The Responsible Investor Model Clauses (RIMCs)
Consultation Open for the Responsible Investor Model Clauses (RIMCs) Zero Draft
RCP, in conjunction with the Responsible Investor Model Clauses (RIMCs) Working Group of the American Bar Association (ABA) Business Law Section’s Corporate Sustainability Law Committee (SCL) and in collaboration with the UN Principles for Responsible Investing (PRI), is launching a consultation to receive feedback on the Zero Draft of the RIMCs, a set of model contract clauses to operationalize human rights and environmental (HRE) policies in investment documentation.
The RIMCs, which are editable and modular, provide guidance to members of the investment community on how to integrate HRE performance goals directly into their agreements. While the general audience is diverse, the RIMCs may be of particular use to private equity and venture capital firms, portfolio companies (including public benefit corporations), and the growing number of portfolio managers who seek to distinguish themselves as responsible investors. The RIMCs include provisions for multiple industry-standard documents between investors and portfolio companies, such as charters, right of first refusal and co-sale agreements, shareholder and voting agreements, investor rights agreements, purchase agreements, and side letters.
The RIMCs are also designed to reflect significant legislative developments. The clauses help investors and their portfolio companies meet evolving data collection, disclosure, and human rights and environmental due diligence (HREDD) obligations. In particular, the RIMCs can assist in addressing legal requirements contained in the EU Corporate Sustainability Reporting Directive (CSRD) and the EU Corporate Sustainability Due Diligence Directive (CSDDD). The RIMCs are also essential for investors working to integrate soft law principles found in the UN Guiding Principles on Business and Human Rights (UNGPs), the OECD Guidelines for Multinational Enterprises on Responsible Business Conduct (2023), the revised U.S. Government National Action Plan for Responsible Business Conduct, and other social responsibility principles in their investment portfolios.
The RIMCs are drafted in alignment with three Core RCP Principles (or the 3 “Rs”) of responsible contracting. They advocate a model of shared responsibility for upholding HRE standards between contracting parties. This model supports robust HREDD processes, promotes cooperation and transparency, and will ultimately lead to better HRE outcomes.
The EMCs seek to improve the effectiveness of contracts as tools for preventing and addressing adverse HRE impacts**, as required by the new mHREDD laws. As traditionally used, contracts tend to undermine the effectiveness of companies’ HREDD processes by transferring both the contractual and the financial responsibility for upholding HRE standards to other actors in the supply chain, namely their suppliers (e.g. manufacturers).
Traditional, one-sided contracts that place the entire responsibility for upholding HRE standards on suppliers and allow the buyer to exit the contract immediately in the event of--even small--deviations from the supplier code of conduct, are ineffective for avoiding adverse HRE impacts. By extension, traditional contracts are not fit for purpose when it comes to carrying out effective HREDD, as required by the new laws**.
The EMCs move away from the traditional, one-sided model of contracting towards a model of shared-responsibility contracting where both parties to the contract, the buyer (e.g. brands and retailers) and the supplier, contractually commit to carry out on-going and risk-based HREDD in cooperation with one another.
For a brief intro to the EMCs from several members of the European Working Group, including Martijn Scheltema, Co-Chair of the Working Group, Beata Faracik, Co-Founder, Polish Institute for Human Rights, and RCP Director, Sarah Dadush, check out this video and accompanying slides.
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** For analysis of the content of mandatory due diligence laws with respect to contracts, see the RCP Policy Brief: What the EU CSDDD Says About Contracts (July 2024) and Sarah Dadush, Daniel Schönfelder & Bettina Braun, Complying with Mandatory Human Rights Due Diligence Legislation through Shared-Responsibility Contracting: The Example of Germany’s Supply Chain Act (LkSG), Chapter 14, Contracts for Responsible and Sustainable Supply Chains: Model Contract Clauses, Legal Analysis, and Practical Perspectives, (Susan Maslow & David Snyder eds., ABA Business Law Section, 2023) (Book available here).
***Article 18 on Model Contractual Clauses and the accompanying Recital 66 contemplate the development of guidance on contracting by the European Commission and clarify that this guidance "should aim to facilitate a clear allocation of tasks between contracting parties and ongoing cooperation, in a way that avoids the transfer of the obligations provided for in this Directive to a business partner and automatically rendering the contract void in case of a breach. The guidance should reflect the principle that the mere use of contractual assurances cannot, on its own, satisfy the due diligence standards provided for in this Directive.".
The EMCs reflect the 3 "Rs" of responsible contracting:
1. Responsible allocation of risks and responsibilities: Set aside supplier-only guaranties of perfect compliance in favor of a joint commitment to cooperate in carrying out human rights and environmental due diligence (HREDD)
2. Responsible purchasing practices: Commit the buyer to engage in purchasing practices that can support effective HREDD
3. Remediation first and responsible exit: If an adverse impact happens, provide remedy to victims and take measures to ensure the harm stops and does not reoccur before turning to traditional contract remedies (e.g., suspending payment and canceling orders). Exit should only be pursued as a last resort, taking measures to mitigate the impact.
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RIMCs Zero Draft Consultation Timeline
The RIMCs Zero Draft is now open for consultation, and feedback is encouraged to improve the clauses and ensure the first official version is a product of an inclusive, balanced, and legitimate process.
Feedback may be submitted via email, by using the online form below, and/or by participating in an upcoming consultation session. Please email RCP for more information or to register at info@responsiblecontracting.org
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Session 1: Feb. 11, 2025 - Development and public finance institutions and their (primarily legal) advisors
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Session 2: Feb. 13, 2025 - ABA Business Law Section CSL Committee Working Group and other interested BLS and International Law Section lawyers
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Session 3: March 5, 2025 - Investors who identify as responsible investors, including impact investors, ethical investors, mission-driven, and ESG investors
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Session 4: March 12, 2025 - Civil society organizations and BHR consultancies
The consultation period for the RIMCs will conclude in spring 2025, with the final version set to be published in Summer 2025. Following publication, the RIMCs Working Group will collaborate with members of the ABA Business Law Section CSL Committee Task Force on implementation alongside PRI, a United Nations-supported network of investors that promotes sustainable investment.