Revising 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 decarbonisation or net-zero objectives.
This clause aligns a construction project with the goals of the Paris Agreement. It ensures that during construction and on completion, the project meets its net-zero objectives and can withstand the physical climate risks which may arise and impact its resilience.
(A) [Insert Eddie’s recitals (climate recitals) here.]
[Drafting note: capitalised terms relate to a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]
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 Industry Practice in carrying out its obligations under the contract;
1.2.2 it will achieve the Net Zero Objectives; and
1.2.3 the [Project OR Asset] will be fit for purpose and achieve the Net Zero Objectives at practical completion.
2. Net-zero targets
2.1 The Employer and the Contractor each warrant that:
2.1.1 they have a Net Zero Target; and
2.1.2 the delivery of the [Project OR Asset] is consistent with their respective Net Zero Target.
2.2 The Contractor must ensure that each subcontract includes equivalent provisions 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.]
3. Net-zero objectives reporting
[Drafting note: consider requiring the Contractor to submit a Net Zero Objectives Plan at the commencement of the Project setting out how the Contractor intends to comply with the Net Zero Objectives. Clause 3.2.2 could link to the Net Zero Objectives Plan.]
3.1 The Contractor must provide to the Employer a report on the last day of each [quarter OR month - insert appropriate time frame] that describes conduct or actions taken to satisfy the Net Zero Objectives (the Net Zero Report).
3.2 The Employer must notify the Contractor within [10 (ten) Business Days] of receiving the Net Zero Report if the Employer:
3.2.1 accepts the Net Zero Report; or
3.2.2 considers that the Contractor is not meeting the Net Zero Objectives, setting out reasons.
3.3 If the Employer issues a notice under clause 3.2.2, the Contractor must promptly:
3.3.1 prepare a rectification plan to the satisfaction of the Employer, detailing how it plans to correct any failure to achieve the Net Zero Objectives set out in the notice or otherwise (including any temporary Offsetting required to realign the Contractor’s activities with the Net Zero 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 Employer of the rectification measures that have been implemented.
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: 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 the parties should only use offsetting if they 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.]
4. Other climate related obligations
[Drafting note: Estelle’s Clause is focused on ensuring that the Contractor’s activities are Paris Aligned. However there are other climate and environmentally conscious construction practices that should also be considered. It is recommended that the following clauses are included in the construction contract:
4.1 Project carbon budget
[Insert Tristan’s clause (construction materials: procurement) 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 to include relating to sustainable construction practices in the construction phase.]
Best Industry Practice means design, supply, construction, installation, commissioning and repair practices which are carried out:
(a) with the standard of skill, care and diligence which 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) in a manner that is Paris Aligned;
(c) 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
(d) to meet and achieve the Net Zero Objectives.
* [Drafting note: the revised standard of care is not intended to cut across any existing common law standard of care in your jurisdiction. Please amend subparagraph (a) to align with the required standard of care for your jurisdiction.]
** [Drafting note: this paragraph is included to ensure the Contractor is considering a just transition in their activities.]
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 gases that trap thermal radiation in the Earth’s atmosphere, each expressed as a total in units of carbon dioxide equivalent (CO2e) and calculated in accordance with the Carbon Footprint Standards. They are specified by the United Nations Framework Convention on Climate Change (UNFCCC) in Annex A to the Kyoto Protocol and may be updated periodically. [See also TCLP Glossary: Greenhouse Gases (GHGs).]
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 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 means:
(a) to carry out the Contractor’s activities:
(i) responsibly, sustainably, ethically and in accordance with all applicable laws and best practice; [and]
(ii) consistently with both the Contractor’s and the Employer’s Net Zero 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 prior to Offsetting any Residual Emissions; [and]
(iii) [in a manner that satisfies the requirements of, and does not place the Employer in breach or default of, the terms of the [Employer’s sustainability linked loan OR Employer’s relevant green loan]];
(b) to ensure that the [Project OR Asset]:
(i) on practical completion [and during its operating life] has a GHG Emissions per metre squared (m2) (Carbon Intensity) which:
(A) is Net Zero (by Offsetting only Residual Emissions); or
(B) meets the [1.5 Celsius aligned Carbon Risk Real Estate Monitor 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 without substantive capital outlay or retrofitting; and
(ii) 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 completion [until [insert date, for example 2035] OR until [15 years] after practical completion].
Net Zero 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.
Offset or Offsetting means buying 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 [or [successor OR equivalent] UNFCCC mechanism];
(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 gases 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.
Paris Alignment or Paris Aligned means aligning with the three goals 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 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 periodically. [See TCLP Glossary: Scope 1, 2 and 3 Emissions.
Tell us about your experience with this clause so we can improve it.