What is a Supplier Code of Conduct?
A Supplier Code of Conduct (SCoC) is the document in which a company sets out the social, environmental and governance conduct it expects from its business partners. It typically covers human rights, terms of employment, environmental protection and business integrity. It works as a statement of the company’s values — but the question is whether that statement does anything, or whether it remains a declaration without effect.
The vagueness of the language becomes obvious the moment you imagine it in the commercial core of a supply agreement. Picture this clause:
“The parties will work together so that products and services reach the right place at the right time. The aim is an efficient and appropriate delivery process in which flexibility and responsiveness are central.”
In a delivery schedule that sentence would be met with bafflement. Yet language of exactly this kind is common in sustainability documents that deal with serious matters — workers’ rights, environmental impact. Why do we insist on precision about delivery dates and accept vagueness about human rights?
Is a Supplier Code of Conduct a sufficient contractual assurance?
Under the Corporate Sustainability Due Diligence Directive, companies must obtain contractual assurances from business partners to secure compliance with sustainability requirements in their value chains. The directive means active and effective measures, not formal declarations. A contractual assurance can sit within the contract structure, but it must carry concrete terms, consequences for breach and, where appropriate, support for the supplier, if it is to meet the standard of due diligence the directive sets.
Omnibus I narrowed who the directive applies to, but it did not dismantle this architecture. The principles that matter here survived the amendments: responsibility is shared between the parties rather than transferred downward, the buyer’s own role in jointly causing an adverse impact is part of the analysis, costs are shared fairly, and continuous improvement and remediation take priority over zero-tolerance termination. Omnibus I in fact removed the references to an obligation to terminate, codifying exit as a last resort.
So the first question is whether a Supplier Code of Conduct is a sufficient contractual assurance at all. If it stands alone, without more detailed responsible contracting practices attached to it, it is difficult to see the package meeting the requirement.
An SCoC can be legally binding, provided it is expressly incorporated into the contract and clearly referred to in the terms. Often, though, it remains a separate annex or a guidance note with no strong contractual basis. In that case a breach of it does not necessarily entitle anyone to do anything, unless the contract specifies what non-compliance means for the relationship.
How the illusion of responsibility arises
There is already a risk that Supplier Codes of Conduct create an illusion of responsibility: the company appears committed, while its actual measures stay superficial because the requirements are imposed on business partners in general terms. An SCoC is a legally binding annex whose breach may ground termination of a supply agreement — but only where it has been properly built into the contract structure.
The company appears committed to responsibility, while its actual measures remain superficial.
In practice these documents are rarely used to steer the business or to develop supplier cooperation. They are treated primarily as legal risk-management instruments protecting the buyer from liability, without any verification that the principles are realised in the supply chain. Their role stays passive and formal, and they change little.
The directive does not accept a passive approach. A company must take appropriate measures in proportion to the risks it has identified. That means a risk-based approach in which high-risk activities call for stronger monitoring and stronger support instruments — training, audits, joint projects and, where useful, incentives.
This becomes acute where a company settles for an assurance while knowing, from its own risk analysis, that the risk is there. Knowledge of a severe impact on workers in the supply chain triggers the duty to act. Awareness of a risk, without measures, is itself the exposure.
How to make due diligence work in the value chain
Due diligence requires the Supplier Code of Conduct to develop: it cannot remain a detached annex, but must be genuinely tied to contractual obligations and to practical cooperation with suppliers. That means supporting suppliers with training, joint development work and concrete incentives, and building into the contract the mechanisms that allow the cooperation to be assessed and improved continuously, not only when something goes wrong.
Ways to turn a code of conduct into an instrument of practical steering:
- Detailed sustainability clauses in the contract itself — grounded, for instance, in the UN Guiding Principles or the OECD Guidelines.
- Defined remediation mechanisms for breaches of the code.
- Audit and monitoring mechanisms built into the contract.
- Training programmes and joint development projects with suppliers.
- Incentive structures for meeting sustainability targets — a bonus mechanism, or the promise of a longer-term relationship for suppliers that perform.
The directive expects larger companies to engage actively in the sustainability work of their value chains, rather than leaving the burden on smaller suppliers. As part of my doctoral work I wrote, with Anna Hurmerinta-Haanpää, on how contracts can convert sustainability principles into concrete measures and targets.
Where to go from here
The point of this piece is not that a Supplier Code of Conduct is unnecessary. The opposite: it signals the company’s values to its business partners and opens the conversation about what is expected. But a one-directional, general-purpose code is not enough on its own. References to applicable laws and international instruments do not advance due diligence, and they do not protect anyone in the supply chain. As due diligence becomes part of ordinary business, the role of contracts in sustainability changes with it. Without concrete content and practical measures, a code of conduct remains a paper assurance — at best an administrative shield that does not in fact shield the company from reputational risk, at worst an instrument of the illusion of responsibility.
A Supplier Code of Conduct is an important starting point. It should not be the end point. Real responsibility is built through cooperation, contracts and action. If you want to develop your contracts to meet the coming regulation and to build genuine value chain cooperation, get in touch.
// Juho Saloranta, Nexus Legal