Zack's Clause

SPA/ Investment Agreement: Disclosure of Climate Change Plans

Including pro-active disclosure requirements in M&A or investment transactions brings climate targets and aims to the forefront of the minds of management of the target and the buyer/ investors.

Jurisdiction: England & Wales

What this clause does

Enables a buyer to gauge the climate risk inherent in a target through climate warranties and disclosures.


1. Details of:*

* [Drafting note: it may be desirable to require an external audit in relation to aspects of the disclosures such as verifying the carbon budget, climate contracts and risk register and link the results to an increase in the sale price.]

1.1. how climate change issues are considered in the Company’s corporate strategy and Business Plan (including examples of where the Company has mapped against the United Nations Sustainable Development Goal 13 (Climate Action));

1.2. the Company’s Net Zero Target (if any) and Net Zero Transition Plan;

1.3. the Company’s Carbon Budget (if any), details of how the Carbon Budget and the Company’s GHG Emissions are measured, reported and externally verified, and how the Carbon Budget is aligned with achieving the Net Zero Target;

1.4 the Company’s Offsetting Strategy;

1.5 whether the Company has signed up to Race to Zero and whether its Net Zero Target has been approved by the Science Based Targets initiative

1.6. if and how the Company assesses and discloses climate risks and opportunities with regard to the recommendations of the International Financial Reporting Standards Foundation (IFRS); and

1.7 the Company’s climate engagement policy, including:

1.7.1 climate related public policy statements and climate leadership activities;

1.7.2 its specific commitment/ position statement in relation to conducting all of its lobbying in line with Paris Agreement Goals; 

1.7.3 direct and indirect climate-related lobbying activities (including without limitation, meetings and policy submissions) and how they align with the above position statement;

1.7.4 trade association memberships;

1.7.5 Paris Agreement Goals-aligned lobbying expectations for its trade associations and the process by which the Company ensures that lobbying by its trade associations aligns with Paris Agreement Goals; and

1.7.6 regular reviews of its trade associations’ climate positions and alignment with the Paris Agreement Goals, and actions taken as a result,

are set out in the Disclosure Letter.

2. The Company has and maintains a climate change risk register, detailing: 

(i) any known or reasonably foreseeable climate change risks to its business (including upstream in its supply chain and downstream in its value chain); 

(ii) possible legal, financial and commercial impacts of climate change on its business; 

(iii) the effects on key stakeholders (including but not limited to employees, clients, end customers and supply chain partners) of the measures taken by the Company to mitigate its GHG Emissions and how these measures can address a just transition to net zero; and 

(iv) any mitigation measures of such effects which the Company could reasonably adopt, 

and a copy of such climate change risk register is included in the Disclosure Documents.

3. The Company has a board member or an executive committee who/ which is primarily accountable for measurement, management and reporting on climate risks, the climate change risk register and the Company’s Net Zero Target and Carbon Budget (if any), and details of such board member or executive committee and their qualifications (particularly in relation to climate change) are set out in the Disclosure Letter. 

4. Details of how the Board integrates climate change factors into decision-making are set out in the Disclosure Letter.

5. Copies of all Material Climate Contracts are included in the Disclosure Documents and identified as such.

6. [Where the Company conducts its business online, the Company offers customers, at the point of sale, the option to offset the Carbon Footprint.] [OR] [Details of opportunities offered by the Company to its customers to offset the Carbon Footprint are set out in the Disclosure Letter.]

7. Details of the steps the Company takes to reduce, recycle and reuse its waste (including plastic waste) are set out in the Disclosure Letter.

8. Details of engagement activities which the Company undertakes to educate and consult with its employees regarding climate change issues within the business of the Company are set out in the Disclosure Letter.


Carbon Budget means the aggregate of [value] tonnes of Carbon Dioxide Equivalent of GHGs Emissions permitted within the period of [YEAR to YEAR].

Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by the UN’s Intergovernmental Panel on Climate Change (IPCC) to compare the emissions from various Greenhouse Gases (GHGs) on the basis of their global warming potential over a specified timescale in order to express a Carbon Footprint that consists of different GHGs as a single number.

Carbon Footprint means the amount in tonnes of Carbon Dioxide Equivalent of Greenhouse Gas Emissions that will be released into the atmosphere as a result of the [manufacture/ supply/ use] of [the Product/ Service] determined in accordance with international carbon reporting practice, being the accepted practice from time to time in relation to reporting for the purposes of the protocols to the United Nations Framework Convention on Climate Change.

Disclosure Documents means the Disclosure Letter and the USB memory stick containing the documents included in the electronic data room maintained by the [Sellers], an index of which is attached at Schedule [] of the Disclosure Letter.

Disclosure Letter means the disclosure letter in the agreed form having the same date as this Agreement from the [Sellers] addressed to the [Buyer].

GHG Emissions* means emissions of Greenhouse Gases 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. [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]

* [Drafting note: this definition of GHG Emissions relates to organisational emissions of GHGs (distinct from contract emissions of GHG). It refers to emissions of the organisation from all sources (which include its value and supply chains). A definition of GHG Emissions relating to contract emissions would attribute the emissions to a party/ the parties and relate them to the activities governed by the contract in question. For different options for defining GHG Emissions, see TCLP’s drafting definitions and sample wording document in our Net Zero Toolkit.]

Greenhouse Gases (GHGs) means the natural and anthropogenic gases 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 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)] each expressed as a total in units of Carbon Dioxide Equivalent (CO2e).

Material Climate Contracts means any contract, agreement, arrangement or similar between the Company and a third party that:

(a) contributes to more than [5]% of the Company’s [Scope 2 [or] Scope 3] emissions;

(b) a failure to perform by either party or a material breach by the counterparty could result in a material risk that the Company will not meet an interim target it has set as part of its Net Zero Target and/ or exceed its Carbon Budget; or

(c) is identified as an onerous contract or otherwise relates to a material risk on the climate change risk register referred to in clause 2.

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.

Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHGs associated with the implementation of an Offsetting Strategy to address the Residual Emissions of the Company by [INSERT DATE/ 2050 or sooner] to achieve a balance between the Company’s sources and sinks of GHGs in a calendar year and for each subsequent year thereafter and to achieve the Paris Agreement Goals. 

Net Zero Transition Plan means a plan to deliver the Net Zero Target and to remain Net Negative thereafter that:

(a) includes an Offsetting Strategy;

(b) sets interim reduction targets for the Company’s GHG Emissions 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 plan specifying:

(a) the carbon credits that [may/ will] be purchased by the Company from a project that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism] to offset its Residual Emissions;

(b) [how/ that] the emissions of GHGs avoided, reduced or removed by the project are additional;

(c) how the Company will transition from using credits resulting from offsetting projects that avoid or reduce third party emissions of GHGs to those from projects that remove emissions of GHG and involve long-term storage methods that have a low risk of reversal [over millennia];

(d) how the Company will [use best endeavours to] reduce its use of credits by reducing its Residual Emissions [to zero/ by []%] by 2050; and

(e) the impact of the relevant offsetting projects on a just transition and wider social and ecological goals.

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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