A dedicated section in heads of terms precedents so that climate change issues become a key issue for any deal team. This will be particularly relevant where parties have public net zero targets.
Why use this?
Parties with net zero targets can embed these into their business from the very start of the transaction. This will make it easier to identify and implement opportunities to reduce the climate impact of transactions, improve reputation, promote climate leadership and collaboration and mitigate risk.
How to use this clause
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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.
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Net Zero Target means the goal of achieving by [2050/INSERT OTHER DATE] a balance between a party’s emissions and removals of greenhouse gases aligned with the UNFCCC’s Paris Agreement goals.
Key Climate Change Considerations
1.1 The [proposed transaction] will be structured so as not to increase, or amplify the impact(s) of climate change or the Parties’ or their subsidiaries’ greenhouse gas (GHG) emissions.
1.2 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 achieving 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 (GHG) emissions year on year.
1.3 The Parties agree to work together to:
(i) identify and implement opportunities to reduce the GHG emissions relating to the [proposed transaction];
(ii) incorporate GHG emissions reduction targets and related financial incentives into the proposed transaction [and where possible to involve other parties related to the proposed transaction in such emissions reductions].
(iii) Measure and report GHG emissions relating to the proposed transaction.
1.4 After minimising GHG emissions in accordance with paragraph 1.3 the Parties shall [jointly agree to] offset their remaining GHG emissions.
1.5 The respective directors of the Parties will consider:
1.5.1 the financial risks relating to climate change as part of the due diligence for the [proposed transaction] [in accordance with the [recommendations of the Task Force on Climate-related Financial Disclosures / Bank of England’s climate risk taxonomy and climate stress tests] including the:
a) physical risks;
b) transition risks; and
c) litigation risks],
and related scenario analysis as recommended by the Task Force on Climate-related Financial Disclosures; and
1.5.2 how wider local and global stakeholders (including employees, clients, end customers and supply chain partners) may be affected by both climate risk and the transition to a low carbon economy in relation to the proposed transaction and how the Parties might help to improve their resilience.
[1.6 If having considered the risks [summarised in paragraph 1.5] the Parties conclude that there are [significant] climate risks present in the [proposed transaction] they will, as a Condition Precedent or Condition Subsequent, agree a plan to mitigate the risks identified.]
[1.7 The Parties shall conduct the proposed transaction and related due diligence in accordance with the Green Transaction Execution Protocols annexed at Schedule 1.]
[1.8 The Parties [undertake to disclose to each other all climate policy engagement, climate leadership, lobbying activities, trade association memberships and public policy positions that may support or undermine the goals of the Paris Agreement/agree not to undertake any direct or indirect climate policy engagement, lobbying activities, trade association memberships or public policy positions that may undermine the goals of the Paris Agreement.]