Climate clause

Climate-related Knowledge Sharing Between Insurer and Insured [New]

Lovisa's Clause

A clause designed to increase communication between insurers and insureds, put the topic of climate change on the agenda and promote sustainable practices in line with a net zero future.

This is a climate clause

This clause brings climate considerations to your drafting. It is not yet net zero aligned. To align this clause with net zero, use our toolkit or join one of our events.

Skip to clause

Why use this?

This easily implemented “soft push” will promote mitigation of climate change through knowledge sharing in a mutually acceptable forum. Prompting the policyholder to assess climate change risks and impacts may decrease risk profile and the likelihood of claims, with policyholders benefitting from a premium reduction and insurers more likely to secure a renewal.

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 Definitions 

Biodiversity Protection means the protection, conservation and restoration of biodiversity and ecosystems including without limitation by way of protection of natural or semi-natural habitats, species, terrestrial, marine and other aquatic ecosystems; sustainable land use and management; halting or preventing agricultural practices which contribute to the degradation of soils and other ecosystems, deforestation and habitat loss; or enabling practices which contribute to sustainable forest management and uses of forests and forest land that contribute to enhancing biodiversity.

Circular Economy means a regenerative economy of sustainable production and consumption decoupled from consumption of finite natural resources and based on systems designed to eliminate waste and pollution, keep products and materials in use and regenerate nature.

Climate Change Adaptation means the process of adjustment or preparation of natural or human systems to the actual or anticipated climate and its effects in a way that moderates harm or exploits beneficial opportunities, including sharing of information about how to reduce the vulnerability of such systems to Climate-Related Risk.

Climate Change Mitigation means human intervention or efforts to reduce the sources and enhance the sinks of GHG Emissions.

Climate-Related Risk means Transition Risk, Liability Risk and Physical Risk.

Environmental Objectives has the meaning given to it in Clause [1.1(c)].

Greenhouse Gas (GHG) Emissions means emissions of the greenhouse gases listed at Annex A of the 1998 Kyoto Protocol to The United Nations Framework Convention on Climate Change, as may be amended from time to time, including carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6), each expressed as a total in units of carbon dioxide equivalent (CO2e).

Insured’s Climate-Related Risk Report has the meaning given to it in Clause [1.3].

Insurer’s Climate-Related Risk Report has the meaning given to it in Clause [1.1].

Liability Risk means risk associated with emerging legal cases and proceedings related to climate change, which includes, without limitation, potential payouts, fines, awards, orders, legal and administrative costs, insurance costs, financing costs (including third-party litigation funding) and reputational costs.

Net Zero means a state of balance between sources and sinks of GHG Emissions achieved by both reducing GHG Emissions overall and removing GHG Emissions to achieve Paris Agreement 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.

Physical Risk means physical risk from climate change arising from a number of factors, and relating to specific weather events (such as heatwaves, floods, wildfires and storms) and longer-term shifts in the climate (such as changes in precipitation, extreme weather variability, sea level rise, and rising mean temperatures).

Pollution Prevention and Control means preventing or reducing pollution including without limitation by way of reducing pollutant emissions into air, water or land (other than GHG Emissions); improving levels of air, water or soil quality; or reducing any adverse impact on human health and the environment of the production, use or disposal of chemicals.

Sustainable Water and Marine Resource Use means protecting or improving the qualitative and quantitative status of bodies of water and marine waters including without limitation by protecting the environment from the adverse effects of urban and industrial waste water discharges, ensuring that water is free from any micro-organisms, parasites and substances that constitute a potential danger to human health as well as increasing people’s access to clean drinking water and protecting, preserving or restoring the marine environment.

Transition Risk means transition risk from climate change arising from the process of adjusting to a low-carbon or Net Zero economy. A range of factors influence this adjustment, including: climate-related developments in policy and regulation, the emergence of disruptive technology or business models, shifting sentiment and societal preferences, or evolving evidence, frameworks and legal interpretations. This includes (without limitation) the impact on the demand for the products and/ or services offered by the Insured and the financial cost of compliance by the Insured as a result of a change in law and regulation facilitating such economic transition).

 

Additional Clause

1. Reporting on Insights related to Climate-Related Risks and Mitigation

1.1 During each year of the Policy, before the end of the [third] month after a) the start date of the Policy and b) each anniversary of the start date of the Policy, the Insurer shall supply to the Insured an annual report (the ‘Insurer’s Climate-Related Risk Report’) in a form [and substance] [agreed in writing between the Insurer and the Insured]/[set out in Schedule []] containing information on:

(a) trends the Insurer has knowledge of regarding processes and procedures that identify, assess and manage Climate-Related Risks impacting the field of business relevant to the Insured; 

(b) actual or potential impacts of Climate-Related Risks* on the business, operations and value of assets (including without limitation commercial property) of the Insured which shall include (without limitation) the assessment of: 

(i) Physical Risks; and

(ii) Transition Risks,

including any step(s) that the Insurer recommends that the Insured should implement to address or mitigate such risks; and 

* [Drafting Note: The insurer may wish to refer to the guidance of the Task Force on Climate-Related Financial Disclosuresin identifying these risks.]

(c) processes, procedures and any targets [the Insurer recommends that the Insured should implement] to contribute to the following environmental objectives: 

(i) Climate Change Mitigation; 

(ii) Climate Change Adaptation;

(iii) Sustainable Water and Marine Resource Use; 

(iv) Transition to a Circular Economy; 

(v)  Pollution Prevention and Control; and 

(vi) Biodiversity Protection, 

[Drafting note: add other environmental objectives according to the business of the Insured]

(together, the ‘Environmental Objectives’).

1.2 [At the same time as supplying the Insurer’s Climate-Related Risk Report, the Insurer shall schedule a meeting with the Insured: 

(a) to discuss the content of the Insurer’s Climate-Related Risk Report and jointly evaluate, and where relevant agree necessary adjustments to, any step(s) to be taken by the Insured under Clauses 1.1(a) – (c) above; 

(b) to take place within [30] Business Days of the date of the Insurer’s Climate-Related Risk Report being supplied under Clause [1.1] above;

(c) to be attended by [a minimum of one [Director][board member] [and/ or] [the company secretary] [and/ or] [the Chief Sustainability Officer]] of each of the Insurer and Insured; and

(d) at which [reasonably] detailed minutes recording the discussion and outcomes of the meeting shall be taken [and following which such minutes shall be: 

(i) signed off by [a minimum of one [Director][board member] [and/ or] [the company secretary] [and/ or] [the Chief Sustainability Officer]] of each of the Insurer and Insured; and 

(ii) circulated to the [board][and][all employees] of each of the Insurer and Insured, 

within [10] Business Days of such meeting taking place.]

1.3 Within [six] months of each Insurer’s Climate-Related Risk Report being provided or as otherwise agreed in writing between the Insurer and the Insured but in any case before the relevant date for renewal of [the Policy]/[this Agreement], and taking into account the information shared therein, the Insured shall supply to the Insurer a report (the ‘Insured’s Climate-Related Risk Report’) in a form and substance agreed between the Insurer and the Insured containing information on*:

(a) the processes and procedures currently implemented by the Insured to identify, assess and manage Climate-Related Risks impacting its business; 

(b) any steps the Insured is currently taking to address or mitigate the Climate-Related Risks set out in the Insurer’s Climate-Related Risk Report pursuant to Clause [1.1(b)] or any other Physical Risks or Transition Risks identified by the Insured as affecting its business or assets; and 

(c) processes, procedures and any targets implemented by the Insured that contribute to the Environmental Objectives. 

* [Drafting Note: Where the Insured already has existing, separate, obligations to make disclosures aligned with the recommendations of the Task Force on Climate-Related Financial Disclosures, this section could align with TCFD recommended disclosures so as not to create another layer of similar but different reporting for the Insured (for example, see 1.2(a) of Archie’s Clause).]

1.4 [At the same time as supplying the Insured’s Climate-Risk Report, the Insured shall schedule a meeting with the Insurer: 

(a) to discuss the content of the Insured’s Climate-Risk Report and jointly evaluate, and where relevant agree necessary adjustments to, any step(s) being taken by the Insured under Clauses [1.3(a) – (c)] above; 

(b) to take place within [30] Business Days of the date of the Insured’s Climate-Risk Report being supplied under Clause [1.3] above;

(c) to be attended by [a minimum of one [Director]/[board member] [and/ or] [the company secretary] [and/ or] [the Chief Sustainability Officer]] of each of the Insurer and Insured; and

(d) at which [reasonably] detailed minutes recording the discussion and outcomes of the meeting shall be taken [and following which such minutes shall be: 

(i) signed off by [a minimum of one [Director]/[board member] [and/ or] [the company secretary] [and/ or] [the Chief Sustainability Officer]] of each of the Insurer and Insured; and 

(ii) circulated to the [board][and][all employees] of each of the Insurer and Insured, 

within [10] Business Days of such meeting taking place.]

1.5 If the obligations of the Insured outlined in Clauses [1.3 – 1.4] above are met [to the reasonable satisfaction of the Insurer] there will be a premium reduction of []% applicable to the Policy at the time of Renewal.

Join hundreds of lawyers fighting climate change

Help us and take part