Model clause

Net Zero Target Supply Chain Cascade

Owen's Clause

Clauses that “back to back” or align a business’s net zero target with its supply chain and business partners, thus enabling the business to achieve its target or take control to achieve it.

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Why use this?

Many businesses and organisations have publicly committed to a net zero target across their value chain. Their supply chains and business partners contribute to their emissions and thus whether they achieve their net zero target.

The clauses require the supplier to set a net zero target that aligns with the customer’s. This puts energy efficiency and the net zero transition front and centre in the commercial relationship.

If the obligations are not achieved, then the customer can terminate or offset the carbon emissions of the supplier, at the supplier’s expense. This allows the customer to be in control of achieving their publicly stated net zero target.

How it promotes a net zero future

The clause will ensure that business and organisations have the greatest chance of achieving their net zero targets. Cascading net zero obligations through a value chain should accelerate the rate of change in the economy and mean that net zero targets become common place.

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

Carbon Reporting means reporting of an organisation’s Greenhouse Gas Emissions and extraction to a standard not less than that required by the UK government’s Streamlined Energy and Carbon Reporting (SECR) as verified by an impartial organisation not affiliated with either party providing climate impact assessment and emissions reporting services, of a standard at least equal to the Carbon Disclosure Project or the Carbon Trust.

Contract Target means the proportion of the Customer’s [Net Zero/Gross Zero] Target which will be achieved under this Contract.

Greenhouse Gas means gases that contribute to or accelerate the greenhouse effect by absorbing infrared radiation, including but not limited to: carbon dioxide, methane, nitrous oxide, nitrogen trifluoride, sulphur hexafluoride, hydrofluorocarbons, perfluorocarbons and chlorofluorocarbons.

Greenhouse Gas Emissions means the Greenhouse Gases emitted by the party from all sources, classified as Scope 1, 2, and 3 emissions by the Greenhouse Gas Protocol, in absolute value over a specified area and period of time, each expressed as a total in units of Carbon Dioxide Equivalent (CO2e) and calculated in accordance with the GHG Protocol Corporate Accounting and Reporting Standard, and The GHG Protocol Corporate Value Chain (Scope 3) Accounting and Reporting Standard or such other equivalent and generally recognised greenhouse gas emission calculation methodology.

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

Net Negative means an organisation has achieved a Net Zero Target but has also created an environmental benefit by removing Greenhouse Gases from the atmosphere or reducing its Greenhouse Gas Emissions to the atmosphere such that the aggregated reductions and removals exceed the unabated emissions.

Net Zero Plan means a plan to deliver the Net Zero Target and remain Net Negative thereafter, including an Offsetting Strategy, interim targets split into Scope 1, 2 and 3 emission reduction targets, continuous measured reduction and identifying a year on year percentage decarbonisation aligned with the Paris Agreement goal of pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels (which shall be, at a minimum, a 7% year on year reduction of absolute emissions), a procedure that links executive remuneration to the achievement of the interim targets and an evaluation of how the Net Zero Target can be delivered in a way that promotes a just transition to a low carbon economy.

Net Zero Target means both a reduction of Greenhouse Gas Emissions from all operations including value and supply chains and a removal of Greenhouse Gas Emissions associated with carbon offsets acquired to address Residual Emissions of the parties by a specified date (2050 or sooner)  in order to achieve a balance between sources and sinks of Greenhouse Gas Emissions in a calendar year and for each subsequent year thereafter and the goals of the Paris Agreement.

[Net Zero/Gross Zero] Target Date means the first year by which the Customer aims to achieve the Net Zero Target, being 1 January [2050]. [Note: Define as per customer specific target for example if using a Gross Zero Target or other Science-Based Target]

Native Trees means those species of trees that are native to the United Kingdom since the last ice age and listed as such on the Forestry Commission Website.

Offsetting Strategy means a detailed plan for the Supplier to gradually reduce its offsetting of Residual Emissions to reach its Net Zero Target as it reduces it absolute Greenhouse Gas Emissions, including choice of a recognised provider of offset credits through a project that has been verified in accordance with [insert name of voluntary standard] (with a view to the offsets being additional, permanent and verifiable), considering the implications of the offsets purchased on global equity and wider social and ecological goals and to gradually transition the underlying offsetting projects to long lived storage methods which have low risk of reversal over centuries to millennia and purely offsets that remove emissions, rather than avoid or reduce others’ emissions.

Residual Emissions means the Greenhouse Gas Emissions that are emitted after all reasonable efforts have been made by a party to reduce Greenhouse Gas Emissions from all operations including value and supply chains.

 

Additional Recital

(A) The parties [have signed up to the Race to Zero and] acknowledge their common intention in furthering  achievement of their respective Net Zero Targets and alignment with the ultimate objectives of the Paris Agreement and related agreements, in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels and achieving net zero or net negative emissions by 2050 or sooner.

 

Additional Clauses 

Supplier Net Zero Obligations

8.1 The Supplier acknowledges and understands the Customer’s Net Zero Target. Accordingly, the Supplier shall:

a) set its own [Net Zero/Gross Zero] target (the “Supplier NZ Target”) with a target achievement date the same as or earlier than the Net Zero Target Date (the “Supplier NZ Date”);

b) develop a Net Zero Plan, review and update regularly and immediately take initial actions from it;

c) agree the Contract Target with the Customer;

d) achieve the Contract Target;

e) ensure that this clause 8 will be copied into any and all of its supply chain contracts that relate to its obligations under this agreement, and provide any support (financial or otherwise) required to its subcontractors to assist them in fulfilling those obligations;

f) introduce emission reduction technologies, processes and policies as well as the Offsetting Strategy and, where technologically and commercially feasible, carbon removal initiatives, to achieve the Supplier NZ Date;

f) undertake and keep up to date full and complete records of Carbon Reporting activity and data and provide the same to the Customer each year and more frequently as the Customer may reasonably request;

g) attend, on reasonable notice, meetings with the Customer’s Sustainability Manager or other nominated representative to present the Supplier’s plan to achieve, and current progress towards, the Supplier NZ Date;

h) not do or omit to do anything which could reasonably be expected to cause the Customer to miss its Net Zero Target Date, whether pursuant to this contract or otherwise; 

i) within [insert time period] of entering into this contract[have the Supplier NZ Target validated by the Science Based Target Initiative] [[and] sign up to Race to Zero;

j) establish a sustainability committee as a committee of its board of directors which shall oversee the development, implementation and review of the Net Zero 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 fundamental skills and experience to diligently, competently and professionally advise on improving sustainability and mitigating carbon footprint];

k) report annually and publicly on:

(i) the climate risks and opportunities to the Manufacturer and its business in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD);

(ii) an analysis of how the Manufacturer’s 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 Manufacturer can help to improve their resilience; and

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

l) 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) which will cover, as a minimum:

(i) the latest climate science; 

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

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

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

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

(vi) other topical climate and sustainability issues.

8.2 The Customer will assist the Supplier in the development of the Net Zero Plan.

8.3 If:

a) the Supplier fails to comply with any of the obligations in clause 8.1; or

b) the Customer, having reviewed the Carbon Reporting and discussed with the Supplier its progress to achieve the Supplier NZ Date, determines (acting reasonably) that the Supplier is making insufficient progress towards achieving the Supplier NZ Date; or

c) the Supplier fails to achieve the Supplier NZ Target by the Supplier NZ Date, the Customer may, without affecting any other right or remedy available to it:

d) terminate this agreement by giving one month’s written notice to the Supplier;

e) require the Supplier to plant a number of Native Trees in the UK sufficient to compensate for the Customer’s shortfall in progress towards the Supplier NZ Date attributable to the [production of the Goods/ delivery of the Services]; and/or

f) recover from the Supplier any costs reasonably incurred by the Customer in achieving the Contract Target to the extent by which that Contract Target is missed by the Supplier by:

i. obtaining carbon credits to offset the Supplier’s net Greenhouse Gas Emissions footprint [attributable to the [production of the Goods/ delivery of the Services]]; or

ii. planting, or arranging for the planting of, Native Trees to offset the Supplier’s net Greenhouse Gas emissions footprint attributable to the [production of the Goods/ delivery of the Services].

8.3 [The Supplier shall, at its own cost, submit a report to the Customer within 20 Business Days of each anniversary of the date of the agreement identifying the emergence of new and evolving relevant technologies and processes which could accelerate the achievement of the Supplier NZ Date. Such report shall provide sufficient detail to enable the Customer to evaluate properly the benefits of the new technology or process.]

8.4 The Supplier warrants to Customer that:

a) it has sufficient resources, infrastructure and materials to achieve the Contract Target by the date of the expiry of the contract;

b) none of the [Goods/Services] supplied under this agreement will be of lower quality as a result of working towards the Contract Target;

c) it will not offer preferential terms to those other customers who do not require a Contract Target or similar obligations in their contracts.

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