Climate clause

Circular Economy Product Design Obligation

Alex's Clause

Embeds ‘Repair, Reuse and Recycle’ concepts in procurement / supply agreements for the benefit of the client, end consumer and environment.

This is a net zero clause

This clause aligns with Paris Agreement goals, Race to Zero requirements and the Oxford Principles for Net Zero Aligned Carbon Offsetting. For tools and support to use this clause, use our toolkit or join one of our events.

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Why use this?

Manufacturers will be incentivised by the ability to earn a bonus for using recycled materials and circular manufacturing. Purchasers can ensure that the design and manufacture of products aligns with responsible consumption and production and contributes to achievement of their net zero transition plan. The resulting products will ultimately be more competitive.

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

Additional Recitals

(A) The Parties hereby acknowledge that a  primary consideration for the design and manufacture of the product is  to ensure, as far as possible, that the product can be reused, repaired and/or recycled at the end of its life [and to reduce its carbon footprint].

(B) The Parties [have signed up to the Race to Zero and] acknowledge their common intention to achieve their respective net zero targets and align with the objectives of the Paris Agreement, in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels and achieve net zero or net negative emissions by 2050 or sooner, in a manner that promotes a just transition to a low carbon economy and that results in at least a 7%* reduction of greenhouse gas emissions year on year. 

* [The ‘Carbon Law’; and  J. Rockström et al., A roadmap for rapid decarbonisation, Science 355.6331, 1269-1271 (2017)]

 

Additional Definitions 

Carbon Dioxide Equivalent 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 [Drafting note: See TCLP Glossary Carbon Dioxide Equivalent (CO2 or CO2eq) for alternative definition options and explanatory notes];

Circular Design Requirements means the requirements at clause 1.2; 

Carbon Footprint means the amount in tonnes of Carbon Dioxide Equivalent of GHG Emissions that will be released into the atmosphere as a result of the development, manufacture, supply, use and disposal of the Product;

Circular Manufacturing Requirements means the requirements at clause 2.3;

Climate Professional means an appropriately qualified [environmental, sustainability consultant/ net zero consultant] who has the skills and experience to diligently, competently and professionally prepare the Carbon Footprint report as required by clause 3.1;

Design IP means the Product, the Final Design, any previous drafts or versions of the Final Design and any other documents, materials or information created by the Manufacturer in connection with its obligations under clause 1;

End-of-Life Product means a Product that is irreparably faulty and can no longer be used by the end customer, has performed its intended purpose or is not receiving continuing support, either because existing marketing, support and other processes are terminated, it is at the end of its useful life or is no longer desired by the end customer;

Final Design means the final design of the Product, as determined by the Parties in accordance with clause 1.4;

GHG Emissions means, as the context demands, either the Manufacturer’s emissions of GHGs related to this Agreement or the [Clients/ Parties] emissions of GHG, 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]; 

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),] each expressed as a total in units of Carbon Dioxide Equivalent (CO2e);

Manufacturer is [X], being the person who designs and manufactures the Product in accordance with the Final Design for the Client;

Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHG Emissions associated with Offsets acquired to address Residual Emissions of the [Client/ Parties] by [insert date/ 2050 or sooner] to achieve a balance between the [Client’s/ Parties] sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter and to achieve the goals of the Paris Agreement;

Product means the [insert description of product];

Product Carbon Footprint Report has the meaning given to it in clause 3.1.1;

Recycle(d) means a recovery operation by which waste materials are reprocessed into products, materials or substances whether for the original or other purposes;

Residual Emissions means GHG Emissions that are emitted after all reasonable efforts have been made by the Manufacturer to reduce GHG Emissions;

Reuse(d) means the use of materials, products or components that are not waste* again on [one or more] subsequent occasions for the same purpose for which they were conceived; and

* [Drafting note: The concept of reuse under the Waste Framework Directive (2008/98/EC) is reserved for something that is not waste and suitable for direct reuse for its original purpose. Complying with UK and EU waste law and end-of-waste criteria is a specialist area and that parties using this wording should consider taking advice from an environmental lawyer to ensure that the circular design elements that they are proposing to introduce into their procurement processes or supply chain comply with law in this area.]

Specification means the description and proposed use of the Product, including the intended customer base of the Product and any specific requirements of the Product, as outlined in Schedule [X].

 

Additional Clauses

1 Design Obligations

1.1 The Manufacturer will prepare a design of the Product to deliver the Specification for the Client by [insert timings]. In creating the design for the Product, the Manufacturer shall use all reasonable endeavours to satisfy the Circular Design Requirements.

1.2 The Circular Design Requirements are:

1.2.1 the Manufacturer shall minimise the volume of resources needed to manufacture the Product [and shall design the product with the aim of reducing its Carbon Footprint];

1.2.2 the Manufacturer shall maximise the volume of secondary raw materials derived from Recycled sources used to manufacture the Product;

1.2.3 the Product is not coated with, does not contain or is not otherwise treated with chemicals or treatments which prevent or make it harder for the Product to be Recycled when it becomes an End-of-Life Product;

1.2.4 the Product shall not contain any microplastics (or plastics which are capable of degrading to form microplastics), glitter, [insert other harmful/banned materials], and/or any other harmful materials made known to the Manufacturer by the Client and specified in Schedule [X];

1.2.5 the Manufacturer must affix any branding of the Client onto the Product in such manner that the Client’s branding can be easily removed, so that the Product can be repaired, refurbished, Reused or Recycled;

1.2.6 the Product shall contain a minimum [insert number]% constituent components and constituent parts that can be easily, and at an economically viable cost, disassembled, removed, refurbished, replaced or repaired; and

1.2.7 the Manufacturer shall document any know-how and learnings that it creates during the design process of the Product, and the rights in such documents, know-how and learnings shall be owned by the Client pursuant to clause 1.5.

1.3 To the extent that the Manufacturer determines that it cannot fulfil the Circular Design Requirements because either the Circular Design Requirements jeopardise the Specification or the Specification prevents the Circular Design Requirements from being fulfilled, the Manufacturer shall promptly make this known to the Client and identify which particular Circular Design Requirements are an issue. The Client shall then decide whether to:

1.3.1 proceed with the Specification, acknowledging that those identified Circular Design Requirements will not be fulfilled; or

1.3.2 amend the Specification, and request that the Designer attempts again to fulfil all of the Circular Design Requirements against the amended specification.

This process shall be repeated until the Final Design is achieved in accordance with clause 1.4.

1.4 The Final Design of the Product shall be the design that either:

1.4.1 satisfies the Circular Design Requirements and the Specification; or

1.4.2 does not satisfy all of the Circular Design Requirements but which the Client has approved pursuant to clause 1.3.1 and satisfies the Specification.

1.5 All rights anywhere in the world (including all intellectual property rights, copyright, design rights and know-how rights) in the Design IP shall immediately vest in the Client and the Manufacturer shall promptly provide to the Client all copies in its possession of the Design IP. To the extent that such rights in the Design IP do not vest in the Client, the Manufacturer hereby assigns such rights to the Client with full title guarantee.

1.6 The Manufacturer shall, and shall use all reasonable endeavours to, procure that any third party shall promptly execute and deliver such documents and perform such acts as may be required to assist the Client in registering any Design IP.

2 Manufacturing Obligations

[Drafting Notes:

a) In cases where the Manufacturer is likely to have resource limitations or different national circumstances to the Client that create barriers to compliance with these obligations, this clause should be combined with additional drafting detailing the support or resources that will be provided by the Client to assist compliance by the Manufacturer, and in the event of breach, the requirement that the Client work with the Manufacturer to rectify breach.

b) Consider combining this with provisions imposing minimum standards on Manufacturers to implement ethical working practices and minimum wages for workers (specific to the national circumstances of Manufacturer) to avoid negative unintentional consequences of compliance with this clause.]

2.1 The Client hereby grants to the Manufacturer a non-exclusive, royalty free, non-transferable, non-assignable [worldwide] licence to use the Design IP in the Final Design to perform its obligations under this clause 2.

2.2 The Manufacturer shall manufacture the Product in accordance with the Final Design. In manufacturing the Product, the Manufacturer shall satisfy the Circular Manufacturing Requirements.

[Drafting Note: Where any or all of the manufacturing obligations are subcontracted, this clause should ensure similar terms are contained in any subcontract (as in Owen’s Clause (Net Zero Supply Chain Cascade).]

2.3 The Circular Manufacturing Requirements are:

[Drafting Note: consider adding provisions to address the water-intensiveness of production, the distance that different raw materials are transported and the environmental costs of different components.]

2.3.1 the Manufacturer shall keep accurate records of the origin and volume of raw materials that it uses, and will make these records available to the Client on request;

2.3.2 the Manufacturer can accurately demonstrate and trace the origin and journey of the raw materials, including details of recycled content,  that it uses to manufacture the Product through the supply chain of such raw materials, and will provide this information to the Client on request;

2.3.3 the Manufacturer shall take steps to minimise the volume of resources required to manufacture the Product and the volume of GHGs emitted during its manufacture of the Product;

[Drafting Note: Please consider adding here more specific detail on the types of resources used to manufacture a particular product or impose thresholds that manufacturing parties should aim to stay below.]

2.3.4 the Manufacturer shall take steps to:

A. maximise the volume of materials derived from Recycled sources that it requires to manufacture the Product;

B. minimise the loss through disposal or destruction of raw materials during the manufacturing of the Product; and

C. first Recycle any waste materials created from the manufacturing of the Product before proceeding with any other form of disposal;

2.3.7 the Client has the right to inspect the Manufacturer’s premises and records [on reasonable notice] to ensure that the Manufacturer is complying with these Circular Manufacturing Requirements and to verify the amount of any bonus payable to the Manufacturer pursuant to clause 2.6;

2.3.8 within [X] days of [request by the Client / first supply of the Product to the Client], the Manufacturer shall issue a declaration to the Client confirming that the Circular Manufacturing Requirements have been fulfilled for the Product[.][; and]

2.3.9 [the [Client/[Manufacturer Parties] shall [jointly agree to][Drafting Note: responsibility to be agreed by the parties] purchase a quantity of carbon credits equal to the amount of [annual/quarterly] Residual Emissions associated with the Carbon Footprint from a project that has been verified in accordance with [insert name of voluntary standard].

2.4 Breach by the Manufacturer of clause 2.3 shall be a material breach of this Agreement and permit the Client to terminate the Agreement in accordance with clause [X]. This is without prejudice to any other termination rights of the Client under this Agreement.

2.5 [Following the sale of the Product by the Client to its customers, the Manufacturer shall provide the following after sales assistance to the end customers of the Product for [insert term]. The Manufacturer shall:* 

2.5.1 operate a ‘take back and treatment’ scheme, whereby it will ensure that end customers can easily return to [it/to a designated service provider] any End-of-Life Products. As part of the ‘take back and treatment’ scheme, the Manufacturer shall receive the End-of-Life Products, remove (insofar as is possible) those constituent components and constituent parts from the End-of-Life Products that can be Reused or Recycled and Reuse or Recycle the removed components and parts accordingly**; [and/or] 

2.5.2 operate a repair scheme, whereby it uses all reasonable endeavours to repair any faulty or worn out Product (or component or part thereof) prior to the Product becoming an End-of-Life Product. [Where the Manufacturer reasonably considers that a faulty Product (or component or part thereof) is irreparable and during the period prior to the Product becoming an End-of-Life Product, it will replace the faulty or worn out Product (or component or part thereof).]***

* [Drafting note: the costs of the schemes and any fee payable to the Manufacturer for providing them will need to be dealt with in the Agreement. The parties should also consider any implications for just transition when negotiating whether these obligations sit with the Manufacturer or the parties that import the products into the relevant jurisdiction.]

** [Drafting note: Consider how this requirement interacts with any requirements in the relevant jurisdictions for importers to operate a take back or other recycling collection scheme and amend this requirement accordingly.]

*** [Drafting note: Consider any requirements for repair schemes that apply in the relevant jurisdiction and ensure that this wording is consistent with those. For example, in the UK and EU consumers of certain products such as refrigerators or washing machines have a right to repair. See also Ecodesign for Energy-Related Products and Energy Information Regulations 2021 (SI 2021/745), and Commission Regulation (EU) 2019/2023 of 1 October 2019 laying down ecodesign requirements for household washing machines and household washer-dryers pursuant to Directive 2009/125/EC of the European Parliament and of the Council, amending Commission Regulation (EC) No 1275/2008 and repealing Commission Regulation (EU) No 1015/2010.]

2.6 The Client will pay to the Manufacturer a bonus equal to the following amounts for the volume of [materials derived from Recycled sources that the Manufacturer uses to manufacture the Product/the GHG reductions made as a result of adopting the Circular Manufacturing Requirements]:

2.6.1 [X] tonnes to [X] tonnes, £[X];

2.6.2 [X] tonnes to [X] tonnes, £[X]; and

2.6.3 more than [X] tonnes, £[X].

3 Manufacturer Reporting Requirements

3.1 [Within [ ]/ By [DATE] and [annually] thereafter], the Manufacturer shall provide the Client with:

3.1.1 a report (the “Product Carbon Footprint Report”) prepared by a Climate Professional to [internationally recognised standards to measure, manage and demonstrate carbon credentials/the GHG Protocol Product Life Cycle Accounting and Reporting Standard/the BSI PAS 2050:2011] detailing the Carbon Footprint of the Product and confirming the impact that adhering to these Circular Manufacturing Requirements [and the steps and interim targets outlined in clause 2.3.3 and 3.2] have made on the Carbon Footprint of the Product. 

3.1.2 a report prepared by an environmental consultant detailing the  Recycled content of the Product, the amount of raw materials saved as a result of adoption of the Circular Manufacturing Requirements and the amount of waste materials created during manufacture of the Product that are recycled.

3.2 [the Manufacturer shall [within [] of the Product Carbon Footprint Report] provide the Client with an  action plan listing any opportunities identified as a result of the Product Carbon Footprint Report to reduce the Carbon Footprint of the Product [with the accompanying cost of each opportunity] and [the parties shall agree on] a set of interim targets towards such reduction]. The action plan will list actions to be taken by the Manufacturer in each quarter to meet the interim targets and reduce the Carbon Footprint.

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