Climate clause

SME’s Net Zero Objectives

David's Clause

A 'plug and play' clause for use by SMEs in a variety of contracts. Imposes mutual obligations on the parties to take steps towards net zero, with payment of a climate remediation fee for breach.

This is a net zero clause

This clause aligns with Paris Agreement goals, Race to Zero requirements and the Oxford Principles for Net Zero Aligned Carbon Offsetting. For tools and support to use this clause, use our toolkit or join one of our events.

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Why use this?

Climate clauses aimed at larger organisations may be overly complex for the needs of small and mid-size enterprises (SMEs). David's Clause contains straightforward mutual climate obligations that are appropriate to SMEs and that can be adopted with little adaptation and negotiation. This will save time and legal costs but still allow SMEs to adopt climate contracting.

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) do not comprise, constitute or provide personal, specific or individual recommendations or advice of any kind, and do 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 Recitals

(A) [Insert Eddie’s Recitals (Climate Recitals) here.

 

Additional Definitions 

Carbon Footprint means the Party’s total annual emissions of greenhouse gases (GHGs) classified as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated periodically. [Drafting note: If using an alternative reporting standard, users of David’s clause should add it here.]

Net Negative means the GHGs removed from the atmosphere by the Party are greater than its GHG emissions.

Net Zero Target means a target to reduce and remove the Party’s GHG emissions, including by purchasing carbon credits to offset its Residual Emissions, to achieve a balance between the Party’s sources and sinks of GHGs. This must be achieved by [2050/ insert earlier date] and align with the goals of the Paris Agreement.

Net Zero Transition Plan means a plan to deliver the Net Zero Target and then remain Net Negative, that:

(a) sets interim GHG emission reduction targets* that align with the goals of the Paris Agreement;

(b) includes a strategy specifying the verified credits from a recognised offset provider that may be used by the Party to offset its Residual Emissions;

(c) links executive remuneration to achieving the interim targets;

(d) is updated to address developments in science and technology;

(e) is reviewed and approved annually by the Party’s management team; and

(f) promotes a just transition to a low carbon economy.

* [Drafting note: If the Net Zero Target will be validated by the Science Based Targets Initiative, consider replacing ‘interim GHG emission reduction targets’ with the defined term ‘[Short/Near] Term Science Based Targets’. See TCLP Glossary: Science Based Target for suggested drafting.]

Residual Emissions means a Party’s GHG emissions from all operations including its value chain that are emitted after all reasonable efforts have been made to reduce them. [See TCLP Glossary: Residual Emissions.]

[Drafting note: Capitalised terms relate to either a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]

 

Additional Clauses

1. Climate obligations 

1.1 The Parties shall:

1.1.1 Set a public Net Zero Target and interim GHG reduction targets [validated by the Science Based Targets initiative] within [3 months] of entering into this agreement.  

1.1.2 Develop and begin to implement a Net Zero Transition Plan within [6 months] of entering into this agreement.

1.1.3 Measure and report annually and publicly on their Carbon Footprint and progress towards their Net Zero Targets. This report shall be published within 30 days of the anniversary of the date that the Net Zero Target was published under clause 1.1.1.

1.1.4 Provide an environmental and sustainability training programme on a regular basis (at least annually) for employees, personnel and contractors during their usual working hours. As a minimum, the training will cover details of the relevant Party’s public and contractual commitments, targets and governance in relation to climate change and sustainability and how these will be delivered.

2. Breach of climate obligations*

2.1 If either Party breaches the obligations in clause 1.1, that Party shall:

2.1.1 Within 30 days of the breach, inform the other Party of its plans to remedy the breach.

2.1.2 Pay to a climate charity nominated by the other Party a sum of £[●] for each [day] that the breach continues [up to a maximum of £[●]].

* [Drafting note: Clause 2 (Breach of climate obligations) is a stripped-down version of Jessica’s Clause (Carbon Contract Clauses for Environmental Performance, and Associated Incentives and Remedies). It allows the parties to set their own ‘pain threshold’, recognising that linking to the cost of offsetting may be too complicated for SMEs to negotiate.]

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