This clause incentivises companies to mitigate climate risk through a reduction in insurance premiums for policyholders who meet agreed disclosure standards regarding climate-related financial risks.
Why use this?
In addition to the premium reduction, this will assist directors to mitigate climate risks and impacts, comply with directors’ duties and promote resilience. Alignment with the TCFD will enable familiarity with that framework ahead of legal requirements. Insurers will benefit from a reduction in claims and information on Policyholder risks, allowing for better pricing.
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.
Annual Accounts means the annual accounts prepared from the Policyholder’s financial records at the end of its financial year.
Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by the UN’s Intergovernmental Panel on Climate Change (IPCC) to compare the emissions from various GHGs on the basis of their global warming potential over a specified timescale.
Claim means written demands, civil or criminal proceedings, extradition proceedings, regulatory or administrative proceedings against the Policyholder for actual or alleged wrongful acts[, including negligence, misstatements, default, breach of duty or breach of trust].
Climate Change Mitigation means human intervention or efforts to reduce the sources of GHGs, enhance the sinks of GHGs or to remove GHGs.
Declaration means the document at Appendix 1.
Directors and Officers means a natural person holding any past, present or future management or supervisory position or equivalent position at the Policyholder under the laws of any jurisdiction, including any member of the supervisory board or management board of the company.
Disclosures has the meaning given to it in clause 1.2a.
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) at the date of this Policy, 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 or CO2eq). [Drafting note: See TCLP Glossary: Greenhouse Gases (GHGs) for definition options and explanatory notes.]
GHG Emissions means the Policyholder’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.]
Insurer means [specify insurer].
Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHGs associated with implementation of an Offsetting Strategy to address the Residual Emissions of the Policyholder by a specified date to achieve a balance between the Policyholder’s sources and sinks of GHGs in a calendar year and for each subsequent year thereafter and to achieve the goals of the Paris Agreement.
Offsetting Strategy means a plan specifying:
(i) the verified credits that will be purchased by the Policyholder to offset its Residual Emissions 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];
(ii) how the emissions of GHG avoided, reduced or removed by the project are additional;
(iii) how the Policyholder will transition from using credits resulting from offsetting projects that avoid or reduce emissions of GHG to those from projects that remove emissions of GHG and involve long-term storage methods that have a low risk of reversal; [and]
(iv) how the [Policyholder] will [use best endeavours to] reduce its use of credits by reducing its Residual Emissions [to zero/ by [●]%] by 2050[; and]
(v) [the impact of the relevant offsetting projects on a just transition and wider social and ecological goals].
Policy Period means the period specified in [item [●]] of the policy Schedule.
Policyholder means the entity specified in [item [●]] of the policy Schedule.
Residual Emissions means the GHG Emissions that are emitted after all reasonable efforts have been made by the Policyholder to reduce GHG Emissions.
TCFD Recommendations means the recommendations by the Task Force on Climate-related Financial Disclosures to assess, collate and disclose the [material] financial impacts of climate-related risks and opportunities for an organisation, including those related to the global transition to a lower-carbon economy.
[1. Premium Adjustment for Climate-related Financial Disclosures]
1.1 The Insurer and the Policyholder acknowledge that accurate, climate-related financial disclosures in the Policyholder’s Annual Accounts benefit the Policyholder by ensuring greater transparency of its climate-related risks, as well as any Climate Change Mitigation steps, reducing the risk of a Claim being brought against the Policyholder and/ or its Directors and Officers.
1.2 [To incentivise the Policyholder to make climate-related financial disclosures in its Annual Accounts,] [The/ the] Policyholder may avail itself of a pro-rata return of premium of [10%], provided that during the relevant Policy Period:
a. the Policyholder has publicly reported and accurately disclosed to the Insurer all climate-related risks and opportunities relevant to its business in the areas of:
(iii) risk management; and
(iv) metrics and targets,
in line with the TCFD Recommendations, and any additional environmental standards agreed between the Policyholder and Insurer (the Disclosures); and
b. the Policyholder has declared to the Insurer that it, and/ or its Directors and Officers, have not been involved in any Claim in respect of any breach or alleged breach relating to the Disclosures and have no actual knowledge of any facts or circumstances that may lead to any such Claim.
1.3 The Policyholder shall provide to the Insurer no later than [six months] after the expiry of the Policy Period:
a. its audited Annual Accounts which show its compliance with the Disclosures;
b. the Declaration made by the Policyholder evidencing compliance with the Disclosures and the absence of a Claim (in the form set out at Appendix 1); and
c. any other documentation as agreed between the Policyholder and Insurer.
Appendix 1 (Declaration)
Declaration of the Policyholder regarding Scope of Disclosure* for the purposes of premium adjustment.
* [Drafting note: It is assumed that this term will be defined in the main policy.]
The Policyholder confirms that the Annual Accounts for this policy year evidence that the following agreed targets have been met:
- Establish a sustainability committee as a committee of its board of directors to oversee the assessment and management of climate-related risks and opportunities and the development and implementation of a plan to improve resilience in relation to such risks, either chaired by a [non-executive] director with experience of evaluating climate related risks and opportunities, or advised by an appropriately qualified climate, sustainability or environmental consultant who has the skills and experience to diligently, competently and professionally advise on climate related risks and opportunities.
- [Provide an environmental and sustainability training programme on a regular basis (at least annually) for [employees, personnel and contractors/ managers/ [define category of employees]] during their usual working hours (and online as required) that covers, as a minimum: the climate-related risks and opportunities relating to the Policyholder; the Policyholder’s public and contractual commitments, targets and governance in relation to climate change and sustainability; the latest climate change science, policy and relevant legal context; sustainable lifestyle changes and issues relating to the workplace; and other topical climate and sustainability issues.
- Identify climate-related risks and opportunities for the Policyholder over the short, medium, and long term.
- Disclose the impacts of climate-related risks and opportunities on the Policyholder’s businesses, strategy, and financial planning.
- Disclose the resilience of the Policyholder’s business strategy taking into consideration different climate-related scenarios, including a transition to a lower-carbon economy consistent with a 2°C or lower scenario and, where relevant, scenarios consistent with increased physical climate-related risks.
- [Identify and disclose the effects on key stakeholders (including but not limited to employees, clients, end customers and supply chain partners) of the measures taken by the Policyholder to mitigate its GHG Emissions and how these can address a just transition to net zero.]
- [Disclose 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.]
- Processes for identifying and assessing climate-related risks have been implemented.
- Processes for managing climate-related risks have been implemented.
- Processes for identifying, assessing, and managing climate-related risks are integrated into the Policyholder’s overall risk management.
Metrics and Targets
- Disclose the metrics used by the Policyholder to assess climate-related risks and opportunities in line with its strategy and risk management process.
- Disclose GHG Emissions for which the Policyholder is responsible, and the related risks, details of any Net Zero Target set by the Policyholder, related interim targets, plans and Offsetting Strategy in place to implement it, and whether such target has been validated by the Science Based Targets Initiative or the Policyholder has signed up to the Race to Zero].
[Drafting note: This clause deliberately only addresses climate risk and could be used in conjunction with other TCLP clauses that cover broader organisational emissions reductions targets, alignment with warming pathways, high quality offsetting, climate governance, just transition considerations and climate policy engagement. See The Chancery Lane Project’s climate clauses, Net Zero Drafting Checklist and Net Zero Explainer in the Net Zero Toolkit for further information.]
By signing this document, the Policyholder confirms that it, and/ or its Directors and Officers have not been involved in any Claim in respect of any breach or alleged breach relating to the Disclosures and have no actual knowledge of any facts or circumstances that may lead to any such Claim.
I declare the truthfulness of the above.