Climate clause

Sustainability Clauses in Supply Chain Contracts

Austen's Clause

Using supply chain contracts to extend positive climate change measures adopted in one country to contracting parties in other countries that may have less of a legislative focus on climate.

This is a climate clause

This clause brings climate considerations to your drafting. It is not yet net zero aligned. To align this clause with net zero, use our toolkit or join one of our events.

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Why use this?

This clause assists in achieving multinational corporate carbon reduction targets and addressing the imbalance in climate regulatory activity between regions, with an option to extend obligations to subcontractors. A failure to comply with the sustainability policy or decarbonisation plan that is not remedied triggers the right to suspend or terminate.

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 

Corrective Action Plan means a corrective or mitigation plan agreed between the Parties, including a cost breakdown, allocation of responsibilities, and an implementation schedule, which, once initiated, will enable the Supplier to correct and remediate the damage and adverse effects resulting from any failure to comply with the Environmental Action Plan, the Sustainability Policy, the Environmental Standards and Guidelines, or the Environmental Legislation, or to correct or mitigate the adverse effects of any Serious Environmental Incident.

Environmental Action Plan means the plan prepared by the Parties and appended to this Agreement, which shall indicate the necessary actions, including the allocation of responsibilities and implementation schedule, for the purposes of ensuring that the design, construction, installation, operation, maintenance, and/or decommission (as appropriate) of the Parties’ [and their subcontractors’] Facilities, Plant, and Equipment shall meet, within the timescales set out therein, and maintain substantial compliance with, the Environmental Standards and Guidelines, the Environmental Legislation and the Sustainability Policy.

Environmental Damage Report means a written report describing (a) the relevant Party’s non-compliance with the Environmental Action Plan, Environmental Legislation, Environmental Standards and Guidelines, and/or the Sustainability Policy, and/or (b) any Serious Environmental Incident. The report shall include a reasonable description of the event, detailing its extent, magnitude, and impact (or, where such impact is unknown, the potential impact).

Environmental Issues means issues related to: (a) emissions, spills, or discharges to the air, water, ground, or subsoil, (b) management of waste and Hazardous Substances, (c) other activities or circumstances that produce Greenhouse Gases, (d) preservation or management of habitats and ecosystems, as well as the protection of living organisms present therein, and (e) any other issue that may have a significant or substantial effect on the environment, biodiversity, animal habitats, or climate change in general.

Environmental Legislation means all statutes, laws, regulations, decrees, resolutions, codes, orders, plans, and judicial or administrative decisions or interpretations issued at the international, national, state, municipal, or sector level that govern or make reference to Environmental Issues that are applicable within any jurisdiction where the Parties carry out their operations, whether or not compliance is mandatory.

Environmental Licences means all licenses, approvals, and permits necessary for each Party’s business and operations including, but not limited to, those issued by any governmental, local or planning authority where required by any Environmental Legislation.

Environmental Monitoring Report means the true, accurate and complete report prepared by an appropriately qualified environmental sustainability consultant appointed by each Party [after consultation with the other Party] on the relevant Party’s compliance with the Environmental Action Plan, the Environmental Legislation, the Environmental Standards and Guidelines, and the Sustainability Policy, confirming compliance therewith or detailing the non-compliance thereof, together with the remedial action taken to ensure compliance with the Environmental Action Plan, the Environmental Legislation, the Environmental Standards and Guidelines, and the Sustainability Policy.

Environmental Representations means the representations set out in Clause 1.

Environmental Standards and Guidelines means such guidelines and performance standards that contain best environmental practices to be implemented by the Parties in the design, construction, installation, operation, maintenance and/or decommission (as appropriate) of all their Facilities, Plant, and Equipment, as referred to in the Sustainability Policy, and other guiding regulations and documents listed in the Environmental Action Plan.

Facilities, Plant and Equipment means the respective facilities, plant and equipment used by the Parties [and their subcontractors] for the purpose of carrying out their obligations under this Agreement.

Fiscal Year means a one-year period from [1 April] and ending [31 March] for the purposes of tax and accounting.

Greenhouse Gases (GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and as specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) or otherwise specified by the UNFCCC, and which currently include: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3).

Greenhouse Gas Emissions (GHG Emissions) means emissions of Greenhouse Gases 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 Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 (as amended from time to time) or such other equivalent and generally recognised greenhouse gas emission calculation methodology].

Hazardous Substances means any material, substance or organism which, alone or in combination with others, is capable of causing harm to the natural and man-made environment including all or any of the following media: air (including air within buildings and other natural or man-made structures above or below the ground), water, land, and any ecological systems and living organisms (including man) supported by those media.

Net Zero Target means the net reduction of Greenhouse Gas Emissions from all operations to zero by [specified date] so there is a balance between the emissions by sources and removals by sinks of Greenhouse Gases. A Net Zero Target is met when residual emissions are fully offset by Greenhouse Gas removals.

Serious Environmental Incident means a material event of emission, spillage or discharge of Hazardous Substances; explosions, fire; environmental claims, complaints, or lawsuits (including pre-action correspondence) that are not frivolous or vexatious, and which the relevant Party, acting reasonably, believes to have a reasonable prospect of success; and/ or complaints from or investigations by authorities responsible for the enforcement of Environmental Legislation.

Sustainability Policy means the Customer’s Sustainability Policy attached at Schedule [X], as amended from time to time and in accordance with Clause 3.

 

Additional Clauses

1. Environmental Representations

1.1 The Parties acknowledge their common intention in the fulfilment of their obligations under this Agreement to minimise their negative impact on climate change and biodiversity, and to reduce their Greenhouse Gas Emissions [to help [country] achieve its GHG reduction targets/ Net Zero Target].

1.2 The Parties state that they [and their subcontractors] are in substantial compliance with the Environmental Legislation, the Sustainability Policy and the applicable Environmental Standards and Guidelines, with the exception of any action specifically noted in the Environmental Action Plan as still pending, with respect to achieving substantial compliance. Each Party further represents and warrants that [at the date of this agreement] in the last 6 years, it has not been fined or convicted of any offence involving the environment, nor has it been the subject of any investigation, inquiry or enforcement proceedings regarding any offence or alleged offence of or in connection with damage to the environment.

1.3 Each Party represents and warrants that the Environmental Representations are true as at the date of this Agreement, and on the date of the delivery of the Environmental Monitoring Report.

2. Environmental Covenants

2.1. Each Party shall comply[, and shall require their subcontractors to comply,] with the following obligations set forth below:

2.1.1. each Party shall conduct its business with due diligence, in an efficient and environmentally responsible manner, adhering fully to the Environmental Action Plan, the Environmental Legislation, the Environmental Standards and Guidelines, and the Sustainability Policy and ensuring that all its operations are carried out in accordance therewith.

2.1.2 each Party shall, within 45 days from the close of each Fiscal Year, provide the other Party with an Environmental Monitoring Report.

2.1.3 each Party shall maintain in force all Environmental Licences, and shall comply with and observe all conditions and restrictions contained in or imposed by any such Environmental Licenses.

2.1.4 each Party shall use best endeavours to ensure that its Facilities, Plant, and Equipment are designed, built, operated and/ or maintained in accordance with the requirements set forth in the Environmental Action Plan, the Environmental Legislation, the Environmental Standards and Guidelines, and the Sustainability Policy.

2.1.5 each Party shall, at the request of the other Party, allow the other Party or the person it designates to visit and inspect its Facilities, Plant and Equipment.

2.1.6 each Party shall, at the request of the other Party (acting reasonably and made not more than once a year), provide the other Party with information about its activities and its compliance with the requirements pertaining to the Environmental Issues, its compliance (or non-compliance) with the Environmental Licences and the implementation of the Environmental Action Plan. The other Party shall have no right to confidential information, any information that attaches privilege of any kind, commercially sensitive information, and any information that is not directly relevant to the Party’s compliance with its obligations under Clauses 1 and 2.

2.2 In the event that a Party [or a third party competent authority responsible for enforcing Environmental Legislation] detects any non-compliance with the Environmental Action Plan, the Environmental Legislation, the Environmental Standards and Guidelines and/ or the Sustainability Policy, and/ or any Serious Environmental Incident, that Party shall:

2.2.1 subject to Clause 2.2.2, notify the other Party within [five (5) Business Days] from the date of discovery of such non-compliance, or within [forty-eight (48) hours] in the event of a Serious Environmental Incident, providing a reasonably detailed written description of such non-compliance or Serious Environmental Incident, including, but not limited to, an account of the expected environmental damage resulting therefrom;

2.2.2 have the option to remedy any non-compliance that does not amount to a Serious Environmental Incident within five (5) Business Days from the date the non-compliance was detected, if that Party reasonably believes it is possible to do so. That Party shall then have a further five (5) Business Days before it is required to notify the other Party of non-compliance in accordance with Clause 2.2.1;

2.2.3 engage, at its own expense, the services of an appropriately qualified environmental, sustainability consultant or other qualified professional satisfactory to the other Party (acting reasonably), to investigate the non-compliance or Serious Environmental Incident and prepare an Environmental Damage Report and a draft Corrective Action Plan for agreement between the Parties;

2.2.4 agree within [fifteen (15) Business Days) the Corrective Action Plan with the other Party; and

2.2.5 diligently take, at its own expense, all the reasonable steps necessary to implement the pertinent Corrective Action Plan in a form and substance satisfactory to the other Party.

2.3 In the event that a Party commits a material breach of Clause 2.1 and/ or fails to take any and/ or all the steps necessary to implement the Corrective Action Plan referred to at Clause 2.2.4, the other Party may suspend this Agreement until the breach is remedied or for a specified period but in any event for no more than [X] days, by giving written notice to the Party in breach.

2.4. The Customer or Supplier may terminate the agreement with immediate effect by giving written notice to the other Party who commits a material breach of this Clause 2 and fails to comply with the recommendations and measures specified in the Corrective Action Plan or required under Clause 2.3. The Customer or Supplier may also claim damages for any additional costs that it incurs as a result of the breach. The Party in breach of this Clause 2 also hereby indemnifies the other Party for any loss resulting from such breach, including without limitation any reasonably incurred public relations costs or legal fees.

3. Amendments to the Sustainability Policy

The Parties agree to engage in discussions regarding proposed amendments to the Sustainability Policy within a reasonable timeframe but no later than 30 days after notice is provided by one Party to the other. The Parties agree to amend the Sustainability Policy accordingly where the Supplier’s own policies and practices exceed those set out in the Sustainability Policy.

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