Encourage Sourcing of Greener, Fairer Renewable Energy
A clause obliging stakeholders in renewable energy technology supply chains to lower their carbon emissions, minimize their environmental impact and safeguard against modern slavery.
What this clause does
This clause helps businesses and their lawyers to promote the use of best-in-industry renewable energy generating assets, meet net zero and ESG commitments, improve renewable energy generating asset supply chain transparency, reduce their Scope 3 emissions, protect their ESG credentials and reputation, and minimize negative social and environmental impacts associated with their energy installations.
Clauses
1. Minimum social safeguards and mitigation of environmental impacts
1.1 The Supplier shall not, and shall [use commercially reasonable efforts to] ensure that its Personnel shall not, use or benefit from Forced Labor Practices or use or benefit from Conflict Minerals in any Energy Equipment Activities.
1.2 Notwithstanding Clause [2.1], the Supplier agrees, and shall ensure that its Personnel agree, to cooperate with the Company and the Company’s contractors to[:]
1.2.1 minimize Environmental Issues and Resource Issues in connection with the Energy Equipment Activities[.][; and]
1.2.2 [do no significant harm (interpreted in accordance with Article 17 of the EU Taxonomy Regulation) to any of the [six] Objectives.]*
* [Drafting note: The taxonomy has been included as an exemplary standard to follow even where it is not directly applicable in the jurisdictions where the agreement operates (for example, the US). This will need to be reviewed in the context of any local law equivalent or conflicting provisions.]
1.3 [The Supplier shall, and shall [use reasonable efforts to] ensure that its Personnel shall, implement procedures into all Energy Equipment Activities to ensure they align with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights , including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organization on Fundamental Principles and Rights at Work and the International Bill of Human Rights.]
2. Supply chain carbon footprint
2.1 The Supplier agrees, and shall ensure that its Personnel agree, to cooperate in good faith with the Company and the Company’s contractors to ensure that the Carbon Footprint of the Energy Equipment Activities does not exceed the Carbon Budget [by more than [10 (ten) OR [other number] percent]].
2.2 The Supplier agrees to measure the Carbon Footprint of the Energy Equipment Activities in accordance with a Carbon Footprint Standard approved by the Company and [if at any time reasonably required to do so by the Company,]* appoint an external verification authority [(such as the Carbon Trust)] to certify the Carbon Footprint of the Energy Equipment Activities at the Supplier’s cost.]**
* [Drafting note: Consider removing the bracketed text. Good practice would be independent verification of the Carbon Footprint as a matter of course, rather than only on Company request.]
** [Drafting note: Consider including an obligation to notify of results and set out consequences for non-compliance.]
2.3 The Supplier shall use reasonable endeavors to minimize the Carbon Footprint of the Energy Equipment Activities by designing the Energy Equipment to minimize the GHG Emissions associated with its installation, construction, operation, and use.
3. Due diligence and environmental assessment reporting
3.1 On or before the [execution] date of this Agreement, the Supplier shall provide the Company with a completed Due Diligence Questionnaire and Environmental Assessment Report.
3.2 The Supplier shall provide the Company with an updated Environmental Assessment Report within [90 (ninety) OR [other number]] days of each Reporting Period.
3.3 The Company may from time to time (but no more than [once OR [other frequency]] a year) request that the Supplier provide an updated Due Diligence Questionnaire and/or Environmental Assessment Report. On receipt of such a request, the Supplier shall promptly and in any event within [28 (twenty-eight) [other number] days] of the request provide an updated Due Diligence Questionnaire and/or Environmental Assessment Report.
3.4 The Supplier represents and warrants that each Due Diligence Questionnaire and each Environmental Assessment Report provided to the Company in accordance with this Clause [3] is true and accurate in all material respects as at the date thereof and that no material fact or matter has been omitted that would result in such Due Diligence Questionnaire or Environmental Assessment Report (as the case may be) being misleading in any material respect.*
* [Drafting note: Consider dispute resolution terms to apply if findings are disputed.]
3.5 If the Supplier becomes aware of any fact or matter that would result in a Due Diligence Questionnaire or Environmental Assessment Report provided to the Company not being true and accurate in all material respects, the Supplier shall notify the Company immediately with full details of the change in circumstances.
4. Audit
4.1 The Supplier agrees that the Company or the Company’s authorized representative may from time to time during the term of this Agreement, on reasonable [written] notice, inspect and audit the Supplier’s records to evaluate the Supplier’s compliance with Clauses 1 [to 3] (inclusive).
4.2 The Supplier will provide all assistance reasonably requested by the Company for the purpose of inspecting and auditing the Supplier’s records pursuant to this Clause [4] titled 'Audit.'
5. Breach and remedies
5.1 Each of the following events or circumstances is a Breach of this Agreement:
5.1.1 Forced Labor Practices or use of Conflict Minerals in any of the Energy Equipment Activities;
5.1.2 a violation of Environmental Laws or other significant* Environmental Issue or Resource Issue arising from the Energy Equipment Activities;
* [Drafting note: Parties may wish to define what 'significant' means in this context to minimize the risk of disputes arising out of the Company’s decision to terminate for Breach under 5.1.2. Leaving the meaning of 'significant' ambiguous risks exposing the parties to a judge or alternative dispute resolution process ruling on what 'significant' means, with the associated wasted time and costs of that process.]
5.1.3 [a significant harm* to any of the Objectives from the Energy Equipment Activities;] or
* [Drafting note: Parties may wish to define what 'significant harm' means in this context, for example, agreeing thresholds that determine what amounts to a 'significant harm' to any of the Objectives from the Energy Equipment Activities.]
5.1.4 where the Carbon Footprint has exceeded the Carbon Budget by [50 (fifty) OR [other number] percent] or more during two consecutive Reporting Periods.
5.2 The Supplier shall, within [10 (ten) OR other number]] business days of becoming aware of the same, notify the Company in writing of any Breach, setting out:
5.2.1 the nature, severity, and duration of the Breach;
5.2.2 the cause(s) of the Breach and any steps already taken by the Supplier to mitigate such cause(s); and
5.2.3 a remedial plan as to how the Supplier will further investigate and remedy the Breach (a Remedial Plan).
5.3 The Company may comment on the Remedial Plan and provide reasonable suggestions for investigating and remedying the reported Breach. The Company may also request (acting reasonably) that the Supplier remedies the reported Breach within a specified period.
5.4 The Supplier shall provide the Company with an updated Remedial Plan [monthly]. Each updated Remedial Plan shall detail the progress the Supplier has made towards remedying the Breach since the most recent updated Remedial Plan was provided to the Company.
5.5 If a Breach is capable of remedy and not remedied to the reasonable satisfaction of the Company within [30 (thirty) OR 60 (sixty) OR 90 (ninety)*] days of the occurrence of the Breach or such longer period as may be agreed pursuant to Clauses [5.1 to 5.4] above, the Company shall be entitled to:
5.5.1 terminate this Agreement by giving [30 (thirty) OR other number] days' written notice to the Supplier; and
5.5.2 recover from the Supplier any costs reasonably incurred by the Company as a result of the Breach, including but not limited to:
(a) the costs of replacing the Energy Equipment (from a supplier that complies with the terms of this Agreement);
(b) the costs of procuring and engaging a new supplier for the Energy Equipment Activities;
(c) the costs of purchasing carbon credits to offset the Carbon Footprint in excess of the Carbon Budget;
(d) the cost of remedying any Environmental Issues or Resource Issues caused by the Breach (where these can be remedied by the Company);** and/or
(e) Company's reasonable attorney fees and court costs incurred in remedying the Breach.
* [Drafting note: Consider adding a 30 (thirty)-day period in which remedy has to commence, with a longer period for such remedy to be completed.]
** [Drafting note: Consider if there should be a cap here, which may increase the likelihood of the Supplier agreeing to the clause.]
5.6 [If the Company terminates this Agreement under this Clause [5], the Supplier shall at the Company’s request provide all reasonable assistance to facilitate the appointment of a replacement supplier by the Company to carry out the Energy Equipment Activities, including but not limited to novating any contracts in respect of the Energy Equipment Activities to the replacement supplier nominated by the Company.]*
* [Drafting note: Amend as relevant in the context of any similar or duplicative clauses in the main contract.]
5.7 Nothing in this Agreement shall limit Company's rights or recourse under applicable law, including but not limited to in the event of illegal activity by Supplier or its Personnel.
Appendix A
[Drafting note: Append an appropriate Due Diligence Questionnaire (for example, Raphael’s DDQ, Gordon’s DDQ, or Lola and Harry’s DDQ published by The Chancery Lane Project) and adapt to include specific questions regarding Forced Labor, Conflict Minerals, Environmental Issues or other areas of specific interest linked to the Energy Equipment Activities and to disclose the names of companies in the supply chain, the location of mining in the supply chain and the production workforce in the supply chain.]
Definitions
[Affiliates means, in relation to any party, any persons or entities that directly or indirectly, through one or more intermediaries, Control, are Controlled by, or are under common Control with that party.] [Drafting note: Use if not already defined in the main agreement.]
Breach has the meaning given to it in Clause [5.1].
Carbon Dioxide Equivalent (CO2e or CO2eq) means the current 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.
Carbon Budget means the aggregate of [insert value] metric tons of CO2e of GHG Emissions permitted to be released as a result of the Energy Equipment Activities within [a Reporting Period].*
* [Drafting note: Users of this clause may wish to add a schedule that itemizes the carbon budget per activity, with project specific details.]
Carbon Footprint means the total GHG Emissions relating to the Energy Equipment Activities within [a Reporting Period].
Carbon Footprint Standard means one of the internationally recognized standards to measure, manage, and demonstrate carbon credentials covering products and services (including but not limited to PAS 2050:2011, ISO 14001, and the GHG Protocol Product Life Cycle Accounting and Reporting Standard).
Company means [name of entity] and includes all its officers, directors, personnel, employees, representatives, and agents, as applicable.
Conflict Minerals means [specify minerals and any] minerals or raw materials that violate or trigger reporting requirements under US or EU law concerning sourcing of minerals, including but not limited to US Executive Order 13671, US Securities and Exchange Commission conflict minerals disclosure and due diligence rules or requirements promulgated under Section 1502 of the Dodd-Frank Wall Street Reform and Consumer Protection Act, and the EU Conflict Minerals Regulation No. 2017/821.
Control means the possession, directly or indirectly, of the power to direct the management and policies of a person or entity, whether through ownership of voting interests, by contract, or otherwise
Declaration of the International Labour Organization on Fundamental Principles and Rights at Work means The Declaration of the International Labour Organization on Fundamental Principles and Rights at Work, as amended, restated, or supplemented from time to time.
Due Diligence Questionnaire means the due diligence questionnaire(s), substantially in the form included at Appendix [A] of this Agreement.
Energy Equipment means any energy generating equipment that will be used in connection with the Project, including but not limited to [wind turbines, inverters, photovoltaic modules, electrical substation equipment, meteorological equipment, transformers, battery storage equipment]* and the raw materials and components comprising such equipment.
* [Drafting note: Insert components that are relevant to or closely aligned with the Project.]
Energy Equipment Activities means the procurement, mining, production, sourcing, [and, ] transport[, and installation]* of the Energy Equipment [including without limitation any activities relating to the raw materials or services incorporated within the Energy Equipment].
* [Drafting note: Consider removing 'installation' if installation is the responsibility of another party (for example a subcontractor) and including Miko’s Clause in the relevant agreement with such other party (for example, the subcontractor). If the sourcing of materials, the manufacture and transportation of equipment and installation are all separate activities, users of this clause will need to amend this definition to remove the activities not covered by it. Instead, include Miko’s Clause in the related subcontracts that govern the activities not covered by this Agreement.]
Environment means all or any of the following media: air (including air within buildings and other natural or man-made structures above or below the ground), water, land, and any ecological systems and living organisms (including man) supported by those media.
Environmental Assessment means an environmental audit to: (a) identify, describe, and assess the direct, indirect, and cumulative effects of the Project on the Objectives; and (b) measure the Carbon Footprint of the Project.
Environmental Assessment Report means a report[, in form and substance that is satisfactory to the Company] on the results of any Environmental Assessment.*
* [Drafting note: Consider incorporating this report into a Due Diligence Questionnaire instead so that there is only one reporting document to be provided under the Agreement.]
Environmental Issues means (a) emissions, spills, releases, or discharges of waste or Hazardous Materials to air, water, ground, or subsoil; (b) unnecessary production or generation of waste (as defined under Environmental Law*) or Hazardous Materials; (c) other activities or circumstances that produce GHGs; (d) damage to, or the prevention or inhibition of the preservation, protection, conservation, enhancement or management of, habitats and ecosystems, as well as living organisms present in them; and (e) any other issue that may have a significant or substantial detrimental effect on the environment, ecosystems, biodiversity, human habitation, or climate change in general.
* [Drafting note: Check that Environmental Law is defined in the main agreement. Because the Energy Equipment Activities may include actions (for example, manufacturing and mining) performed in jurisdictions with less stringent environmental laws than the US or EU, consider whether this definition should incorporate a minimum standard for applicable Environmental Law regardless of the jurisdiction of activities.]
EU Taxonomy Regulation means Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on Establishment of a Framework to Facilitate Sustainable Investment, and amending Regulation (EU) 2019/2088, as it may be amended, restated, supplemented, or reenacted from time to time.
Forced Labor Practices means any practice that amounts to:
(a) conduct that is now or hereafter prohibited by US laws and regulations relating to forced labor, convict labor, indentured labor, or other forms of servitude, including, but not limited to: (i) 19 U.S.C. § 1307 and any related regulations; and (ii) the Uyghur Forced Labor Prevention Act, Pub. L. 117–78 and any related regulations;
(b) slavery, servitude, forced or compulsory labor (each as construed in accordance with Article 4 of the European Convention on Human Rights (as amended by Protocols No. 11 and 14 and as supplemented by Protocols 1, 4, 6, 7, 12, 13 and 16 and as may be further amended, restated, supplemented, or reenacted from time to time));
(c) economic exploitation of a child (as defined in Article 32 of the United Nations Convention on the Rights of the Child); and/or
(d) any other slavery-like behaviors including, but not limited to, debt bondage, forced marriage, human trafficking, and slave trading.*
* [Drafting note: Consider if this will present jurisdiction-specific issues. It may be helpful to (i) refer to state or other local laws and regulations, if applicable; (ii) include a new provision stipulating compliance with the same; and (iii) include an obligation to immediately notify breaches.]
GHG Emissions means emissions of GHGs, each expressed as a total in units of carbon dioxide equivalent (CO2e) and from all sources, categorized as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as amended, restated, or supplemented from time to time.*
* [Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]
Greenhouse Gasses or GHGs means the natural and anthropogenic gasses which trap thermal radiation in the Earth’s atmosphere and as 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, restated, supplemented, or reenacted from time to time, and which as at the date of this Agreement include: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), nitrogen trifluoride (NF3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).
GHG Protocol Product Life Cycle Accounting and Reporting Standard means The Greenhouse Gas Protocol Product Life Cycle Accounting and Reporting Standard, as may be amended, restated or supplemented from time to time.
[Hazardous Materials means collectively: (a) materials defined as 'hazardous substances' in the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), or any successor statute; (b) materials defined as 'hazardous waste' in the Resource Conservation and Recovery Act (RCRA), or any successor statute; (c) petroleum or petroleum products; (d) any polychlorinated biphenyl; and (e) any other pollutant or contaminated, hazardous, dangerous, or toxic chemical, material, waste, or substance, including naturally occurring radioactive material, regulated under or within the meaning of any applicable Environmental Law.] [Drafting note: Use if not already defined in the main agreement.]
International Bill of Human Rights means the United Nations International Bill of Human Rights consisting of the Universal Declaration of Human Rights, the International Covenant on Economic, Social and Cultural Rights, and the International Covenant on Civil and Political Rights, as may be amended, restated or supplemented from time to time.
Objectives means the current objectives specified in the EU Taxonomy Regulation as amended, restated, supplemented, or reenacted from time to time. At the date of this Agreement, the objectives are: (1) climate change mitigation, (2) climate change adaptation, (3) the sustainable use and protection of water and marine resources, (4) the transition to a circular economy, (5) pollution prevention and control, and (6) the protection and restoration of biodiversity and ecosystems.
OECD Guidelines for Multinational Enterprises means The OECD Guidelines for Multinational Enterprises on Responsible Business Conduct, as may be amended, restated or supplemented from time to time.
[Personnel means the Supplier’s Affiliates, and the Supplier’s and the Supplier’s Affiliates’ respective directors, officers, employees, agents, representatives, suppliers, contractors, and subcontractors.] [Drafting note: Use if not already defined in the main agreement.]
Remedial Plan has the meaning given in Clause [5.2.3].
Reporting Period means each period of 12 months starting on [January 1 OR [month] [day]] and ending on [December 31], or in the case of the first Reporting Period, such shorter period starting on the date of this Agreement and ending on the following [December 31 OR [month] [day]].
Resource Issues means adverse interference with or negative impact on [a local population’s] access to water, land [(including land with ancestral heritage significance)], soil, air, and [natural resources OR biodiversity][ and other similar resources].
Supplier means [name of entity] and includes all its officers, directors, personnel, employees, representatives, and agents, as applicable.
UN Guiding Principles on Business and Human Rights means The United Nations Guiding Principles on Business and Human Rights: Implementing the United Nations Protect, Respect and Remedy Framework, as may be amended, restated or supplemented from time to time.
Make this clause better
Tell us about your experience with this clause so we can improve it.