Short Form Shareholders’ Agreement
Amendments to a standard early stage shareholders’ agreement for SMEs that enable investors to hold an SME to account on climate change issues and align all parties’ interests with achieving net zero.
What this clause does
A short form Green Shareholders’ Agreement for small or medium enterprises (SMEs), enabling shareholders to embed alignment with the Paris Agreement goals (as embedded in the Climate Change Act 2022 (Cth)) at the highest level of the SME. This allows SMEs to prioritise these long-term ESG-related goals over short-term, fast growth-related goals to deliver better performance and long-term value for the SME and its stakeholders or shareholders.
Recitals
(A) The Shareholders wish to align the operation and management of the Company with Climate Change Goals.
(B) [Insert [Eddie’s Recitals] Climate Recitals here and adapt so that references to the ‘parties’ are replaced with the ‘Shareholders’.]
Clauses
[Drafting note: Capitalized terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]
1. Business of the Company
1.1 The Shareholders must each act in good faith to promote the best interests of the Company and to ensure that the Business is conducted and developed in accordance with good business practice. Any business plan for the Company that is adopted should further the following (with equal emphasis):
1.1.1 The Capital Purpose; and
1.1.2 The Net Zero Transition Plan.
2. Carbon Footprint management
2.1 In each financial year, the Board must determine the Net Zero Transition Plan, including confirming the Net Zero Target Date.
2.2 The Board must review and evaluate the impact of the Company’s actions to reduce its Carbon Footprint on a quarterly basis. It must consider the Company’s progress towards achieving its Net Zero Transition Plan as part of that evaluation.
2.3 During this Agreement, the Company and each of the Shareholders agree that, in each financial year:
2.3.1 Each Shareholder must Offset an amount of Carbon Dioxide Equivalent (CO2e) units equal to that Shareholder’s share of the total annual Carbon Footprint in the preceding financial year, where that Shareholder’s share is determined by reference to that Shareholder’s percentage holding of Shares in the Company at the end of the preceding financial year; and
2.3.2 The Company must Offset its Residual Emissions, as calculated at the end of the preceding financial year[, in accordance with the Offsetting Strategy].
2.4 Each Shareholder must provide evidence of its compliance with clause 2.3 as soon as reasonably practicable following the end of each financial year, but in any event by no later than [1 (one) month] after the end of that financial year.
2.5 The obligations under clause 2.3 cease to apply in any financial year where the Company achieves Net Zero status for the preceding financial year. In this event, each Shareholder must:
2.5.1 Offset, in the current financial year, an amount of carbon credits to be determined at that Shareholder's own discretion; and
2.5.2 Provide evidence of their Offsetting for that financial year as soon as reasonably practicable following the end of that financial year.
Schedule [●]
Matters requiring Shareholder consent
Company operations
1. Entering into any contract, transaction or arrangement in relation to the Company that is likely to impede the achievement of the Net Zero Transition Plan.
2. Making any change to the Net Zero Target Date.
Definitions
Capital Purpose means to preserve the value of the Shareholders’ capital as invested in the Company.
Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by the UN’s Intergovernmental Panel on Climate Change (IPCC) to compare the emissions from various GHGs on the basis of their global warming potential over a specified timescale to express a Carbon Footprint that consists of different GHGs as a single number.
Carbon Footprint means the Company’s total annual GHG Emissions, measured in accordance with Carbon Footprint Standards.
Carbon Footprint Standards means internationally and nationally recognised standards to measure, manage and demonstrate carbon credentials covering:
(a) Organisations (including but not limited to the Clean Energy Regulator (CER) Environmental Reporting Requirements, the Climate Active Carbon Neutral Standards and The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015, as updated from time to time);
(b) Projects, product and services (including but not limited to PAS 2050:2011, ISO 14001 and the GHG Protocol Product Life Cycle Accounting and Reporting Standard)[; and
(c) Events (including but not limited to PAS2060 or ISO 20121)].
Climate Change Act means the Climate Change Act 2022 (Cth).
Climate Change Goals means:
(a) The greenhouse gas emissions-reduction targets set out in section 10 of the Climate Change Act; and
(b) The Paris Agreement Goals as encoded in the Climate Change Act.
Greenhouse Gasses (GHGs) means the natural and anthropogenic gasses that trap thermal radiation in the Earth’s atmosphere and that are specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) [or otherwise specified by the UNFCCC at the date of this Agreement], as may be amended from time to time[, which include carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), chlorofluorocarbons (CFCs) and nitrogen trifluoride (NF3)].
GHG Emissions means emissions of GHGs from all sources, categorised as Scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated from time to time,* each expressed as a total in units of Carbon Dioxide Equivalent (CO2e).
* [Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]
Net Negative means that the aggregate of the Company’s actions to reduce its GHG Emissions and remove GHGs from the atmosphere exceeds its unabated GHG Emissions.
Net Zero means a state of balance between all the Company’s sources and sinks of emissions of GHGs in each calendar year achieved by both an overall reduction of its GHG Emissions and a removal of GHGs to align with Climate Change Goals.
Net Zero Target Date means the date set by the Board for the Company to achieve Net Zero, which should be no later than [2035 OR 2050].
Net Zero Transition Plan means a plan to achieve Net Zero by the Net Zero Target Date and to remain Net Negative after that:
(a) Sets interim reduction targets for the Parties’ GHG Emissions that are aligned with Paris Agreement Goals;
(b) Links executive remuneration to achieving the interim targets;
(c) Is updated in line with developments in science and technology;
(d) Is reviewed and approved annually by the Board; and
(e) Promotes a just transition to a low-carbon economy.
Offset or Offsetting means the purchase of carbon credits from an Offset Provider:
(a) Where the emissions of GHG avoided, reduced or removed by the project are additional;
(b) That, in relation to GHG removals, employs long-lived storage methods that have a low risk of reversal over millennia;
(c) That prioritises the removal of GHG from the atmosphere rather than avoids or reduces third party emissions of GHG; and
(d) That takes account of a just transition and addresses wider social and ecological goals.
Offset Provider means a provider of carbon credits or voluntary emission-reduction credits that relate to:
(a) A project that has been verified in accordance with [insert name of voluntary standard]; or
(b) A UNFCCC clean development mechanism (CDM) [or [successor OR equivalent] UNFCCC mechanism] project.
Paris Agreement Goals means the three goals set out in Articles 2.1 and 4.1 of the UNFCCC’s Paris Agreement [, in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels].
Residual Emissions means the Company’s GHG Emissions that are emitted after all reasonable efforts have been made by the Company to reduce its GHG Emissions.
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