Climate clause

Incentives for Insured Parties to Disclose and Meet GHG Emissions Targets [New]

Millie's Clause

Millie’s Clause adapts Connor’s Clause to place additional disclosure obligations on the insured if it changes, meets or fails to meet its emissions reduction targets, linked to premium adjustments.

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 incentivises insureds to meet emissions reduction targets by actively transitioning their business operations to net zero, for example by engaging green suppliers and consuming renewable energy. The clause is aimed at insureds operating in high emissions industries and therefore could, if taken up, have a high impact in promoting faster emissions reduction.

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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 (CO2e or CO2eq) means the standard metric measure used to compare the emissions from various GHGs on the basis of their global warming potential over a specified timescale. 

Climate Change means a change in the state of the climate that can be identified and persists for [an extended period of time/decades] and where the change is caused directly or indirectly by (i) human activity that alters the composition of the global atmosphere or (ii) natural processes, including volcanic eruptions and changes of solar cycles.

Climate Change Risk means risk arising from or in relation to the actual or anticipated effects of Climate Change.

Emissions Reduction Targets means the emissions reduction targets set by the Insured [and its Suppliers] for the relevant Policy Period, as disclosed to the Insurer in the Proposal Form. 

GHG Emissions means the Insured’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 [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, 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).

Higher Emissions Reduction Targets means revised emissions reduction targets as notified by the Insured to the Insurer from time to time in accordance with Clause [X] (Notification Clause), which are higher than the Emissions Reduction Targets. 

Lower Emissions Reduction Targets means revised emissions reduction targets as notified by the Insured to the Insurer from time to time in accordance with Clause [X] (Notification Clause), which are lower than the Emissions Reduction Targets. 

[Supplier means any natural person or entity who provides the Insured with products or services of any kind which enable and/or facilitate the Insured’s business operations.]

[Supporting Evidence means a full disclosure of the Insured’s [and its Suppliers’] [environmental audits/internal policies/detailed plans/summary of changes made over the previous year]* covering the relevant Policy Period and any other documents which the Insurer reasonably requests on a case by case basis.] [Drafting note: For use only with Drafting Option B.]

* [Drafting Note: Consider whether this is too low a threshold and whether to include a more detailed plan to place a higher burden on the Insured and ensure this doesn’t become a tick box exercise. Consider referring to the measurement and external verification of carbon footprint to recognised standards. See TCLP’s definitions of Carbon Footprint and Carbon Footprint Standards.]

 

Additional Clauses

A. Updated Connor’s Clause

This Policy does not cover any liability in respect of any actual or potential effects of Climate Change, including any loss, damage, liability, cost or expense of any kind directly or indirectly occasioned by, happening through or in consequence of an actual or alleged failure by the Insured to reduce or limit GHG Emissions in line with Emissions Reduction Targets [or, where relevant, Lower Emissions Reduction Targets]* OR [or, where relevant, Higher Emissions Reduction Targets]**. This exclusion is deemed to apply provided that the Insurer has reasonable grounds to conclude that it applies, unless the Insured is able to prove otherwise with reasonably sufficient Supporting Evidence.

* [Drafting Note: Bracketed language for use in conjunction with Drafting Option B. This could also be deleted even when including Drafting Option B if the Insurer wants the higher ambition of keeping this clause linked to the original targets.]

** [Drafting Note: Bracketed language for use in conjunction with Drafting Option B. This could also be deleted even when including Drafting Option B if the Insurer is worried that its inclusion will dissuade the Insured from setting higher emissions reduction targets.]

 

Alternative Drafting Options

[Drafting Note: Limits or sub-limits are an alternative to an exclusion.]

B. Disclosure and Achievement of Emissions Reduction Targets

The Insured must notify the Insurer in writing in accordance with Clause [X] (Notification Clause) immediately after it becomes aware that the Emissions Reduction Targets need to be revised to the Lower Emissions Reduction Targets. In these circumstances, the Insurer [reserves the right to/shall]* increase the Premiums for the remainder of the relevant Policy Period.**

In order to avail itself of a pro rata return of premium of [X%]*** as stipulated in Clause [X], the Insured shall notify the Insurer in writing in accordance with Clause [X] (Notification Clause) as soon as practicable after it becomes aware that it is capable of meeting the Higher Emissions Reduction Targets during the relevant Policy Period. 

* [Drafting Note: the second of the bracketed options is recommended as higher ambition, as the first may not be strong enough to deter negative climate behaviours.]

** [Drafting note: Consider whether this may operate as a penalty clause and alternative mechanisms, e.g. the excess for cover in the event of a claim is increased in proportion to the amount the premium would have been increased or a note on the insured’s records for the purpose of future premium calculations, removable once the insured returns to the original or higher emissions reductions targets.]

*** [Drafting Note: This figure should be higher than the first figure specified in the following clause in relation to the original emissions reduction targets and align with the second figure in that clause relating to the higher emission reduction targets.]

Premium Term

The Insured may avail itself of a pro-rata return of premium of [X%], provided that the Insured is able to demonstrate to the Insurer with Supporting Evidence that the Emissions Reduction Targets are met during the relevant Policy Period. The Insured may avail itself of a pro rata return of premium of [X%] provided it can demonstrate to the Insurer with Supporting Evidence that the Higher Emissions Reduction Targets are met during the relevant Policy Period. 

Renewal Term 

The Insured may avail itself of a cap to premium increases on subsequent renewals provided that it continues to provide full disclosure of its Climate Change Risk as requested in the proposal form that is applicable upon the first renewal. The Insurer reserves its right to revoke the cap at any time if it reasonably believes that the Insured has failed to disclose a material Climate Change Risk upon any renewal. 

 

C. Exclusion of any liability arising from an actual or alleged failure by the Insured to meet its Higher Emissions Reduction Targets.

This Policy excludes all liability in respect of pollution or contamination other than caused by a sudden identifiable unintended and unexpected incident which takes place in its entirety at a specific time and place during the period of insurance,* unless the Insurer has reasonable grounds to conclude that such an incident directly or indirectly relates to, arises out of, happens through or in consequence of any [proven] failure to reduce or limit GHG Emissions in line with the Emissions Reduction Targets [or, where relevant, the Lower Emissions Reduction Targets]** OR [or, where relevant, the Higher Emissions Reduction Targets]** in which case liability shall be excluded for the relevant pollution or contamination.

* [Drafting Note: Wording here taken from Lloyds’ standard NMA 1685 pollution exclusion clause and the Association of British Insurers’ 1991 standard gradual pollution exclusion clause.]

** [Drafting Note: Bracketed language for use in conjunction with Drafting Option B.]

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