driven decisions that enhance their sustainability efforts. Suppose a supplier commits to a 20% reduction in carbon emissions. AI connects to core systems that monitor and track actual carbon emissions data. It can trigger alerts about missed milestones, and activate contract workflows if the data conflicts with the supplier’s contractual obligations. This positions businesses to remediate inaction or enforce penalties specified in the agreement.
Key Benefits of AI-Powered Contract Intelligence for ESG
As environmental responsibility becomes non-negotiable, AI-powered contract intelligence will be the backbone of any serious sustainability strategy. This technology offers the transparency, accountability, and efficiency needed to turn COP29 pledges into measurable progress toward a more sustainable future. Key benefits include:
- Enhanced Compliance: AI-powered contract intelligence enables organisations to enforce standardised sustainability requirements across their entire supplier network, ensuring that all suppliers adhere to the same environmental criteria.
- Real-time Monitoring: Businesses can track progress toward sustainability goals in real-time through contract management and connected data. Through automated alerts for missed milestones, this level of oversight empowers businesses to meet their obligations and hold their suppliers accountable.
- Address Regulations: When new environmental standards take effect, AI in contracting can take compliance to the next level by analysing existing agreements and inserting standard ESG clauses that adhere to new mandates, making them contractually enforceable.
- Report on ESG Goals: As scrutiny on environmental claims increases, AI uses contract data to streamline the process of tracking and reporting on ESG goals required by regulators, investors, and other stakeholders. This also helps businesses verify contractual responsibility.
A New Era of Environmental Accountability
The message for COP29 is clear. The era of unverifiable environmental claims is coming to an end and the stakes for businesses have never been higher. Organisations can no longer rely on vague ESG commitments. Instead, they must demonstrate genuine accountability through actionable data and robust compliance measures as expressed in contracts. Embracing AI-powered contract intelligence not only allows businesses to navigate the complex landscape of ESG obligations but also positions them as leaders in sustainability.
By leveraging AI insights, businesses can effectively monitor compliance, enforce sustainability standards, and respond rapidly to regulatory changes. This proactive approach empowers companies to better manage their business relationships while driving a positive impact across their supply chains. As the demand for transparency and accountability grows, businesses that successfully implement contract intelligence will distinguish themselves in their industry, attracting customers and investors who prioritise sustainability.
