A net zero focused variation of Arlo’s Clause (ESG Aligned Company Articles) to include in a company’s articles of association, drafted by reference to TCLP’s net zero resources.
Why use this?
This clause requires company directors to undertake that the company’s business and activities align with the specified high level climate ambition set out in the clause. This will require directors to keep that climate ambition at the fore in decision-making and corporate governance. Furthermore, publicising the company’s alignment with Paris Agreement goals will bolster the corporate brand, reputation and trust with clients and consumers.
How to use this clause
Disclaimer - please read
The clauses on this website 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 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.
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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.
Climate Change means a change in the state of the climate that can be identified and that persists for [an extended period of time/decades], and where the change is caused directly or indirectly by human activity and natural processes that alter the composition of the global atmosphere.
GHG Emissions means the Company’s emissions of GHGs from all sources relating to its business and activities, and 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). [Drafting note: See TCLP Glossary for definitions of and explanatory notes for GHGs and Carbon Dioxide Equivalent.]
[Net Negative means the aggregate of the company’s actions to reduce its GHG Emissions and remove them from the atmosphere exceeds its unabated GHG Emissions and for any GHG removals to be “like for like” in terms of their warming impact, timescale and durability of carbon storage.]
Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHG Emissions associated with the implementation of an 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 GHG Emissions in a calendar year and for each subsequent year thereafter and to achieve Paris Agreement Goals.
Offsetting Strategy means a plan specifying:
(i) the carbon credits that [may/will] be purchased by the Company from a project that has been verified in accordance with [insert name of voluntary standard] or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism (CDM) [or [successor/ equivalent] UNFCCC mechanism] to offset its Residual Emissions;
(ii) [how/that] the emissions of GHGs avoided, reduced or removed by the project are additional;
(iii) how the Company will transition from using credits resulting from offsetting projects that avoid or reduce third party 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 [over millennia];
(iii) how the Company will [use best endeavours to] reduce its use of credits by reducing its Residual Emissions [to zero/ by [●]%] by 2050; and
(iv) 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 GHG Emissions that are emitted after all reasonable efforts have been made [by the Company] to reduce GHG Emissions [from all operations including value and supply chains]. [Drafting note: The language in square brackets “[from all operations including value and supply chains]” can be removed if using a definition of GHG Emissions that refers to scope 1, 2 and 3 emissions as defined by the GHG Protocol.]
1. The company’s objects are to carry on business as a general commercial company and, through its business and operations, to:
1.1 [in so far as is possible] reduce or eliminate any process or activity within its control which releases GHGs and to pursue all efforts to achieve Paris Agreement Goals by implementing continuous, measured reductions in GHG Emissions consistent with a maximum effort toward achieving or exceeding a fair share of the 50% global reduction in CO2 by 2030;
1.2 set a Net Zero Target for the company that is aligned with achieving Paris Agreement Goals [aligned with the latest climate science as consistent with avoiding the worst effects of Climate Change, as validated and published by]/[validated by] the Science Based Targets initiative, being both the reduction of GHG Emissions overall referred to in article [1.1] and the removal of GHG emissions associated with Offsets referred to in article [1.3] by [insert date]* to achieve the Net Zero Target;
* [Drafting Note: This date should be no later than 2050 and ideally before.]
1.3 implement an Offsetting Strategy [and establish a programme of contributions (in addition to those made through the purchase of offset credits and not linked to either the offsetting of Residual Emissions or the calculation of net zero) to the preservation and restoration of natural sinks of GHGs];
1.4 [consider [and, where practicable, implement,] methods in which the Company[, in the course of [or adjunct to] its business,] can increase the ability of all individuals to adapt to Climate Change;
1.5 foster climate resilience and low GHG emissions development, including to:
1.5.1 take Climate Change considerations into account, when determining the company’s relevant social, economic and environmental policies and actions;
1.5.2 employ appropriate methods with a view to promote public health and improve on the quality of the environment, through projects or measures undertaken by the company to mitigate or adapt to Climate Change;
1.5.3 where appropriate, cooperate in scientific, technological, technical, socio-economic and other research and education, training and public awareness related to Climate Change;
1.5.4 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:
(a) details of the company’s public and contractual commitments, targets and governance in relation to Climate Change and sustainability;
(b) the latest climate science as presented by the Intergovernmental Panel on Climate Change;
(c) climate change policy and relevant legal context (including core terms of the Paris Agreement and any national implementation measures);
(d) the economic and social (e.g. health) benefits to the company in reducing the workplace’s environmental impact;
(e) sustainable lifestyle changes and issues relating to the workplace; and
(f) other topical climate and sustainability issues;
[Drafting Note: Users of this clause should consider the types of training and educational content relevant to the specific company, as well as the company’s capacity and resources.]
1.5.5 seek to enable all actors to contribute to the global transition toward [net/gross] zero through engagement, information sharing, access to finance, and capacity building;
1.5.6 use finance that is consistent with [1.5] above; and
1.5.7 formulate a plan for the company’s GHG emissions to be Net Negative;
1.6 periodically update and report to members (at least annually) and publicly on the company’s progress towards meeting the NZ Target (externally verified by a suitably qualified professional), which shall include:
[1.6.1 inventories of anthropogenic emissions by sources and removals by sinks of all Greenhouse Gases (including specifying what sinks or credits are used to make what, if any, neutralisation or compensation claims and details of the underlying offsetting projects);
1.6.2 measures being taken by the company to facilitate adequate adaptation to Climate Change; and] [Drafting note: Delete the bracketed text of articles 1.6.1 and 1.6.2 if already covered/ overlapping with existing reporting requirements of the Company]
1.6. compliance by the company with the objects set out in article ; [Drafting note: Consider whether to replace or combine this with the requirement to disclose to CDP, or Sustainability Accounting Standards Board (SASB)]
1.6. the climate risks and opportunities to the Company in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD);
1.6. how the 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 GHG Emissions can align with a just transition to net zero; and
1.6. details of all climate policy engagement, climate leadership, lobbying activities, trade association memberships and public policy positions that directly or indirectly relate to the Paris Agreement.