Model clause

Carbon Performance Clauses

Jessica's Clause

Include climate metrics for performance in all contracts. Provide a mechanism akin to liquidated damages for breaches with negative climate impacts, in the form of mandatory donations to non-profits.

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Why use this?

Currently the carbon costs of producing goods or delivering services are not usually specified in contracts and, therefore, there is no incentive to reduce carbon emissions.

Here, the supplier warrants it will meet certain targets for the climate and environmental impacts of delivering the goods or services under the agreement. If breached, the supplier must pay a climate remediation fee to a selected environmental charity.

How it promotes a net zero future

Cascading environmental clauses which provide a remedy for breaches that impact a purchaser’s GHG targets - and therefore cause negative climate impacts - should increase the speed of transition to net zero.

Disclaimer - please read

The clauses on this website (and published in our Climate Contract Playbook) have been prepared in good faith on a pro bono basis and are free to download and use. The clauses have been drafted and edited by a variety of lawyers and, as such, the approaches to drafting may not conform to any particular drafting norms. We acknowledge this as a consequence of the collaborative drafting process.

The clauses on this website (and published in our Climate Contract Playbook) are provided on an ‘as is’ basis and without any representation or warranty as to accuracy or that the clauses will achieve the relevant climate goal or any other outcome.

This website (and the Climate Contract Playbook) does not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and does not contain legal or financial advice. The clauses are precedents for legal professionals to use, amend and negotiate using their professional skill and judgement and at their own risk.

While care has been taken in the drafting of these clauses, neither The Chancery Lane Project nor any of its contributors owe a duty of care to any party in relation to their preparation and do not accept any liability for any errors or omissions, nor for any loss incurred by any person relying on or using these clauses or any other person. Users should use their own professional judgement in the application of these clauses to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the clauses are based on the laws of England and Wales. We encourage the conversion of these precedent clauses for use in other jurisdictions.

The clause

Recital

[Note: Agreement to contain recital below in addition to the other recitals relevant to the Agreement. The recital below should be viewed as a starting point for a sustainability recital. Expanding the Recital to address and memorialise sustainability commitments should be considered.] 

The parties acknowledge that the performance of this Agreement will result in certain climate [and ecological] impacts, including the emission of greenhouse gases.

1. Climate and Ecological Impacts Under this Agreement

Each party agrees to use all reasonable endeavours, and cooperate in good faith with the other party and its contractors, to minimise as far as reasonably practicable the quantity of greenhouse gas emissions related to this Agreement.

2. Climate Reporting and Warranties

[Note: The parties should agree a mechanism for measuring their climate and environmental impacts under this Agreement. The warranties below should be adjusted accordingly. These could also be used as warranties in M&A transaction documents.]

2.1 The Supplier agrees to:

2.1.1 provide the first Annual Emissions Report within [twelve (12)] months after the start date of this Agreement and each other Annual Emissions Report no later than forty (40) Business Days after the applicable Emissions Report Date; [and]

2.1.2 measure and calculate its Total Emissions in accordance with the GHG Reporting Standard[, and ensure that they are verified each year by an Independent Third Party before being provided to the Customer]*; [and]

2.1.3 [insert other climate performance metric as relevant to the performance of this Agreement].

2.2 The Supplier represents and warrants that:

2.2.1 all Annual Emissions Reports provided to the Customer are in all material respects complete, accurate and not misleading; and

2.2.2. it will not commit any Climate Breach during the term of the Agreement.

[*Note in relation to 2.1.2: Before including third party verification requirement, determine if appropriate for the supplier in question in light of the supplier’s size.]

3. Climate Remediation Fee

3.1 Without prejudice to any other claims, rights or remedies under this Agreement, the parties agree that, in respect of any breach of the warranties set out in clause 2.2, damages payable by the Supplier to the Customer would not be an appropriate remedy in the wider context of damage to the climate, the environment and the Customer’s reputation (all of which the Supplier accepts for the purpose of this Agreement as being losses incurred by the Customer). Without prejudice to the Customer’s right to damages, the Supplier agrees to pay the Climate Remediation Fee as set out in this clause 3.

3.2 The parties agree that any Climate Remediation Fee payable under this Agreement to provide compensation for damage caused by the Supplier’s Climate Breach is reasonable and proportionate to the legitimate interests of the Customer in mitigating, setting off, counteracting, and repairing that damage (and preventing future damage), in part reflecting its public commitments to [reduce greenhouse gas emissions]. Each Party agrees that it has been properly advised regarding the negotiation of this Agreement, and in particular regarding the inclusion of the Climate Remediation Fee as a remedy for Climate Breaches.

3.3 If the Customer identifies or suspects a Climate Breach the Customer may serve a Climate Remediation Notice on the Supplier at any time within twenty (20) Business Days of [the occurrence of such breach / becoming aware of such breach], whichever is later.

3.4 Upon receipt of a Climate Remediation Notice, the Supplier will promptly investigate the matter and if the Supplier is unable to mitigate the relevant Climate Breach to the Customer’s reasonable satisfaction within thirty (30) Business Days of receipt of the notice pay the applicable Climate Remediation Fee to the Appointed Beneficiary within fifteen (15) Business Days of the Supplier’s failure to cure the relevant Climate Breach.

Definitions

Annual Emissions Report” means a written report setting out the Total Emissions for the relevant Emissions Reporting Period;

Appointed Beneficiary” means the beneficiary of the Climate Remediation Fee, to be chosen from the Beneficiary List by the Customer and nominated in writing in the relevant Climate Remediation Notice;

Beneficiary List” means the [ideal position – a list of reputable NGOs supporting environmental improvement UK and globally managed by a reputable independent third party; in the absence of such a list, the parties may wish to choose a shortlist of their preferred charitable partners / NGO beneficiaries];

Business Day” means any day other than a Saturday, Sunday or any other day which is a public holiday in England;

Climate Breach” means any of the following events:

(i) in an Annual Emissions Report, the Total Emissions exceed the Emissions Reduction Target; or

(ii) [where the Supplier has agreed to achieve certification under [insert relevant sustainability / climate / carbon industry standard] by a particular date, the Supplier fails to achieve that certification by that date and afterwards maintain that certification during the term of the Agreement; or]

(iii) any other material breach of Clause 2;

Climate Remediation Fee” means:

(i) in respect of clause (i) of the definition of Climate Breach, an amount equal to the cost of carbon credits that must be purchased to offset each metric ton of CO2e that Total Emissions exceed the Emissions Reduction Target; and

(ii) in respect of clause (ii) [or (iii)] of the definition of Climate Breach, [[£[X]] [and an additional sum of £[x] for each [day] that the breach continues [up to a maximum of £[x]]] OR [[X%] of the aggregate amount paid by Supplier to Customer over the prior twelve (12) months]; 

Climate Remediation Notice” means a written notice by the Customer containing details of any identified or suspected Climate Breach(es) and nominating an Appointed Beneficiary;

Emissions Reduction Target” means [zero Total Emissions][[X]% less than the Total Emissions of the prior year];

Emissions Reporting Period” means, firstly, a period of twelve months commencing on the start date of this Agreement and ending on the first anniversary of that date, and then consecutive 12 month periods ending on the day before the next anniversary of that date;

Emissions Report Date” means, in relation to an Emissions Reporting Period, the first day of the next Emissions Reporting Period;

GHG Reporting Standard” means [(i) the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, Revised Edition 2015, (ii) the Greenhouse Gas Protocol, GHG Protocol Scope 2 Guidance, An Amendment to the GHG Protocol Corporate Standard, 2015, and (iii) the Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Supplement to the GHG Protocol Corporate Accounting and Reporting Standard, 2011];

Independent Third Party” means an impartial organisation not affiliated with either party providing climate impact assessment and emissions reporting services, of a standard at least equal to the Carbon Disclosure Project or the Carbon Trust;

Scope 1 Emissions” means the direct greenhouse gas emissions emitted from sources directly owned or controlled by the Supplier;

Scope 2 Emissions” means the indirect greenhouse gas emissions associated with the generation of electricity purchased by the Supplier;

Scope 3 Emissions” means all indirect greenhouse gas emissions emitted from sources which are not directly owned or controlled by the Supplier, excluding Scope 2 Emissions, which occur both upstream and downstream in the Supplier’s supply or value chain related to the [Product/Services];

Total Emissions” means the sum of the Supplier’s Scope 1 Emissions, Scope 2 Emissions, and Scope 3 Emissions, in each case arising out of the performance of its obligations under this Agreement, in a given Emissions Reporting Period [as verified by an Independent Third Party].

[Note: Issues to consider in selecting the Appointed Beneficiary from the Beneficiary List may include proximity to the environmental harm caused under the performance of this Agreement and other issues relevant to achieving direct remediation of the relevant harm.]

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