Focus Investment Documents on Climate Issues
This clause imposes obligations concerning climate risk and sustainability on a company and its founders.
What this clause does
This clause puts environmental and climate change issues front and centre of the investment and the development of the investee company’s business.
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. Sustainable promotion of the Company’s business
1.1 The Founders and the Managers must promote the best interests of the Company and ensure that its business is conducted responsibly, sustainably, ethically and in accordance with all applicable laws and good business practice.
1.2 The Founders and the Manager must run and manage the business:
1.2.1 [primarily] to advance the Social Purpose and deliver the Net Zero Transition Plan;
1.2.2 [secondly] to achieve the Capital Purpose; and
1.2.3 [thirdly] to achieve the Commercial Purpose.
[Drafting note: The priority hierarchy is optional as some investors will not be willing to prioritise net zero goals before commercial purpose and profit. However, excluding the priority while retaining the three key objectives will make it explicit that the business is to be run with a green focus while enabling flexibility to prioritise the balance of the three objectives.]
1.3 The Founders and the Managers must use [their best OR [all reasonable endeavors] to ensure that the Company:
1.3.1 sets a [public] Net Zero Target[ in accordance with the Science Based Targets initiative (SBTi) criteria][, signs up to Race to Zero] and provides the Investors with the Net Zero Transition Plan no later than [6 (six)] OR [●] months after [Completion] OR [insert relevant point in time] ;
1.3.2 as soon as reasonably practical and no later than [12 (twelve)] or [●] months after [Completion] or [insert relevant point in time]:
(a) [uses OR has contracted to purchase] Renewable Energy for [100 (one hundred) percent] or [at least [●] percent] of all electricity consumed by the Company;
(b) uses web hosts and cloud service providers which run their servers using 100 (one hundred) percent Renewable Energy or have a net zero target [that, at a minimum, aligns with the Paris Agreement Goals];
(c) sources all consumables used by the Company from sustainable and ethical sources and includes emissions reduction requirements in the Company’s procurement strategy and supply chain contracts;
(d) creates KPIs to measure the impact on the climate of the Company’s operations and goods and services it provides;
(e) [ensures the [casing OR packaging] for the Company’s products are sourced from as much recycled material as possible and are themselves designed to have the smallest environmental impact];
(f) [provides the Company’s customers the option to offset the carbon footprint of delivering the Company’s products at the point of sale on the Company’s website through a project that has been verified in accordance with [insert name of voluntary standard;] [Drafting note: This clause is optional and may be appropriate if the Company operates an online businesses. To raise net zero ambition, consider building the mitigation into the pricing plan as an alternative to the customer’s option to offset.]
(g) establishes a sustainability committee as a committee of the board chaired by [an independent OR a non-executive] director [with experience of improving sustainability and mitigating carbon footprint];
(h) utilises a nominated (default) superannuation fund that follows environmental, social and governance principles;
(i) [becomes a certified B Corporation [and achieves certification from Planet Mark]];
(j) develops and implements an Environmental and Sustainability Training Program; and
(k) sets targets to support the achievement on one or more United Nations Sustainable Development Goals;
1.3.3 provides an [annual] or [quarterly] or [monthly] report to the Investors setting out:
[Drafting note: To select reporting aligned with needs and goals of Investors. To raise net zero ambition, consider adding CDP disclosure here.]
(a) the climate risks and opportunities relevant to the Company and its business in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD);
(b) sustainability information in accordance with the standards set out by the Sustainability Accounting Standards Board (SASB);
(c) an analysis of how wider local and global stakeholders (including employees, clients, customers and supply chain partners) are affected by both climate risk and the transition to a low-carbon economy and how the Company can help to improve their resilience to such risks;
(d) a report on all climate policy engagement, climate leadership, lobbying activities, trade association memberships and public policy positions that may support or undermine the Paris Agreement Goals; and
(e) other environmental, social and governance factors that are requested by the Investors from time to time;
1.3.4 prepares and provides an annual sustainability report to Investors which sets out the Company’s compliance with this clause and provides details of any non-compliance;
1.3.5 publishes on a publicly-accessible page of its website (updated at least [annually] OR [other period]:
(a) its approach to energy and GHG emission reduction;
(b) [its energy and GHG emission baselines;]
(c) its Net Zero Target and Net Zero Transition Plan and its progress towards achieving its Net Zero Target and implementing the Net Zero Transition Plan; and
(d) its learnings from the above, including (where relevant) case studies;
1.3.6 shares generic and non-commercial data relating to the implementation of its Net Zero Transition Plan and its progress towards its Net Zero Target with relevant industry bodies to assist other entities implement similar targets and plans;
1.3.7 make Founders and/or senior executives available to attend and/or speak at relevant conferences such as [GBCA Transform, PCA and GRESB] in relation to the initiatives implemented to achieve the Net Zero Target or as part of the Net Zero Transition Plan; and
1.3.8 once profitable, donates at least [1 (one)] or [●] percent of its net profits to environmental causes that are mitigating the impact of climate change [and are 'charities' as defined in the Charities Act 2013 (Cth), registered with the Australian Charities and Not-for-profits Commission [and endorsed by the Australian Taxation Office as deductible gift recipients]].
2. Green decisions requiring the Consent of an Investor majority
2.1 Each party must use all its voting rights and other powers in relation to the Company to ensure that:
2.1.1 the Company is authorised and empowered to take the actions in clause [1];
2.1.2 the Company does not take any of the actions in clause [2.2] without first obtaining [Investor Consent OR [●]] [Drafting note: Consider whether an alternate threshold is commercially relevant in this context].
2.2 The actions requiring Investor Consent are:
2.2.1 revocation of the Net Zero Target or the Net Zero Transition Plan;
2.2.2 any amendment of the Net Zero Target or the Net Zero Transition Plan which makes either less ambitious or is reasonably likely to delay the Company’s completion of the Net Zero Transition Plan or its achievement of its Net Zero Target;
2.2.3 the entry into any contract or arrangement that conflicts with the Net Zero Target or the Net Zero Transition Plan; and
2.2.4 any amendment of this clause [2].
3. Founder green covenants
3.1 Each Founder must not:
3.1.1 [at any time while they are a director or employee of, or a consultant to, the Company, carry on or be directly concerned, engaged or interested in any trade or business that is:
(a) not taking demonstrable steps to set and implement a net zero target equivalent to the Net Zero Target; or
(b) operating in the following sectors [insert sectors or industries that the Investor does not want the Founders to be involved in or conflict with their ESG aims]; or] [Drafting note: This sub-clause is optional. However, the parties may agree to its inclusion if Founders wish to have a consistent approach to ESG issues in all business dealings.]
3.1.2 do or omit to do anything which could reasonably be expected to cause the Company to not achieve the Net Zero Target.
Definitions
Capital Purpose means to preserve the value of the Investor[’s][s’] capital invested in the Company.
Carbon Dioxide Equivalent (CO2e) means a unit of measurement that is used to standardize the climate effects of various Greenhouse Gasses (GHGs).
Commercial Purpose means to make the Company profitable and provide a return to Investors, having regard to the Social Purpose and Capital Purpose at all times.
Company means [insert name of Company that is being invested in].
Environmental and Sustainability Training Program means a program of training, provided on a regular basis (at least annually), for employees, personnel and contractors during their usual working hours (and online as required) that will cover, as a minimum:
(a) the latest climate science;
(b) climate change policy and relevant legal context (including core terms of the Paris Agreement and any national implementation measures);
(c) the economic and social (for example, health) benefits to the Company in reducing the workplace’s environmental impact;
(d) sustainable lifestyle changes and issues relating to the workplace;
(e) details of the Company’s own public and contractual commitments, targets and governance in relation to climate change and sustainability; and
(f) other topical climate and sustainability issues.
Founders means the founders of the Company listed in schedule [●].
GHG Emissions means the Company’s emissions of GHGs classified 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). [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]
Greenhouse Gasses (GHGs) means the natural and anthropogenic gasses which trap thermal radiation in the Earth’s atmosphere and 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),] each expressed as a total in units of Carbon Dioxide Equivalent (CO2e). [Drafting note: See TCLP Glossary: Greenhouse Gasses (GHGs) for further definition options and explanatory notes.]
Investor Consent means the written consent of an Investor or Investors holding at least [75 (seventy-five)] or [●] percent of the number of ordinary shares in the Company held by all Investors (at any time). [Drafting note: This definition is used in clauses permitting variations to these Green Investment Obligations and consenting to actions of the company. This threshold should represent a significant majority of investors, and will need to be adjusted to reflect the capital structure of the company and commercial agreement of the parties. Consider adopting already agreed majority investor thresholds (for example, those agreed for significant corporate or commercial changes) as a benchmark. Alternatively, if all shareholders are Investors, consider whether requiring a special resolution of the company’s shareholders would be suitable.]
Managers means the members of the management team of the Company listed in schedule [●].
Net Negative means that the quantity of GHGs removed from the atmosphere by the Company’s actions are greater than GHG Emissions. [Drafting note: See TCLP Glossary: Net Negative for definition options and explanatory notes. On a global scale, removals of Greenhouse gasses should be consistent with the mitigation pathways that would limit global warming to 1.5C, with little to no overshoot. See IPCC Special Report on Global Warming of 1.5°C, Summary for Policymakers, Part C Emission Pathways and System Transitions Consistent with 1.5°C Global Warming.]
Net Zero Target means a target to reduce and remove GHG Emissions from [all operations OR [details of specific operations]] of the Company including:
(a) [its value and supply chains; and]
(b) by removal of GHGs associated with the implementation of the Offsetting Strategy,
by 2050 or sooner to achieve a balance between the Company’s annual sources and sinks of GHGs and the goals of the Paris Agreement. [Drafting note: Care should be taken to ensure that the target is achievable (while still being ambitious) to avoid providing false information and opening the Company to potential greenwashing claims. This is particularly the case if the target is made publicly (see clause 1.3.1). Accordingly, this definition should be amended as appropriate to the specific circumstances of the Company - for example, by explicitly describing the operations that are subject to the target and/or excluding Scope 3 emissions by deleting paragraph (a).]
Net Zero Transition Plan means a plan [agreed by the [Parties] or that has obtained Investor Consent] to deliver the Net Zero Target and remain Net Negative thereafter that:
(a) includes an Offsetting Strategy;
(b) sets interim GHG Emissions-reduction targets that are aligned with Paris Agreement Goals;
(c) links executive remuneration to the achievement of the interim targets;
(d) is updated in line with developments in science and technology;
(e) is reviewed and approved annually by the board; and
(f) promotes a just transition to a low-carbon economy.
Offsetting Strategy means a detailed plan [as agreed by the Parties] specifying:
(a) the verified credits from a recognized offset provider that may be used by the Company to offset its Residual Emissions;
(b) how the Company will transition from using credits resulting from offsetting projects that avoid or reduce emissions of GHGs to those from projects that remove emissions of GHGs and involve long-term storage methods that have a low risk of reversal; [and]
(c) how the Company will [use best endeavors to] reduce its use of credits by reducing its Residual Emissions [to zero OR by [● percent] by 2050[; and][.]
[(d) the impact of the relevant offsetting projects on a just transition and wider social and ecological goals.] [Drafting note: See TCLP Glossary: Offsetting Strategy for definition options and explanatory notes.]
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.] [Drafting note: See TCLP Glossary: Paris Agreement Goals for definition options and explanatory notes.]
Renewable Energy means electricity sourced only from naturally replenishing non-fossil sources, including hydropower and tidal power, hydrothermal power, aerothermal power and geothermal power, wind, and solar which are in each case eligible for accreditation by the National GreenPower Accreditation Program.
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. [Drafting note: See TCLP Glossary: Residual Emissions for definition options and explanatory notes.]
Social Purpose means [insert relevant social purposes for the Company which is likely to be linked to a UN Sustainable Development Goal].
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