Entire Business Net Zero Objectives
A menu of climate aligned practical steps organisations can require their counterparties to take to transition to net zero.
What this clause does
This clause enables a party with a Paris-aligned net zero target and strategy to ensure that counterparties are similarly aligned in terms of robust Paris-aligned targets, implementation, governance and policies. Designed for use with counterparties who will accept going a step beyond those climate requirements associated with contract delivery.
Clauses
[Drafting note: Capitalised terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]
1. Sustainability Objectives
[Drafting note: This is a menu of suggestions and these objectives should be tailored to the parties’ requirements and made ‘darker’ or ‘lighter’ green accordingly.]
The [Obligor] shall: [Drafting note: Consider changing to ‘the Parties shall’ and making all obligations mutual]
1.1 within [time period] of entering into this agreement publicly set an organisational Net Zero Target [validated by the Science Based Targets initiative][and sign up to Race to Zero];
1.2 develop and immediately begin implementation of the Net Zero Transition Plan;
1.3 [no later than six months after the date of this agreement, sign up to the Carbon Trust Standard for Supply Chain (as published from time to time) [which the [Obligor] will demonstrate by providing the [Counterparty] with a copy of the relevant declaration signed by a Director of the [Obligor];]
[OR]
1.3 [regularly measure and report on the [Obligor]’s Carbon Footprint in accordance with the The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015;]
1.4 [reduce its Carbon Footprint, as originally assessed, by [15]% within [three (3)] calendar months of the signing of this agreement, as reasonably demonstrated by Carbon Footprint Data;]
1.5 establish a sustainability committee as a committee of its board of directors to oversee the development, implementation and review of the Net Zero Transition Plan. The sustainability committee shall be chaired either by a [non-executive] director with experience of improving sustainability and mitigating carbon footprints, or by an appropriately qualified climate, sustainability or environmental consultant with the skills and experience to diligently, competently and professionally advise on improving sustainability and mitigating [the Obligor]’s Carbon Footprint;
1.6 report [annually] [and publicly] on:*
1.6.1 the climate risks and opportunities to the [Obligor] and its business in accordance with the recommendations of the International Financial Reporting Standards Foundation (IFRS);
1.6.2 how the effects on key stakeholders (including but not limited to employees, clients, end customers and supply chain partners) of the measures taken by the [Obligor] to mitigate its GHG Emissions can align with a just transition to net zero; and
1.6.3 all climate policy engagement, climate leadership, lobbying activities, trade association memberships and public policy positions that directly or indirectly relate to the UNFCCC’s Paris Agreement;
* [[Drafting note: Consider adding CDP or Sustainability Accounting Standards Board (SASB) disclosure]]
1.7 provide an environmental and sustainability training programme on a regular basis (at least annually) for employees, personnel and contractors during their usual working hours (and online as required). As a minimum, the training will cover:
1.7.1 details of [the Obligor]’s public and contractual commitments, targets and governance in relation to climate change and sustainability;
1.7.2 the latest climate science presented by the Intergovernmental Panel on Climate Change (the United Nations body for assessing the science related to climate change);
1.7.3 climate change policy and relevant legal context (including core terms of the Paris Agreement and any national implementation measures);
1.7.4 the economic and social (e.g. health) benefits to [the Obligor] in reducing the workplace’s environmental impact; and
1.7.5 sustainable lifestyle changes and issues relating to the workplace;
1.8 include in the Net Zero Transition Plan contractual clauses (for example, climate clauses published by The Chancery Lane Project) to embed the Net Zero Target in the [Obligor]’s activities and relationships. The Obligor shall also include climate contract clauses in most of its standard form precedent contracts[; and
1.9 establish its pension scheme with an ESG/ green investment fund].
Definitions
Carbon Footprint means the total annual GHG Emissions relating to the [Obligor]’s business.
Carbon Footprint Data means the full figures and details of the measurement and calculations carried out by the [Obligor] in the assessment of its Carbon Footprint at any point in time.
GHG Emissions means the [Obligor]’s emissions of GHGs classified as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated periodically. [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol.]
Greenhouse Gases (GHGs) means the gases that trap thermal radiation in the earth’s atmosphere. They are specified by the United Nations Framework Convention on Climate Change (UNFCCC) in Annex A to the Kyoto Protocol and may be updated periodically.
Net Negative means the GHGs removed from the atmosphere [by the Obligor] are greater than [its] GHG Emissions.
[Drafting note: See also TCLP Glossary: Net Negative. On a global scale, removals of GHGs should be consistent with the mitigation pathways that would limit global warming to 1.5°C, with little to no overshoot. See IPCC Special Report on Global Warming of 1.5 ºC (2018), Summary for Policymakers, Part C Emission Pathways and System Transitions Consistent with 1.5°C Global Warming and Working Group III Contribution to the IPCC Sixth Assessment Report (AR6), Climate Change 2022: Mitigation of climate change (4 April 2022).]
Net Zero Target means a target to reduce and remove GHG Emissions, including by offsetting Residual Emissions, to achieve a balance between the [Obligor’s] sources and sinks of GHGs. This must be achieved by [2050/ Insert earlier date] and align with Paris Agreement Goals.
Net Zero Transition Plan means a plan to deliver the Net Zero Target and then remain Net Negative, that:
(a) includes an Offsetting Strategy;
(b) sets interim GHG Emission reduction targets that align with Paris Agreement Goals;
(c) links executive remuneration to achieving the interim targets;
(d) is updated to address 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.
* [Drafting note: If the Net Zero Target will be validated by the Science Based Targets Initiative, consider replacing ‘interim GHG Emission reduction targets’ with the defined term ‘[Short/Near] Term Science Based Targets’. See TCLP’s Glossary: Near- and Long-Term Science-Based Target for suggested drafting.]
Offsetting Strategy means a plan specifying:
(a) the verified credits from a recognised offset provider that may be used by the [Obligor] to offset its Residual Emissions;
(b) how [the Obligor] will [transition:
(i) from using credits from offsetting projects that avoid or reduce emissions of GHG to projects that remove emissions of GHG; and
(ii) to GHG removals that involve long-term storage methods with a low risk of reversal;*
(c) how the [Obligor] will reduce its use of credits by reducing its Residual Emissions [by [●]%] by 2050; and
(d) the impact of the relevant offsetting projects on a just transition and wider social and environmental goals.
* [Drafting note: The Oxford Principles for Net Zero Aligned Carbon Offsetting 2020 state that ‘an immediate transition to 100% carbon removals is not necessary, nor is it currently feasible, but organisations must commit to gradually increase the percentage of carbon removal offsets they procure with a view to exclusively sourcing carbon removals by mid-century. Most offsets available today are emission reductions, which are necessary but not sufficient to maintain net zero in the long run. Carbon removals scrub carbon directly from the atmosphere. This counteracts ongoing emissions after net zero is achieved and creates the possibility of net removal for actors choosing to remove more carbon than they emit.’]
Paris Agreement Goals means the goals in Articles 2.1 and 4.1 of the UNFCCC’s Paris Agreement, in particular limiting global temperature increase to 1.5 degrees Celsius above pre-industrial levels.
Residual Emissions means [the Obligor’s] GHG Emissions that are emitted after all reasonable efforts have been made [by the Obligor] to reduce them. [Drafting note: See TCLP Glossary: Residual Emissions.]
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