Climate clause

Green Company Articles [New]

Ragnar's Clause

An underlying framework of green obligations, which target a company’s decision making, internal investments and reporting in addressing material environmental issues for the company.

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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 Dioxide Equivalent means the standard metric measure used by the UN’s Intergovernmental Panel on Climate Change to compare the emissions from various Greenhouse Gases on the basis of their global warming potential over a specified timescale in order to express a carbon footprint that consists of different Greenhouse Gases as a single number.

Carbon Footprint means the total annual worldwide amount of Greenhouse Gas Emissions that will be released into the atmosphere as a result of all of the Operations, calculated in accordance with the Carbon Footprint Standards.

Carbon Footprint Standards means internationally recognised standards to measure, manage and demonstrate carbon credentials covering: (i) organisations (including but not limited to the BEIS Voluntary Reporting Guidelines and the GHG Protocol Corporate Accounting and Reporting Standard); (ii) projects, product and services (including but not limited to PAS 2050:2011, ISO 14001 and the GHG Protocol Product Life Cycle Accounting and Reporting Standard); and (iii) events (including but not limited to PAS2060/ISO 20121).

Cash Profit has the meaning given to it in Article 7.1.

Cash Sweep has the meaning given to it in Article 7.1.

Companies Acts means the Companies Acts (as defined in section 2 of the Companies Act 2006) in so far as they apply to the Company.

Company Interests has the meaning given to it in Article 2.1.

Emissions Reduction Target means the Company’s annual target for reducing the Carbon Footprint year-on-year.

Environmental Expert means an appropriately qualified environmental or sustainability consultant or analyst from a reputable entity who has the skills and experience to diligently, competently and professionally audit and assess environmental reports, measurements, calculations and the achievement of environmental and sustainability targets in relation to companies of a similar size and industry to the Company, in accordance with this agreement.

Environmental Projects means any agreement, project, investment, or activity undertaken by the Company in connection with achieving its year-on-year Emissions Reduction Target, Water Target and Environmental Strategy, including, but not limited to, any undertaking in respect of Green Infrastructure, Insetting or Offsetting, renewable energy technologies, carbon capture and storage technology, waste and water consumption minimisation processes, water storage systems, and reducing and/ or monitoring the environmental impact of its supply chain. For the avoidance of doubt, an Environmental Project may be undertaken by the Company alone and by the Company in collaboration with any governmental or international authority, local community association, and/ or business partner. 

Environmental Report means the annual report which shall include the particulars set out in Article 4.5.

Environmental Strategy means the long-term strategy by which the Company shall reduce the environmental impact of the Operations, including without limitation by achieving and maintaining the Net Zero Target and setting, achieving and maintaining a Gross Zero and/or Net Negative Target thereafter, reducing the year-on-year Carbon Footprint and Water Footprint, aligning with the Paris Agreement Goals and supporting the achievement of one or more of the United Nations Sustainable Development Goals (as set out in the 2030 Agenda for Sustainable Development).

Green Infrastructure means trees, hedgerows, open green spaces which thread through or surround the Company’s premises that are designed for biodiversity, green roofs, allotments, woodlands, green corridors, rain gardens, reed beds, wetlands, water meadows and wild spaces.

Greenhouse Gas Emissions means emissions of Greenhouse Gases 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 currently 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). 

Gross Zero Target means an absolute reduction in Greenhouse Gas Emissions from all Operations to zero by a specified date and for each subsequent year thereafter.

Insetting means a carbon reduction project, verified by an Offset Standard, which occurs within the Company’s supply chain or supply chain communities.

Net Negative Target means the Company has achieved a Net Zero Target but also removed Greenhouse Gases from the atmosphere such that the removals exceed its unabated Greenhouse Gas emissions.

Net Zero Target means both a reduction of Greenhouse Gas Emissions from all Operations and a removal of Greenhouse Gas Emissions through Offsetting to address Residual Emissions of the Company as soon as possible and by 2050 in order to achieve a balance between the Company’s sources and sinks of Greenhouse Gas Emissions in a calendar year and for each subsequent year thereafter and to achieve the Paris Agreement Goals.

Offsetting means the purchase of carbon credits from a project:

(i) that has been verified in accordance with an Offset Standard;

(ii) where the emissions of Greenhouse Gases* avoided, reduced or removed by the project are additional;

(iii) that, in relation to Greenhouse Gas removals, employs long-lived storage methods that have a low risk of reversal over millennia;  

(iv) that prioritises the removal of Greenhouse Gases from the atmosphere rather than avoids or reduces third party emissions of Greenhouse Gases; and

(v) that takes account of a just transition and addresses wider social and ecological goals. 

* [Drafting note: The reference to “emissions of Greenhouse Gases” 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.]

Offset Standard means [insert name of voluntary standard] or the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism].

Operations means the Company’s business and operational activities including its value and supply chains.

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 the Greenhouse Gas Emissions that are emitted after all reasonable efforts have been made by the Company to reduce Greenhouse Gas Emissions from all Operations.

Water Footprint means the total annual worldwide consumption of water in [insert litres/gallons] by all of the Operations in the relevant time period.  

Water Target means the annual target for reducing the Water Footprint year-on-year.

 

Articles

ARTICLE 1: OBJECTS

1. The objects of the Company are to promote the success of the Company for the benefit of its members as a whole, while delivering, through the Operations, positive value to the [wider] community* and the environment as a whole [in a manner commensurate with the size of the Company and the nature of the Operations] and [materially] minimising the prospect of any harmful impact of the Operations on the [wider] community and the environment as a whole.

* [Drafting Note: Consider what the intention is here and whether to replace “community” (here and where otherwise used in Article 1 and Article 2) with “society”, which may be wider and less ambiguous, to include all those who are not members of the company.]

** [Drafting Note: While reference to harmful impacts could be read as detracting from the positive nature of the first part of the object, this wording is intended to address the impact of greenhouse gas emissions.]

ARTICLE 2: DECISION MAKING BY THE DIRECTORS

2.1  Each director must act in the manner in which they consider, in good faith, is most likely to promote the objects of the Company by having regard (amongst other matters) to the following matters (the “Company Interests”):

a. the likely consequences of any decision in the long term;

b. the interests of the Company’s employees;

c. the need to foster the Company’s business relationships with suppliers, customers and others;

d. the impact of the Company’s Operations on the community and the environment (including without limitation achievement of the Net Zero Target and Paris Agreement Goals);

e. the desirability of the Company maintaining a reputation for high standards of business conduct; and

f. the need to act fairly as between members of the Company. 

2.2  In considering how to act in accordance with Article 2.1, a director shall not be required to prescribe greater weight to any one (or more) of the Company Interests, against any one (or more) of the other Company Interests, as being of greater benefit and importance.

2.3  Notwithstanding any other matter contemplated by these Articles, nothing in this Article 2 shall create or grant, or is intended to create or grant (whether expressly or impliedly) any right or any cause of action to, by or for any person other than the Company. 

ARTICLE 3: SETTING TARGETS

3.1  The directors shall review and approve the Environmental Strategy by no later than the end of the financial year for [insert year these Articles are adopted]. The Environmental Strategy shall be reviewed and, as necessary, amended, every five years. 

3.2  Within 15 calendar days of the end of each financial year, the directors shall review and approve the Emissions Reduction Target and the Water Target with reference to the Environmental Strategy.

3.3  [The members of the Company may approve, by ordinary resolution, the appointment of][At all times there shall be] a director [or senior management employee] who is designated as responsible for delivering the Environmental Strategy, the Emissions Reduction Target and the Water Target.

ARTICLE 4: ENVIRONMENTAL REPORT

4.1  At the end of each financial year [in which either of the relevant Emissions Reduction Target and Water Target has not been achieved,]* the directors shall prepare an Environmental Report for that financial year by no later than [[♦] calendar days] after the end of the financial year.

* [Drafting Note: For best practice delete bracketed text so that this annual reporting requirement would apply regardless of whether targets have been met. Depending on the size, resources and existing reporting requirements of the Company consider including the bracketed text due to the costs involved. Consider including further drafting to cover the remediation and consequences where targets are not met.]

4.2  The Environmental Report shall be in addition to, and shall not take the place of, any other report or matter which the Company is required to prepare under the Companies Acts or otherwise.

4.3  The Environmental Report shall be circulated to each of the members of the Company and shall be made available to the public [at the Company’s registered office][on the Company’s website].

4.4  The Environmental Report shall be audited by an Environmental Expert [Drafting Note: Consider specifying a standard here]. If, for any reason, the Environmental Report is not audited, the Environmental Report shall include a section that summarises the reasons as to why an audit did not occur. 

4.5  The Environmental Report shall set out, at a minimum, the following particulars:

a. a summary of the Operations; 

b. a summary of the Environmental Strategy;

c. a summary of the environmental impact of the Operations with reference to the Carbon Footprint and the Water Footprint for the relevant year;

d. a comparison of the Carbon Footprint and the Water Footprint for the relevant year as against the Emissions Reduction Target and Water Target for the relevant year, together with an explanation as to why the relevant targets were met, exceeded, or not met;

e. with the exception of the first Environmental Report, a comparison of the Carbon Footprint and the Water Footprint for the relevant year as against the previous year’s Carbon Footprint and Water Footprint; 

f. a summary of the Environmental Projects the Company has undertaken in the twelve month period preceding the date of the relevant Environmental Report [including a brief description of how its Offsetting and Insetting activities align with The Oxford Principles for Net Zero Aligned Carbon Offsetting (or an equivalent set of principles)];

g. the Emissions Reduction Target and the Water Target for the twelve month period following the date of the relevant Environmental Report together with an explanation [and supporting information] as to why the targets are appropriate for the Company, taking into account the Environmental Strategy; [and]

h. the Environmental Projects the Company is: (i) proposing to undertake in the twelve month period following the date of the relevant Environmental Report to achieve the relevant Emissions Reduction Target and Water Target; and (ii) considering undertaking in the five year period following the date of the relevant Environmental Report to achieve the Environmental Strategy[.] [; and]

[i. disclosures on governance, strategy, risk management and metrics and targets aligned with the recommendations of the Task Force on Climate-related Financial Disclosures[.] [; and]

[j. the [reasonably ascertainable] effects on key stakeholders (including [but not limited to] employees, clients, end customers and supply chain partners) of the measures taken by the Company to mitigate its Greenhouse Gas Emissions and how these measures can address a just transition to net zero.]

ARTICLE 5: FOOTPRINT CALCULATION

5.1  For the purposes of calculating the Water Footprint, reference shall be made to water consumption that can reasonably be determined to have arisen from the Company’s building water usage, industrial and manufacturing processes, and supply chains (including in respect of raw material extraction, production and delivery), in each case as a direct consequence of the Operations and as an indirect consequence of the Operations due to water consumption occurring outside of the control of the Company.

5.3  In calculating the Carbon Footprint and the Water Footprint, the Company shall use reasonable efforts to determine the relevant amounts of emissions and water usage. If it is not possible to determine such relevant amounts, including where the Company does not own or control a particular emission or water usage source, the Company shall [estimate the relevant amount using [recognised methodology [aligned with [insert standards]]].

5.4  The Carbon Footprint and the Water Footprint calculations shall be audited by an Environmental Expert [Drafting Note: Consider specifying a standard here].

ARTICLE 6: PROCEDURE FOR DECLARING DIVIDENDS

6.1  The Company may by ordinary resolution declare dividends, and the directors may decide to pay interim dividends.

6.2  A dividend must not be declared unless the directors have made a recommendation as to its amount. Such a dividend must not exceed the amount recommended by the directors. In making their recommendation, the directors shall have regard to the Environmental Strategy and the funding requirements of the Environmental Projects summarised in the most recently published Environmental Report. [Drafting Note: When including this language ensure that investors are aligned and aware of dividend restrictions and cash sweep.]

6.3  No dividend may be declared or paid unless it is in accordance with members’ respective rights.

6.4  Unless the members’ resolution to declare or directors’ decision to pay a dividend, or the terms on which shares are issued, specify otherwise, it must be paid by reference to each member’s holding of shares on the date of the resolution or decision to declare or pay it.

6.5  If the Company’s share capital is divided into different classes, no interim dividend may be paid on shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears.

6.6  The directors may pay at intervals any dividend payable at a fixed rate if it appears to them that the profits available for distribution justify the payment, provided always that the directors shall have regard to the Environmental Strategy and the funding requirements of the Environmental Projects summarised in the most recently published Environmental Report  when making any such payment decision. [Drafting Note: When including this language ensure that investors are aligned and aware of dividend restrictions and cash sweep.]

6.7  If the directors act in good faith, they do not incur any liability to the holders of shares conferring preferred rights for any loss they may suffer by the lawful payment of an interim dividend on shares with deferred or non-preferred rights.

[ARTICLE 7: CASH SWEEP

7.1  Following the end of each financial year in which the Company has achieved a [positive cash flow]* for that financial year (the “Cash Profit”) [as shown by the audited accounts and financial statements for that financial year/ as certified by the Company’s auditors] but the [Emissions Reduction Target and/ or the Water Target] for that financial year has not been [met/ achieved], the directors shall be authorised[, and shall reserve the right,] to approve the spending of [up to] an amount equal to the lesser of [insert amount] and [insert percentage number]% of the quantum of the Cash Profit (a “Cash Sweep”) to pay for one or more of the Company’s Environmental Projects. If the directors approve a Cash Sweep, the directors shall notify the members within 20 calendar days of such approval, such notice to include the quantum of the relevant Cash Sweep and the selected Environmental Project(s).

* [Drafting note: Tailor to descriptions used in the rest of the Articles]

7.2  Any Cash Sweep shall occur prior to the directors making a recommendation as to the amount of dividends to be declared, the declaration of dividends by the Company or the payment of any dividends under Article 6.]

[Drafting note: The cash sweep may not be necessary in order to fulfil the objects of this clause. Consider how financiers will react to this and whether it is consistent with debt servicing covenants that the company has with a lender. Consider other alternatives, including linking director remuneration to the achievement of environmental targets.]

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