Climate clause

SPA/ APA/ Investment Agreement: Representations, Warranties and Covenants Re: Disclosure of Climate Change Plans

Justin's Clause

Justin's Clause ties seller-provided information to contractually enforceable representations, warranties and covenants, giving a buyer access to truthful climate-related information.

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?

This allows a buyer to rely on the truthfulness of the climate-related information provided by a seller by tying that seller-provided information to contractually enforceable representations (reps), warranties and covenants.

The clause

Additional definitions 

Disclosure Documents means all responses and documents provided to Buyer in response to Buyer’s requests in connection with the transactions contemplated by [this Agreement], an index of which is attached as [Schedule []] to [this Agreement].

Material Climate Contracts means any contract, agreement, arrangement or similar between the Company and a third party that:

(a) Contributes to more than [5]% of the Company’s [Scope 2 [or] Scope 3] emissions;

(b) A failure to perform by either party or a material breach by the counterparty could result in a material risk that the Company will not meet an interim target it has set as part of its Net Zero Target and/or exceed its Carbon Budget;

(c) Is identified by the Company as not environmentally friendly (or where a more sustainable option was considered and rejected); or 

(d) Otherwise relates to a material risk in the climate risk assessment and management plan referenced in Section 2 above. 

[Drafting note: Capitalized 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. The Company [and Seller each] represent[s], warrant[s] and covenant[s] that full and complete details of each of the following have been disclosed to Buyer in the Disclosure Documents:

[Drafting notes: If Buyer used [Drew’s DDQ] Climate Change Due Diligence Questionnaire, these reps, warranties and covenants can be modified to reflect the information collected in response thereto. The Buyer may also consider engaging in an external audit to verify information obtained as part of the disclosure process. The sale price could be tied to the results of any such audit.

1.1. How climate change issues are considered in the Company’s corporate strategy and long and short-term business plans;

1.2. The Company’s Net Zero Target and Net Zero Transition Plan, if any;

1.3. The Company’s Carbon Budget (if any), including details of how such Carbon Budget and the Company’s Greenhouse Gas Emissions are measured, reported and externally verified in a written report, and how the Carbon Budget is aligned with achieving the Net Zero Target;

1.4 The Company’s Offsetting Strategy and activities the Company undertakes to offset its Greenhouse Gas Emissions, including any opportunities offered to customers to engage in offsetting of Greenhouse Gas Emissions;

1.5 Whether the Company has made any public or employee-directed statements regarding its Net Zero Target, Carbon Budget or other sustainability or climate change-related plans [in the previous [5] years]; 

1.6 Whether the Company’s Net Zero Target has been approved by the Science Based Targets initiative; 

1.7. If and how the Company assesses and discloses climate risks and opportunities with regard to the recommendations of the Task Force on Climate-related Financial Disclosures; and

1.8 The Company’s current climate engagement policies and practices, including:

1.8.1 A list identifying each individual policy or practice; 

1.8.2 Climate-related public statements and climate leadership activities made or undertaken or in the previous [5 years];

1.8.3 Its specific commitment/ position statement in relation to conducting all of its lobbying, including political donations, in line with the goal of limiting global temperature increase to 1.5 degrees Celsius above pre-industrial levels; 

1.8.4 Direct and indirect climate-related lobbying activities (including without limitation, meetings, policy submissions and donations) taken in the previous [5 years] and how they align with the position statement in Section 1.8.2 above;

1.8.5 Trade association memberships; and

1.8.6 The process by which the Company ensures that lobbying by its trade associations aligns with the position statement in Section 1.8.2 above.

2. The Company [and Seller each] represent[s], warrant[s] and covenant[s] that Company has, and intends to maintain, a climate risk assessment and management plan that includes the following: 

2.1 Any known or reasonably foreseeable [material] climate change-related physical risks to Company assets or operations; 

2.2 Any known or reasonably foreseeable [material] transition risks to Company operations or assets or reasonably foreseeable [material] legal, financial or commercial risk to the Company due to climate change (including upstream in its supply chain and downstream in its value chain); 

2.3 The effects on key stakeholders (including but not limited to employees, clients, customers, end users and supply chain partners) of the measures taken by the Company with respect to its Greenhouse Gas Emissions and how these measures take into account Just Transition factors; and 

2.4 Any mitigation measures of such effects which the Company could reasonably adopt; and a copy of such climate risk assessment and management plan is included in the Disclosure Documents.

3. The Company [and Seller each] represent[s], warrant[s] and covenant[s] that:

3.1 The Company has a board member or an executive committee who/ which is primarily accountable and responsible for: 

3.1.1 The Company’s measurement, management and reporting on climate risks;

3.1.2 The Company’s climate change risk assessment and management plan and the Company’s Net Zero Target and Carbon Budget (if any), and; 

3.1.3 Details of such board member or executive committee and their qualifications (particularly in relation to climate change) are included in the Disclosure Documents; 

3.2 Details of how the Company’s board of directors integrates climate change factors into decision-making are included in the Disclosure Documents;

3.3 Copies of all Material Climate Contracts are included in the Disclosure Documents and are identified as such;

3.4 Details of any sustainability-related employment benefits, terms or initiatives offered to the Company’s employees and any ways that the Company enables others (e.g., employees, customers, suppliers, shareholders, general public) to contribute to the global transition toward Net Zero through engagement, information sharing, access to finance, capacity building or any other type of climate leadership are included in the Disclosure Documents; and 

3.5 Details of the steps the Company takes to reduce, recycle and reuse its waste (including plastic waste) are included in the Disclosure Documents.

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