Climate clause

Green Investment Obligations

Frank's Clause

Amendments to standard non-leveraged investment documents to focus the founders and investee company on climate change and environmental issues with their products, services, and operations.

This is a net zero clause

This clause aligns with Paris Agreement goals, Race to Zero requirements and the Oxford Principles for Net Zero Aligned Carbon Offsetting. For tools and support to use this clause, use our toolkit or join one of our events.

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Why use this?

To impose obligations concerning climate risk and sustainability on a company and founder. This puts environmental and climate change issues front and centre of the investment and the development of the investee company’s business.

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

Capital Purpose means to preserve the value of the Investor[‘s][s’] capital invested in the Company.

Commercial Purpose means to make the Company profitable so as to provide a return to shareholders whilst having regard to the Social Purpose and Capital Purpose.

Company means [insert name of Company that is being invested in].

Environmental and Sustainability Training Programme means a programme of training, provided 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:

(a) the latest climate science;

(b) climate change policy and relevant legal context (including core terms of the Paris Agreement and any national implementation measures);

(c) the economic and social (e.g. health) benefits to the Company in reducing the workplace’s environmental impact;

(d) sustainable lifestyle changes and issues relating to the workplace;

(e) details of the Company’s own public and contractual commitments, targets and governance in relation to climate change and sustainability; and

(f) other topical climate and sustainability issues.

Founders means the founders and senior Founders of the Company listed in schedule [●].

GHG Emissions means 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. [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 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). [Drafting note: See TCLP Glossary: Greenhouse Gases (GHGs) for further definition options and explanatory notes.]

Investor Consent means the consent of 75% of the Investors.

Net Negative means that the aggregate of the Company’s actions to reduce its GHG Emissions and remove GHGs from the atmosphere exceeds its unabated GHG Emissions. [Drafting note: See TCLP Glossary: Net Negative for definition options and explanatory notes. 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 from all operations of the Company including value and supply chains and a removal of GHGs associated with the implementation of the Offsetting Strategy to address the Residual Emissions of the Company by 2050 or sooner to achieve a balance between the Company’s sources and sinks of GHGs in a calendar year and for each subsequent year thereafter and the goals of the Paris Agreement.

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

(a) includes an Offsetting Strategy;

(b) sets interim reduction targets for the Company’s GHG Emissions that are aligned with Paris Agreement Goals;

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

(d) is updated in line with 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. 

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

(a) the verified credits from a recognised offset provider that may be used by the Company to offset its Residual Emissions;

(b) how the Company will transition from using credits resulting from offsetting projects that avoid or reduce emissions of GHGs to those from projects that remove emissions of GHG and involve long-term storage methods that have a low risk of reversal; [and]

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

[(d) the impact of the relevant offsetting projects on a just transition and wider social and ecological 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.]

Residual Emissions means the Company’s GHG Emissions that are emitted after all reasonable efforts have been made by the Company to reduce its GHG Emissions.

Social Purpose means [insert relevant purpose for investee company which is likely to be linked to a UN Sustainable Development Goal].

 

Additional Clauses

4. Sustainable Promotion of the Company’s Business

4.1 The Founders and the Company shall promote the best interests of the Company and ensure that its Business is conducted responsibly, sustainably, ethically and in accordance with all applicable laws and good business practice.

4.2 The Founders and the Company shall run and manage the business:

4.2.1 primarily to advance the Social Purpose and deliver the Net Zero Transition Plan;

4.2.2 secondly to achieve the Capital Purpose; and

4.2.3 thirdly to achieve the Commercial Purpose.

4.3 The Founders and the Company undertake to procure, in so far as it is in their respective powers to do so, that the Company shall:

4.3.1 [publicly] set a Net Zero Target[ approved by the Science Based Targets initiative][, sign up to Race to Zero] and within six (6) months of Completion provide the Investors with the Net Zero Transition Plan;

4.3.2 as soon as reasonably practical and no later than 12 months after Completion:

4.3.2.1 purchase electricity for its offices [and factory] on a green tariff that uses a 100% renewable energy;

4.3.2.2 use web hosts and cloud service providers which run their servers on 100% renewable energy or have a net zero target;

4.3.2.3 source all consumables used by the Company from sustainable and ethical sources and include emissions reduction requirements in the Company’s procurement strategy and supply chain contracts;

4.3.2.4 create KPIs to measure the Company’s impact of its operations and goods and services it provides;

4.3.2.5 [ensure the [casing/ packaging] for the Company’s products are sourced from as much recycled material as possible and are themselves designed to have the smallest environmental impact];

4.3.2.6 [For online businesses][provide the Company’s customers the option to offset the carbon footprint of delivering the Company’s products at the point of sale on the Company’s website through a project that has been verified in accordance with [insert name of voluntary standard]; [Drafting note: To raise net zero ambition, consider building the mitigation into the pricing plan as an alternative to the customer’s option to offset]

4.3.2.7 establish a sustainability committee as a committee of the board chaired by a non-executive director with experience of improving sustainability and mitigating carbon footprint;

4.3.2.8 establish the Company’s pension scheme with an ESG/ green investment fund as the default;

4.3.2.9 become a certified B Corporation [achieving the Planet Mark];

4.3.2.10 develop and implement an Environmental and Sustainability Training Programme; and

4.3.2.11 set targets to support the achievement on one or more United Nations Sustainable Development Goals that are relevant to the Business;

4.3.3 report [annually] [quarterly] [monthly] to the Investors; 

[Drafting note: To select reporting aligned with needs and goals of Investors. To raise net aero ambition, consider adding CDP disclosure here.]

4.3.3.1 the climate risks and opportunities to the Company and the Business in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD),

4.3.3.2 sustainability information in accordance with the standards set out by the Sustainability Accounting Standards Board (SASB); 

4.3.3.3. an analysis of how wider local and global stakeholders (including employees, clients, end customers and supply chain partners) are affected by both climate risk and the transition to a low carbon economy and how the Company can help to improve their resilience;

4.3.3.4 on all climate policy engagement, climate leadership, lobbying activities, trade association memberships and public policy positions that may support or undermine the goals of the UNFCCC’s Paris Agreement; and

4.3.3.5 other environmental, social and governance factors that are requested by the Investors from time to time.

4.3.4 prepare and provide to Investors an annual sustainability report which, without limitation, demonstrates the activities undertaken by the Company in furtherance of this clause; and

4.3.5 once profitable, donate 1% [or more, depending on revenue] of its net profits to environmental causes that are mitigating the impact of climate change.

5. Green Decisions Requiring the Consent of an Investor Majority

5.1 Each party shall use all the voting rights and powers of control deriving from their holding of Shares in order to procure that the Company shall not take any of the actions listed in this clause 5.2 without first obtaining the approval of an Investor Majority.

5.2 The actions requiring the approval of a Investor Majority are:

5.2.1 the amendment or revocation of the Net Zero Target; and

5.2.2 the entry into any contract or arrangement that conflicts with its Net Zero Target.

6. Founder Green Covenants

6.1 To assure the Investors that the Founders are aligned with the Investor’s environmental aims and to enable the Investors to achieve the full benefit of the impact of their investment in the Company, each Founder hereby undertakes and covenants with the Investors and the Company that they shall not:

6.1.1 while they are a director or employee of, or a consultant to, the Company carry on or be directly concerned, engaged or interested in any trade or business that is:

6.1.1.1 not taking demonstratable steps to set and implement a net zero target equivalent to the Net Zero Target; or

6.1.1.2 operates in the following sectors [insert sectors or industries that the Investor does not want the Founders to be involved in/ conflict with their ESG aims];

6.1.2 do or omit to do anything which could reasonably be expected to cause the Company to not achieve the Net Zero Target, whether pursuant to this contract or otherwise.

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