Makes the qualifying criteria for receiving finance conditional on setting a net zero target and reflects this obligation in a convertible loan note instrument that incentivises net zero performance.
Why use this?
A clause for a standard unsecured convertible loan note that is in advance of or a bridge to an equity investment round. It mobilises “green finance” and allows investment managers to demonstrate how they are cascading ESG strategies into deal paperwork.
How to use this clause
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.
Climate Coupon Discount Rate means a rate of  per cent simple interest per annum.
Climate Conversion Discount means a price per Share being  per cent lower than that offered to investors on a Relevant Fund Raising.
Default Conversion Discount means a price per Share being  per cent lower than that offered to investors on a Relevant Fund Raising.
Default Interest Rate means  per cent per annum, compounding monthly.
Environmental Targets means:
(a) the Company achieving the Net Zero Target;
(b) the establishment by the Company of a sustainability committee as a committee of the Board chaired by a non-executive director with experience of improving sustainability and mitigating carbon footprint;
(c) the purchase by the Company of electricity for its offices [and factory] on a green tariff that uses 100% renewable energy; [and]
(d) [others as applicable to the business].
Net Zero Professional means an independent environmental or net zero consultant that specialises in the creation of Net Zero targets.
Net Zero Target means that the balance between greenhouse gas emissions from all operations and greenhouse gas removals, accounted for by credits from either insetting or offsetting projects, is zero.
Net Zero Target Date: means the date by which the Net Zero Target will be met, such date to be no later than .
2.1 The Notes shall be subject to the passing of all directors’ and shareholders’ resolutions of the Company to set and publicly announce a Net Zero Target Date.
3.1 The Company undertakes to:
3.1.1 [publicly] set a Net Zero Target Date within 1 month of the date of this instrument;
3.1.2 provide the Noteholders with a plan to deliver the Environmental Targets within 6 months of the date of this instrument; and
3.1.3 inform the Noteholders as soon as reasonably practicable following achievement of the Net Zero Target and provide a written report from a Climate Professional confirming the same.
4.1 Until the Notes are repaid by the Company or converted into Shares, interest shall accrue on any outstanding Notes (so far as not converted) at the following rates:
4.1.1 Default Interest Rate until the Net Zero Target is achieved; and
4.1.2 Climate Coupon Discount Rate after the Net Zero Target is achieved and such achievement has been confirmed in a written report from a Net Zero Professional.
5. EVENTS RESULTING IN IMMEDIATE REDEMPTION
5.1 The Notes then in issue shall be immediately redeemed at the principal amount, together with interest on the Notes outstanding at the Default Interest Rate, if:
5.1.1 the Company does not set a Net Zero Target Date in accordance with the undertaking set out in clause [ ]; or
5.1.2 the Company does or omits to do anything which could reasonably be expected to cause the Company not to achieve the Net Zero Target.
6.1 All outstanding Notes shall automatically convert into fully paid Shares on occurrence of a Relevant Event with the following discounts:
6.1.1 Default Conversion Discount if the Net Zero Target has not been achieved; and
6.1.2 Climate Conversion Discount if the Net Zero Target has been achieved and such achievement has been confirmed in a written report from a Net Zero Professional.
Glossary references: Net Zero Target