The challenge with traditional contracts

If you look at many supplier contracts used by most tea companies, you will find that they are still primarily commercial documents; pricing, volumes, quality specifications and delivery terms are set out in detail. The human rights and environmental obligations, if they feature, are compressed into a clause requiring the supplier to adhere to a code of conduct and guarantee that no issues exist in their operations. Any deviation from this and the buyer reserves the right to cancel orders, freeze payments or take their business elsewhere. This approach has been standard practice for decades, but it is one that companies are beginning to recognise as counterproductive.

Traditional contracts appear logical and sound on the surface; you set expectations for your suppliers and exit if they fall short of these. However, when a supplier knows that disclosing a problem risks losing business, it is unsurprising if they choose to stay quiet or even conceal challenges. It is even less surprising given that traditional contracts hold suppliers solely responsible for addressing human rights and environmental issues, for which they often don’t have the resources or know-how to deal with. These power dynamics and lack of trust mean the buyer often ends up with a picture of their supply chain that bears little resemblance to reality.

This dynamic is particularly acute in tea, where workers in tea-growing regions are among the most vulnerable in any global commodity sector. In some cases, pass-or-fail approaches to compliance and certification can make transparency harder, because suppliers may fear that disclosing problems will trigger commercial consequences rather than support. Add to this the pressure on producers to stay price competitive in a market where margins are already thin, and you have suppliers that are neither incentivised nor equipped to disclose and address the issues that buyers contractually require them to resolve.

Contracts are not a shield against liability

The question of liability is also more complicated than traditional contracts imply. Human rights and environmental due diligence (HREDD) is not a box that can be ticked by inserting a clause. It requires a consistent, ongoing flow of accurate information through the supply chain and collaboration on addressing issues, both of which require trust.

A contracting model that punishes disclosure does not reduce the buyer’s exposure to supply chain risks; it increases the likelihood that problems emerge later, likely in a more damaging form in both scope and severity, when the options for early prevention or intervention have passed. Buyers may find themselves facing litigation, costly remediation measures and reputational damage that could have been managed or avoided.

Responsible contracting is a different approach. Instead of placing all obligations on the supplier, it sets out a shared commitment (between the buyer and supplier) to identify, prevent and address human rights and environmental risks together. Importantly, it also turns the lens on the buyer. How a company purchases, such as the prices it pays, the payment terms it sets, the notice it gives when changing orders, directly affects a supplier’s ability to invest in better practices and uphold the standards expected of them. Contracts that support responsible purchasing practices and collaborative HREDD can help create the conditions for better risk management, more credible due diligence and better outcomes on the ground. [link to more info on RCs]

The regulatory context

The regulatory environment is also now reinforcing the importance of contracts. For example, the EU has introduced the Corporate Sustainability Due Diligence Directive (CSDDD), which came into force in July 2024, . While its timing and scope have since been adjusted through the EU’s simplification process, the core point remains: companies are expected to use effective, proportionate measures to identify and address risks in their chains of activities, and contracts are one of the tools available to support that work.

More broadly, the German law (Supply Chain Due Diligence Act  – LkSG), international standards such as the UN Guiding Principles and OECD Guidelines, and forced labour and reporting rules in key markets all point in the same direction: companies need contracts and purchasing practices that support effective due diligence, not just paper compliance.

This is not only relevant for companies that fall directly within the scope of EU and other global due diligence regulations. Suppliers, intermediaries and smaller businesses that need access to European markets will increasingly be asked by investors, lenders, and customers to show that they can support credible due diligence and responsible business conduct.

How the Tea Model Clauses can help

The Tea Model Contract Clauses (TMCs), developed by the Responsible Contracting Project in collaboration with ETP, were designed to help tea companies make this change. The clauses are intended to provide guiding principles to ETP members and other actors operating across the tea sector – in particular the growing number of tea enterprises that seek to distinguish themselves as responsible actors.

The TMCs are built around three core ideas: shared responsibility for due diligence, responsible purchasing practices, and a remediation-first approach in which the priority is to address harm and its root causes, with exit used only as a last resort. The TMCs also include specific protections for smaller producers, recognising that the burden of compliance usually falls disproportionately on those with the least capacity.

The TMCs are not a template to be copied and pasted wholesale but a flexible toolkit, from which users can select and adapt the clauses to specific supply chain relationships and contexts. They are designed primarily for direct purchasing relationships. Where tea is sourced through auctions or other intermediaries, the same principles still matter, but companies may need to apply them through leverage, engagement with auction houses and brokers, and, in some cases, collective action.

Adopting at least one TMC is an ETP membership requirement by Q1 2027. However, the companies that engage early will be best prepared, not only for evolving legal and third-party  expectations, but also the practical work of building more stable, transparent and responsible supply chain relationships.