Ava's Clause

Green Shareholders’ Agreement (Short Form for SMEs)

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.

Jurisdiction: England & Wales

What this clause does

A short form of Lauren’s Clause (Green Shareholders' Agreement) for small or medium enterprises (SMEs), enabling shareholders to embed alignment with Paris Agreement goals at the highest level of the SME, and prioritise them over short term fast growth to deliver better performance and long term value.


(A) The Shareholders wish to align the operation and management of the Company with Climate Change Goals.

(B) [Insert Eddie’s Recitals here.]


Short Form Green Shareholders’ Agreement for a Small or Medium Enterprise (SME)

[Drafting notes: Ava’s Clause removes clauses 2 (Share Option Scheme), 3 (Dividend Policy), 5 (Company Sustainability Goals) and 7-14 (clauses relating to pre-emption and transfer of shares) of Lauren’s Clause to focus simply on emissions reduction rather than wider sustainability goals, share transfer and pre-emption.

It may be helpful to give SMEs an initial steer. See Lila’s Clause (particularly Annex B) and the UK government’s Small business user guide: Guidance on how to measure and report your greenhouse gas emissions to help implement the obligations contained in Ava’s Clause.]

1. Business of the Company

The Shareholders will each act in good faith to promote the best interests of the Company and ensure that the Business is conducted and developed in accordance with good business practice and any business plan for the Company that is adopted from time to time to further (with equal emphasis): 

(i) the Capital Purpose; and 

(ii) the Net Zero Transition Plan.

2. Carbon Footprint Management

2.1 In each financial year, the Board shall determine the Net Zero Transition Plan, including a Net Zero Target Date. 

2.2 The impact of the Company’s actions to reduce its Carbon Footprint shall be reviewed and evaluated by the Board on a quarterly basis, which evaluation shall include the Board considering the Company’s progress in achieving its Net Zero Transition Plan.

[Drafting note: Consider including Carbon Footprint reporting requirements here, as in Lauren’s Clause.

2.3 During this Agreement, the Company and each of the Shareholders agrees to Offset annually at the following levels:

(a) in each of the Company’s financial years, each Shareholder shall Offset an amount of Carbon Dioxide Equivalent (CO2e) units equal to a Shareholder’s share of the total annual Carbon Footprint in the preceding year, where such Shareholder’s share is determined by reference to a Shareholder’s percentage holding of Shares in the Company; and

(b) the Company shall Offset its Residual Emissions[, in accordance with the Offsetting Strategy].*

* [Drafting note: If an Offsetting Strategy is included, add wording in square brackets to the end of this clause 2.3. For definitions and explanatory notes, see TCLP Glossary: Offsetting Strategy.]

2.4 Evidence of each Shareholder’s compliance with clause 2.3 should be provided by each Shareholder as soon as reasonably possible following the completion of each Company financial year but in any event by no later than one month after the end of such financial year. 

2.5 The obligations under clause 2.3 shall cease to apply in any financial year where the Company achieves Net Zero status for the preceding financial year. In this event, each of the Shareholders shall be obliged to Offset in the financial year but the quantum of carbon credits to be purchased by a Shareholder shall be at their own discretion. Each shareholder shall provide evidence of their Offsetting for the financial year.

[Drafting note: Consider whether to add clauses 13 (Restrictions) and/ or 14 (Notices) from Lauren’s Clause here.]


Schedule [●]: Matters Requiring Shareholder Consent

Company Operations

1. Entering into any contract, transaction or arrangement in relation to the Company that it is likely to impede achievement of the Net Zero Transition Plan.

2. Making any change to the Net Zero Target Date.


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 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 recognised standards to measure, manage and demonstrate carbon credentials covering:

(i) organisations (including but not limited to the Department for Business, Energy and Industrial Strategy (BEIS) Voluntary Environmental Reporting Guidelines and The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015, as updated from time to time); 

(ii) 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

(iii) events (including but not limited to PAS2060/ ISO 20121)].

Greenhouse Gases (GHGs) means the natural and anthropogenic gases 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) 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). [Drafting note: 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.*

* [Drafting note: On a global scale, removals of Greenhouse Gases should be consistent with the mitigation pathways that would limit global warming to 1.5°C, with little to no overshoot. See IPCC Special Report on Global Warming of 1.5 ºC, Summary for Policymakers, Part C Emission Pathways and System Transitions Consistent with 1.5°C Global Warming.]

Net Zero means a state of balance by [2050/ insert earlier date] 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 achieve Paris Agreement 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/ 2050].

Net Zero Transition Plan means a plan to achieve Net Zero [by the Net Zero Target Date] and to remain Net Negative thereafter that:

(i) sets interim reduction targets for the Parties’ GHG Emissions that are aligned with Paris Agreement Goals;

(ii) links executive remuneration to achieving the interim targets;

(iii) is updated in line with developments in science and technology; 

(iv) is reviewed and approved annually by the Board; and

(v) promotes a just transition to a low carbon economy.

[Drafting note: Consider including the requirement for an Offsetting Strategy and the associated definition, as in Lauren’s Clause.]

Offset or Offsetting means the purchase of carbon credits from an Offset Provider:

(i) where the emissions of GHG avoided, reduced or removed by the project are additional;

(ii) that, in relation to GHG removals, employs long-lived storage methods that have a low risk of reversal over millennia;  

(iv) that prioritises the removal of GHG from the atmosphere rather than avoids or reduces third party emissions of GHG; and

(iv) 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:

(i) a project that has been verified in accordance with [insert name of voluntary standard]; or

(ii) a United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ 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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