Can ESG Outcomes Be Enforced Through Commercial Agreements and Sustainability-Linked Finance?

Corporations now face a climate reality in which sustainability is integral to enterprise value, the cost of capital, and long-term revenue resilience. Traditional voluntary pledges have given way to legal and contractual obligations that tie climate performance to financing costs, procurement terms, and supply chain execution. 

Embedding Environmental, Social, and Governance (ESG) outcomes directly into commercial agreements creates enforceable incentives that help organisations align business performance with science-based climate goals. These clauses extend beyond reporting rhetoric to influence decisions that materially affect emissions outcomes. 

The rapid expansion of sustainability-linked financing and renewable energy contracting illustrates how ESG metrics now shape commercial risk and opportunity. 

Sustainability-Linked Finance: A Structural Contract for Climate Performance 

Companies increasingly embed climate performance targets into debt instruments. Sustainability-Linked Bonds (SLBs) and sustainability-linked loans adjust financial terms based on whether predefined environmental targets are achieved. By benchmarking key performance indicators (KPIs) and sustainability performance targets (SPTs) within bond covenants, issuers commit to measurable decarbonisation action. 

Enel, the multinational energy group, pioneered this model. It issued one of the earliest SLBs tied to renewable capacity and emissions targets, committing to increasing the share of renewable energy in its installed capacity. These performance targets are embedded in its Sustainability-Linked Financing Framework, aligned with the International Capital Market Association’s Sustainability-Linked Bond Principles, and verified annually against pre-set KPIs. The framework covers renewable energy capacity, emissions reduction, and other climate indicators with financial characteristics tied to performance outcomes. 

Luxury goods company Chanel also integrated ESG outcomes into its capital structure by issuing a €600 million sustainability-linked bond tied to climate goals validated by the Science-Based Targets initiative. Performance indicators include reductions in absolute Scope 1 and Scope 2 greenhouse gas emissions, progress on Scope 3 emissions, and increasing renewable electricity use in operations. These targets align with the company’s broader “Mission 1.5°” climate goals and trigger financial consequences if performance thresholds are not met.  

According to the International Capital Market Association, sustainability-linked instruments, which enforce contractual climate objectives, have grown as capital market tools used by companies to align financing costs with measurable ESG achievements. Embedding climate performance into finance aligns investors and corporate management around measurable targets and ensures capital providers can price risk associated with transition execution. 

Power Purchase Agreements: Contracting Renewable Energy at Scale 

Long-term Corporate Power Purchase Agreements (PPAs) now serve as key climate contracting tools that allocate renewable energy risk and finance to project developers while enabling large buyers to decarbonise operations. 

Amazon contracted enough renewable energy capacity to reach its goal of matching 100% of its electricity consumption with renewable energy in 2023, seven years ahead of its original 2030 target. The company became the largest corporate purchaser of renewable energy globally, with numerous long-term wind and solar offtake agreements.  

Google institutionalised its approach to renewable energy by committing to operate on 24/7 carbon-free energy by 2030, backed by long-term PPAs across markets. These contracts provide price certainty for project developers and ensure contracted clean energy volumes support hourly decarbonisation ambitions.  

These contractual arrangements reduce merchant risk for renewable developers, allowing project financing at competitive terms. They also embed data-reporting terms and delivery guarantees tied to energy production, directly linking a corporate buyer’s climate goals to commercial obligations. 

Supply Chain Climate Contracts Drive Scope 3 Accountability 

Supply chains typically account for a large share of corporate emissions. Independent reporting platforms and climate analysts estimate that Scope 3 emissions often exceed a company’s direct operational emissions, underscoring the importance of supply chain contracting for meaningful climate progress.  

Microsoft’s internal carbon fee model and supplier engagement policies require vendors to report on greenhouse gas emissions and decarbonisation progress as part of procurement and supplier code standards. The company has pledged to become carbon negative by 2030 and eliminate its historical emissions by 2050, leveraging contractual supplier engagement mechanisms and fee structures that allocate climate risk back to business units and external partners.  

Apple has required its major manufacturing partners to transition their Apple-related production to 100% renewable energy by 2030 and to report annual emissions data. This requirement is reflected in Apple’s supply contracts and procurement standards, reinforcing climate accountability deep across the value chain.  

Embedding emissions reporting, renewable energy requirements, and reduction obligations into supplier contracts creates enforceable benchmarks that influence decisions on capital expenditure, energy sourcing, and operational performance. 

Real Estate and Infrastructure: Leasing and Management Contracts that Drive Climate Outcomes 

Commercial real estate is increasingly embedding sustainability performance targets into leases and management agreements. These clauses require energy data sharing, efficiency improvements, and climate performance metrics over the life of a lease or investment. 

In the United Kingdom, the Better Buildings Partnership’s Green Lease Toolkit provides standardised contractual language that allocates energy and sustainability obligations between landlords and tenants. Major property owners have adopted these provisions to support net-zero targets and align the incentives of lease parties with climate performance.  

Asset managers with extensive real estate and infrastructure portfolios are integrating similar provisions into asset-level agreements. These clauses support granular data collection, energy performance targets, and scheduled upgrades to meet decarbonisation goals, helping institutional investors manage climate risk in long-duration assets. 

Data, Verification, and Legal Enforcement: Anchoring ESG Contracts to Climate Science 

Embedding climate goals into contracts requires robust measurement and verification frameworks. Corporate agreements increasingly reference standards such as the Greenhouse Gas Protocol for emissions accounting and the Task Force on Climate-related Financial Disclosures for reporting transparency. These frameworks provide consistency in target setting and verification timelines. 

Contracts now include specific reporting obligations, independent assurance requirements, and performance schedules tied to legal triggers, ensuring that climate commitments remain actionable and auditable. 

Conclusion: Legal Architecture as a Lever for Climate Performance 

Embedding ESG outcomes into commercial contracts ensures that climate strategy transcends public commitments and integrates with the mechanisms that govern capital, procurement, supply chain performance, and operational risk. From sustainability-linked finance to renewable energy offtake agreements and supplier climate obligations, these contractual structures anchor corporate behaviour to measurable environmental performance.  

For organisations navigating transition risk and stakeholder expectations, the evolution of ESG contracting represents a critical capability for long-term resilience and climate leadership.