This clause revises the standard of care for construction contracts to require Contractors and Service Providers to adhere to best industry practice to mitigate climate risk and ensure that a construction project meets its carbon or net-zero objectives.
This clause enables a project to be aligned with the goals of the Paris Agreement to ensure that during construction and on completion, the Project meets net zero objectives and is capable of withstanding the physical climate change risks which may arise and impact the resilience of the Project.
(A) [Insert [Eddie's Recitals] Climate Recitals here.]
1. Contractor’s obligations
1.1 The Contractor must carry out all of its obligations under the contract in accordance with:
1.1.1 the [Project Documents OR Contract Documents];
1.1.2 all applicable laws and standards; and
1.1.3 Best Industry Practice.
1.2 The Contractor warrants that:
1.2.1 it will [use best endeavors to] achieve the [Net Zero Objectives OR Climate Objectives]; and [Drafting note: Considering the relevant Project and market, it may be more appropriate to require the Contractor to ‘use best endeavors’ (or similar wording) to achieve the [Net Zero Objectives OR Climate Objectives]. Consider also whether this requirement would be more effective in tender documentation as a matter for a tenderer to respond to. For example, consider incorporating [Robyn's Questionnaire] Subcontractor/ Supplier Self-Assessment Climate Questionnaire (Construction) or [Raphael's Procurement DDQ] Climate Change Due Diligence Questionnaire for Suppliers during the RFP phase.]
1.2.2 the [Project OR Asset] will be fit for purpose at practical completion. [Drafting note: Consider amending existing definitions of Fit For Purpose (where applicable) to include the requirements under the [Net Zero Objectives OR Climate Objectives].]
2. [Net Zero Targets OR Climate Targets]
2.1 The Principal and the Contractor each warrant that:
2.1.1 they have a [Net Zero Target OR Climate Target]; and
2.1.2 the delivery of the [Project OR Asset] is consistent with their respective [Net Zero Target OR Climate Target].
2.2 The Contractor must ensure that each subcontract includes equivalent provisions [to the extent they are applicable] to clauses 1, 2.1 and [insert all other clauses that should be cascaded into subcontracts].*
* [Drafting note: Consider if there should be a monetary threshold for this requirement, as it may not be practicable to include these obligations in all subcontracts. Consider also the extent that this should flow down the contracting chain, as currently this is likely to only capture subcontractors that are an immediate subcontractor to the Contractor.]
3. [Net Zero OR Climate Target] Objectives Reporting**
** [Drafting note: Consider also requiring the Contractor to submit a [Net Zero Objectives Plan OR Climate Objectives Plan] at the commencement of the Project setting out how it intends to comply with the [Net Zero Objectives OR Climate Objectives]. Clause 3.2.2 could link to the [Net Zero Objectives Plan OR Climate Objectives Plan].
3.1 The Contractor must provide to the Principal a report on the last day of each [quarter OR month OR [insert appropriate time frame]] that describes conduct or actions taken to satisfy the [Net Zero Objectives OR Climate Objectives] (the [Net Zero OR Climate Target] Report).
3.2 The Principal must notify the Contractor within [10 (ten) Business Days] of receiving the [Net Zero OR Climate Target] Report if the Principal either:
3.2.1 accepts the [Net Zero OR Climate Target] Report; or
3.2.2 considers that the Contractor is not meeting the [Net Zero Objectives OR Climate Objectives], setting out reasons.
3.3 If the Principal issues a notice under clause 3.2.2, the Contractor must promptly:
3.3.1 prepare a rectification plan to the satisfaction of the Principal, detailing how it plans to correct any failure to achieve the [Net Zero Objectives OR Climate Objectives] set out in the notice or otherwise (including any temporary Offsetting required to realign the Contractor’s activities with the [Net Zero Objectives OR Climate Objectives]***); and
3.3.2 comply with the requirements set out in that notice and the rectification plan, and within [20 (twenty) Business Days] notify the Principal of the rectification measures that have been implemented.
*** [Drafting note: The reference to Offsetting is included as a back-up for the parties should they miss their Net Zero target for the year. The Offsetting requirement is described as ‘temporary’ because Offsetting should only be used when the parties miss their target for the year during the design and construction phase. It should not be used where the missed objective is the year-on-year target on completion in paragraph (b)(i)(A) and (B) of defined term Net Zero Objectives, as this would be considered a defect in the built Asset and will be dealt with in the defect regime of the construction contract.]
3.4 If the Contractor does not comply with clause 3.3, this will be deemed a [substantial breach of the Contract] and the default clause [●] will apply.
[Drafting note: This clause 3 could be alternatively placed in the Project Control Group clause of the Contract (if applicable).]
4. Other climate-related obligations
[Drafting note: Edward and Elsie’s Clause is focused on ensuring the Contractor’s activities achieve Net Zero. However, there are other climate and environmentally-conscious construction practices that should also be considered. It is recommended that the following clauses are also included in the construction contract:]
4.1 Project Carbon Budget
[Insert [Maeve's Clause] (Construction Carbon Budget) and relevant definitions to include a Carbon Budget for the materials procurement for the project.]
4.2 Waste Management
[Insert [Francis’ Clause] Climate Aligned Construction Waste Management and relevant definitions for sustainable waste management during the construction phase.]
4.3 Sustainable On Site Work Practices
[Insert [Ashkan’s Clause] Sustainable On Site Work Practices and relevant definitions for inclusion of sustainable construction practices in the construction phase.]
Best Industry Practice means design, supply, construction, installation, commissioning and repair practices that are carried out: [Drafting note: This definition is intended to be incorporated into the existing standard of care definition in the contract, such as ‘Best Industry Practice’ (or equivalent definitions, for example ‘Good Industry Practice’ or 'Best Practice’). This definition may be adapted to align with the relevant drafting for the existing definition under the contract]
(a) with the standard of skill, care and diligence that may reasonably be expected of a skilled and experienced professional carrying out design, supply, construction, installation, commissioning and repair work similar to the Contractor’s activities;.
(b) responsibly, sustainably, ethically and in accordance with all applicable laws and best practice;
(c) consistently with both the Contractor’s and the Principal’s [Net Zero Targets OR Climate Targets] (including any interim targets notified to the other party prior to the date of contract) and in a manner that prioritises reducing GHG Emissions before Offsetting any Residual Emissions; [and]
(d) in a manner that considers how wider local and global stakeholders (including employees, subcontractors, [occupiers of the Asset] and supply chain partners) are affected by both climate risk and the transition to a low carbon economy and how the Contractor can improve their resilience throughout the delivery of the Contractor’s activities; [and]
[Drafting note: Paragraph (d) of this definition has been included for parties to consider the wider impact of a transition to a low-carbon economy. More specific requirements may be appropriate, and this limb may need to be revisited for SMEs. As currently worded this sets an ambitious threshold, and consideration should also be given to whether this should instead be included in tender documentation as a matter for a tenderer to respond to. For example, consider incorporating [Robyn's Questionnaire] Subcontractor/ Supplier Self-Assessment Climate Questionnaire (Construction) or [Raphael's Procurement DDQ] Climate Change Due Diligence Questionnaire for Suppliers during the RFP phase.]
(e) [in a manner that satisfies the requirements of, and does not place the Principal in breach or default of, the terms of the [Principal’s sustainability-linked loan OR Principal’s relevant Green Loan].] [Drafting note: This paragraph (e) to be used where the Principal has obtained finance from a ‘Green Loan’ only.]
Carbon Footprint means the total annual [GHG Emissions] OR [Scope 1, 2 and 3 Emissions] relating to the [Project].
Carbon Footprint Standards means:
(a) for organisational Carbon Footprints and Supply Chain Carbon Footprints, the GHG Protocol Corporate Accounting and Reporting Standard[, or ISO 14064]; and
(b) for product Carbon Footprints, the GHG Protocol Product Life Cycle Accounting and Reporting Standard[, or ISO 14064].
GHG Emissions means emissions of the greenhouse gasses listed at Annex A of the 1998 Kyoto Protocol to The United Nations Framework Convention on Climate Change (UNFCCC), as may be amended from time to time including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), nitrogen trifluoride (NF3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), chlorofluorocarbons (CFCs), and sulphur hexafluoride (SF6), each expressed as a total in units of carbon dioxide equivalent (CO2e) and calculated in accordance with the Carbon Footprint Standards.
Net Negative means that the aggregate of a [party’s] actions to reduce [its] GHG Emissions and remove them from the atmosphere exceeds [its] unabated GHG Emissions.
Net Zero means a state of balance between sources and sinks of GHG Emissions [in each calendar year] achieved by both a reduction of GHG Emissions overall and a removal of GHG Emissions.
[Net Zero Objectives OR Climate Objectives] means to ensure that the [Project OR Asset]:
(a) on practical completion has [,and during its operating life is capable of having] a GHG Emissions per m2 (Carbon Intensity) that:
(i) is [Net Zero (by Offsetting only Residual Emissions)] OR [insert other details of Climate Objective]; or
(ii) [meets the 1.5 degree aligned Carbon Risk Real Estate Monitor (CRREM) decarbonisation pathway for that asset class OR Paris Aligned decarbonisation pathway (Asset Decarbonisation Pathway) and will continue to meet the Asset Decarbonisation Pathway each year from practical completion until 2050 during its design life without substantive capital outlay or retrofitting; and] [Drafting note: Subject to the asset type being built, it may be appropriate to include additional obligations in relation to meeting the 1.5 degree aligned Carbon Risk Real Estate Monitor, which is the decarbonisation pathway developed as part of the Paris Agreement for particular asset classes.]
(b) is capable of withstanding the projected physical impacts of climate change (including increased intensity and frequency of catastrophic weather events, and gradual onset climatic changes in the region) [in a [SSP5 8.5 future] as set out in The Intergovernmental Panel on Climate Change’s report AR6 Climate Change 2021: The Physical Science Basis (August 2021)]* from practical completion until [[insert date, in other words 2035] OR [15 (fifteen) years] after [practical completion]. [Drafting note: The phrase ‘catastrophic weather events’ may require amending to delineate between similar phrases used in the definition of Force Majeure Event.]
* [Drafting note: Remove reference to this specific report if the Principal considers there will not be an ability to monitor the Contractor's performance against this benchmark, or that the reference to this Report will not be accepted by the market.]
[Net Zero Target OR Climate Target] means [a Paris Aligned target to achieve by 2050 a balance between the sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter by both removing GHG Emissions overall and using Offsets to cover Residual Emissions] OR [insert Principal’s other climate goals or targets].
[Drafting note: If the Principal does not have a specified Net Zero Target, use the first limb of this definition. If the Principal has a specified Net Zero Target, use the second limb of this definition and insert the Principal's relevant, measurable climate target. Alternative climate objectives or targets may include:
** [There are likely to be similar guidance documents produced by the EPA in other jurisdictions.]
Offset or Offsetting means the purchase of carbon credits from a project:
(a) [that has been verified in accordance with [insert name of voluntary standard] or from a UNFCCC clean development mechanism (CDM) [or [successor OR equivalent] UNFCCC mechanism]]; [Drafting note: Only include this paragraph (a) where the verification of the Offset or Offsetting is applicable.]
(b) where the GHG Emissions avoided, reduced or removed by the project are additional;
(c) that in relation to greenhouse gas removals, employs long-lived storage methods that have low risk of reversal over millennia;
(d) that prioritises the removal of greenhouse gasses from the atmosphere rather than avoids or reduces third party GHG Emissions; [and
(e) that takes account of a just transition and addresses wider social and ecological goals].[Drafting note: The Principal may include this paragraph (e) to the extent it is applicable where, for example, there are social and ecological goals to which it has publicly committed.]
Paris Alignment or Paris Aligned means alignment with 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 and achieve Net Zero or Net Negative emissions by 2050 or sooner.
Residual Emissions means the Scope 1, 2 and 3 Emissions from all operations of a party or relating to a project or an asset that are emitted after all reasonable efforts have been made to reduce the Scope 1, 2 and 3 Emissions.
Scope 1, 2 and 3 Emissions means the three classifications of emissions in the GHG Protocol Corporate Accounting and Reporting Standard as updated from time to time.***
*** [See TCLP Glossary - Scope 1, 2 and 3 Emissions]
Supply Chain Carbon Footprint means total annual Scope 1, 2 and 3 Emissions associated with the purchase of materials and services by the Contractor in order to perform its Works and/or Services.
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