ESG obligations in international commercial contracts: Nature, enforceability and interpretation

Abstract

Environmental, social, and governance (ESG) obligations are increasingly included in international commercial contracts; however, their legal nature and enforceability remain unclear (Joseph & Kyriakakis, 2023). With increasing regulatory, investor, and reputational pressure on multinational enterprises, a key research question is whether, despite the increasing inclusion of ESG clauses, the legal interpretation and enforceability across borders remain to be determined. This paper examines the incorporation of ESG obligations into international commercial contracts, assesses the legal implications, and outlines the challenges related to enforceability. Using a doctrinal, comparative, normative, and practical approach, this paper analyses hard law instruments, such as the Directive (EU) 2024/1760 on Corporate Sustainability Due Diligence and the Modern Slavery Acts, and soft law instruments, including the United Nations Guiding Principles on Business and Human Rights (UNGPs) (United Nations Human Rights Council, 2011) and the Organisation for Economic Co-operation and Development (OECD) Guidelines for Multinational Enterprises on Responsible Business Conduct (OECD, 2023). The findings suggest that enforceability relies on clear drafting, legally binding obligations, applicable legal principles, key performance indicators (KPIs), monitoring and auditing procedures, and mechanisms for non-compliance. The paper concludes that ESG clauses can gain legal enforceability when integrated into a contractual structure. It offers practical insights for multinational enterprises, lawyers, and policymakers by identifying ways to improve contractual enforceability and ensure that business practices are compliant with new transnational sustainability standards.