Climate clause

Entire Business Net Zero Objectives [New]

Sebastian's Clause

A menu of climate aligned practical steps organisations can require their counterparties to take to transition to net zero.

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.

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Why use this?

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.

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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.

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

Carbon Footprint means the total annual GHG Emissions relating to the [Obligor name]’s business.

Carbon Footprint Data means the full figures and details of the measurement and calculations carried out by the [Obligor name] in the assessment of its Carbon Footprint at any point in time.

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).

GHG Emissions means the [Obligor name]’s emissions of GHGs 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.

Net Negative means that the aggregate of [Obligor name]’s actions to reduce its GHG Emissions and remove them from the atmosphere exceeds its unabated GHG Emissions.

[Drafting Note: On a global scale, removals of Greenhouse Gases 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, Summary for Policymakers, Part C Emission Pathways and System Transitions Consistent with 1.5°C Global Warming.]

Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHG Emissions associated with the implementation of an Offsetting Strategy to address the Residual Emissions of the [Obligor name] by [INSERT DATE/ 2050 or sooner] to achieve a balance between the [Obligor name]’s sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter and to achieve Paris Agreement Goals.

Net Zero Target Plan means a plan [as agreed by the [Parties]] to deliver the Net Zero Target and to remain Net Negative thereafter that:

(i) includes an Offsetting Strategy;

(ii) sets [short, medium and long term] interim reduction targets for the [Parties’/[Obligor name]’s] [emissions of GHGs/ Scope 1, 2 and 3 Emissions] that are aligned with Paris Agreement Goals] and which aim for a minimum [7]% year on year reduction of absolute emissions;

(iii) links executive remuneration to the achievement of the interim targets; and

(iv) promotes a just transition to a low carbon economy.

Offsetting Strategy means a plan [as agreed by the Parties] specifying:

(i) the carbon credits that will be purchased by the [Obligor name] from a project that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism] to offset its Residual Emissions;

(ii) [how/that] the emissions of GHGs* avoided, reduced or removed by the project are additional;

(iii) how the [Obligor name] will transition from using credits resulting from offsetting projects that avoid or reduce third party emissions of GHG to those from projects that remove emissions of GHG from the atmosphere and involve long-term storage methods that have a low risk of reversal [over millennia]; [and]

(iii) how the [Obligor name] will [use best endeavours to] reduce its use of credits by reducing its Residual Emissions [to zero/ by [x] %] by 2050; and

(iv) the impact of the relevant offsetting projects on a just transition and wider social and ecological goals.

* [Drafting note: The reference to “emissions of GHGs” here is to GHG emissions generally. The defined term GHG Emissions is not used because in general, the defined term relates to the emissions of a party relating to a particular agreement or transaction.]

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.

Residual Emissions means GHG Emissions that are emitted after all reasonable efforts have been made [by the [Obligor name]] to reduce GHG Emissions.

 

Additional Clause

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 name] shall:

[Drafting note: Consider changing to ‘the Parties shall’ and making all obligations mutual]

1.1 within [insert 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 Target 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 name] will demonstrate by providing the [Counterparty name] with a copy of the relevant declaration signed by a Director of the [Obligor name];] 

OR [regularly measure and report on the [Obligor name]’s Carbon Footprint) in accordance with the GHG Protocol Corporate Accounting and Reporting Standard;]

[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 Target Plan, either chaired by a [non-executive] director with experience of improving sustainability and mitigating carbon footprints, or advised by an appropriately qualified climate, sustainability or environmental consultant who has the skills and experience to diligently, competently and professionally advise on improving sustainability and mitigating the [Obligor name]’s Carbon Footprint.

1.6 report [annually] [and publicly] on: [Drafting note: Consider adding CDP or Sustainability Accounting Standards Board (SASB) disclosure]

1.6.1 the climate risks and opportunities to the [Obligor name] and its business in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD);

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 name] 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;

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) that will cover, as a minimum:

1.7.1 details of the [Obligor name]’s public and contractual commitments, targets and governance in relation to climate change and sustainability;

1.7.2 the latest climate science as 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 name] in reducing the workplace’s environmental impact; and

1.7.5 sustainable lifestyle changes and issues relating to the workplace; 

1.8 include within the Net Zero Target Plan the use of contractual clauses (for example using templates published by The Chancery Lane Project) to embed the Net Zero Target in all of the [Obligor name]’s activities and relationships and include climate related contractual clauses in the majority of the standard form precedent contracts used by the organisation[.][; and]

[1.9 establish its pension scheme with an ESG/green investment fund as the default].

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