Climate clause

Sustainability Linked Loans

Casper's Clause

Model clauses, as a set of optional riders divided into product categories and ESG goals, to incorporate SLPs into traditional financing documents, standard T&Cs and finance products.

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?

By incorporating the Loan Market Association’s (LMA’s) May 2020 Sustainability Linked Loan Principles into a standard (rather than green) loan agreement, Casper’s Clause mainstreams sustainability into lending, supporting lenders and borrowers to achieve their net zero targets and mobilising finance to support the transition to a decarbonised economy.

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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 Definitions

Achieved SPT means a Sustainability Performance Target that the Group has [achieved/ complied with] according to the most recent Sustainability Performance Evaluation.

Business Site means [●].

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 Greenhouse Gases (GHGs) on the basis of their global warming potential over a specified timescale.

Carbon Footprint means the total annual GHG Emissions caused directly or indirectly by a Sustainability Linked Borrower.

GHG Emissions means a Sustainability Linked Borrower’s emissions of GHGs from all sources (including value and supply chains), 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 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).

Margin means

(a) [●]% per annum; or

(b) in relation to a Sustainability Linked Facility, as may be amended from time to time following a Sustainability Performance Evaluation, a Sustainability Linked Margin Decrease or a Sustainability Linked Margin Increase.

Net Negative means that the aggregate of a Sustainability Linked Borrower’s actions to reduce its GHG Emissions and remove GHGs from the atmosphere exceeds its unabated GHG Emissions. 

[Drafting note: See TCLP Glossary for definition options and explanatory notes. On a global scale, removals of GHGs should be consistent with the mitigation pathways that would limit global warming to 1.5°C, with little to no overshoot. See IPCC Special Report on Global Warming of 1.5 ºC, Summary for Policymakers, Part C Emission Pathways and System Transitions Consistent with 1.5°C Global Warming.]

Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHGs associated with Offsets acquired to address the Residual Emissions of a Sustainability Linked Borrower by 2050 or sooner to achieve a balance between the Sustainability Linked Borrower’s sources and sinks of GHGs in a calendar year and for each subsequent year thereafter and to achieve Paris Agreement Goals.

Offset or Offsetting means the purchase of carbon credits by a Sustainability Linked Borrower from a project:

(a) 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];

(b) where the emissions of GHGs* avoided, reduced or removed by the project are additional; and

(c) that, in relation to GHG removals, employs long-lived storage methods that have a low risk of reversal over millennia. 

* [Drafting note: The reference to “emissions of GHGs” here is to GHG emissions generally. The defined term GHG Emissions is not used because in general, the defined term relates to the emissions of a party relating to a particular agreement or transaction.]

Offsetting Strategy means a plan specifying:

(a) how the Sustainability Linked Borrower will transition from using Offsets that avoid or reduce third party emissions of GHGs to those from projects that remove emissions of GHGs;

(b) how the Sustainability Linked Borrower will [use best endeavours to] reduce its use of Offsets by reducing its Residual Emissions [to zero/ by [●]%] by 2050; and

(c) 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 a Sustainability Linked Borrower to reduce GHG Emissions.

Sustainability Committee means a committee of the board of directors of a Sustainability Linked Borrower either chaired by a [non-executive] director with experience of improving sustainability and mitigating carbon footprints, or advised by an appropriately qualified climate, sustainability or environmental consultant who has the skills and experience to diligently, competently and professionally advise on improving sustainability and mitigating carbon footprints.

Sustainability Compliance Certificate means a certificate substantially in the form set out in Schedule [3] (Form of Sustainability Compliance Certificate).

Sustainability Coordinator [or Sustainability Structuring Agent] means [INSERT NAME].

Sustainability Expert means an auditor, environmental consultant, independent ratings agency or industry professional qualified in relation to one or more SPTs, in each case as agreed between the Sustainability Coordinator, Sustainability Linked Borrowers and Majority Lenders from time to time (or in the absence of such agreement, as selected by the Sustainability Coordinator).

Sustainability Linked Borrower means each Borrower under a Sustainability Linked Facility.

Sustainability Linked Facility means each Facility designated as a sustainability linked facility and made available under this Agreement as described in Clause [1.1].

Sustainability Linked Margin Decrease means a decrease in the Margin of [●]% per annum. 

Sustainability Linked Margin Increase means an increase in the Margin of [●]% per annum.

Sustainability Objectives means the sustainability objectives detailed in the Sustainability Strategy, including without limitation the Net Zero Target, achieving and maintaining a Net Negative state, short, medium and long term interim reduction targets for the Borrower’s GHG Emissions that are aligned with Paris Agreement Goals, the Offsetting Strategy and measures to deliver the Net Zero Target in a way that promotes nature and a just and equitable transition to a low carbon economy.

Sustainability Performance Evaluation means an evaluation provided by the Sustainability Coordinator substantially in the form set out in Schedule [4] (Form of Sustainability Performance Evaluation) [pursuant to Clause 1.3(a) (Sustainability Performance Evaluations)].

Sustainability Performance Target or SPT means the key performance indicators set out in Schedule [2] (Sustainability Performance Targets) that measure progress towards the Sustainability Objectives.

Sustainability Performance Test Date means [31 March, 30 June, 30 September and 31 December] in each calendar year.

Sustainability Strategy means a report provided by each Sustainability Linked Borrower before the start of the Sustainability Linked Facility that is reviewed by its Sustainability Committee and approved by its board of directors, and detailing:

(a) its Sustainability Objectives (and how achieving the SPTs will further them);

(b) a business plan detailing how it will achieve its Sustainability Objectives and achieve the SPTs for the duration of each Sustainability Linked Facility; 

(c) the Offsetting Strategy;

(d) how the Sustainability Linked Borrower will determine whether the Sustainability Objectives have been met, how it will report on implementing and achieving the SPTs and how the Sustainability Compliance Certificate will be prepared; 

(e) how executive remuneration is linked to achieving the SPTs; and

(f) the fees, costs and expenses, stamp, registration and other Taxes incurred or to be incurred by it or any other member of the Group in connection with achieving the SPTs.

 

Additional Clauses

1. Sustainability Linked Facilities

1.1 [Facility/ Tranche] [●] and [Facility/ Tranche] [●] are each designated as a Sustainability Linked Facility.

1.2 Sustainability Performance Targets 

(a) Each Sustainability Linked Borrower undertakes to use [its best/ all reasonable] endeavours to achieve its SPTs.

(b) The Sustainability Linked Borrower and Sustainability Coordinator (acting in accordance with the instructions of the Majority Lenders) shall review and, if agreed, increase the SPTs [annually].

[Drafting note: As drafted, there is a risk that the review might be an opportunity for the parties to reduce the ambition and impact of the agreed SPTs. Users of this clause may wish to consider amending the drafting of 1.2(b) to reduce such risk.]

1.3 Sustainability Performance Evaluations

(a) Within [15] Business Days of receiving a Sustainability Compliance Certificate under Clause 3.1(a) (Sustainability Compliance Certificate), the Sustainability Coordinator shall provide the Sustainability Linked Borrower with a Sustainability Performance Evaluation detailing, based on the Sustainability Compliance Certificate and any further discussions it has had with Sustainability Experts in accordance with Clause 3.1(d), the SPTs that are Achieved SPTs for the purposes of calculating a Sustainability Linked Margin Decrease or Sustainability Linked Margin Increase under Clause 1.3(b) below.

(b) Each Sustainability Performance Evaluation shall determine whether a Sustainability Linked Margin Decrease or a Sustainability Linked Margin Increase shall apply during the period from the date it is delivered to the Sustainability Linked Borrower until the date of delivery of the next Sustainability Performance Evaluation to the Sustainability Linked Borrower, using the following calculations:

(i) if the number of Achieved SPTs is over [75%] of the total number of SPTs as at the most recent Sustainability Performance Test Date then the Sustainability Linked Margin Decrease shall apply; or

(ii) if the number of Achieved SPTs is under [50%] of the total number of SPTs as at the most recent Sustainability Performance Test Date then the Sustainability Linked Margin Increase shall apply.

[Drafting note: Users of this clause may wish to tailor this drafting to the lenders’ requirements and borrower’s circumstances by weighting the targets that are the most critical. Rather than specifying a percentage of the total SPTs should be achieved, the Sustainability Performance Evaluation could be assessed on a failure to achieve specific SPTs.]

2. Representations

[Insert sustainability linked reps and warranties – for example, correct form of reporting on SPTs etc.]

3. Information Undertakings

3.1 Sustainability Compliance Certificate

(a) Within 30 days of each Sustainability Performance Test Date, each Sustainability Linked Borrower shall supply the Sustainability Coordinator with a Sustainability Compliance Certificate setting out (in form and substance satisfactory to the Sustainability Coordinator, acting reasonably) computations and information that comply with this Clause 3.1.

(b) Each Sustainability Compliance Certificate shall:

(i) report on the Sustainability Linked Borrower’s performance against each SPT as at the relevant Sustainability Performance Test Date, and identify the Achieved SPTs;

(ii) include any relevant report, certification, rating or any other information required by any SPT;

(iii) detail any assumptions used by the Sustainability Linked Borrower to prepare the Sustainability Compliance Certificate and evidence of the Sustainability Linked Borrower’s compliance with each SPT that has been independently verified by a Sustainability Expert (the costs of which shall be paid by the Sustainability Linked Borrower); and

(iv) be reviewed by the Sustainability Committee and signed by two directors of the Sustainability Linked Borrower.

(c) Each Sustainability Compliance Certificate [(and the evidence that verifies it] shall be made available for public access on the Sustainability Linked Borrower’s website [within [3] months of delivery to the Sustainability Coordinator][, and shall be referenced in the Sustainability Linked Borrower’s annual [sustainability] report].

(d) [If requested to do so by the Majority Lenders, the Sustainability Coordinator shall discuss the Sustainability Compliance Certificate or any aspect of it with the relevant Sustainability Expert[s] and report on those discussions to the Lenders. The Sustainability Linked Borrower shall pay the reasonable costs and expenses of the Sustainability Coordinator and the Sustainability Experts so incurred.]

3.2 Sustainability Strategy

Each Sustainability Linked Borrower shall:

(a) at all times and in all material respects procure that the Group’s business is carried out in accordance with the Sustainability Strategy; and

(b) only amend or vary the Sustainability Strategy with the prior written consent of the Sustainability Coordinator (acting in accordance with the instructions of the Majority Lenders).

3.3 [Energy Performance Certificate of each [Business Site]]

[Each Sustainability Linked Borrower shall, within [15] Business Days of a request by the Sustainability Coordinator, supply to the Sustainability Coordinator a copy of the current energy performance certificate(s) in respect of each Business Site or evidence that an energy performance certificate is not required under any applicable law or regulation.]

3.4 Environmental, Social and Corporate Governance

(a) When the the Sustainability Linked Borrower delivers the Sustainability Compliance Certificate, it shall notify the Sustainability Coordinator (in reasonable detail) of any incident relating to environmental, social and corporate governance [(ESG)] of the Group that has occurred that is in any material respect a breach of or failure to comply with its Sustainability Objectives [or any ESG report delivered to the Sustainability Coordinator].

(b) Upon delivery of each set of its Annual Financial Statements each Sustainability Linked Borrower shall deliver to the Agent information as may be reasonably requested by the Sustainability Coordinator (acting on the instructions of the Majority Lender) regarding the environmental, social and corporate governance of the Group which is not already contained in such Annual Financial Statements. [Drafting note: Consider adding further reporting requirements as set out in clause 1.6 of Sebastian’s Clause.]

4. Events of Default

4.1 [A Sustainability Linked Borrower fails to meet SPT1 [on more than [●] [successive] Sustainability Performance Test Dates.] [Drafting note: This wording emphasises the relative importance of the Net Zero Target in comparison to the other SPTs and will raise the ambition of the clause, but drafters may wish to build in a review process allowing the borrower to correct such failure before it becomes an Event of Default.]

4.2 [The number of Achieved SPTs is under [50%] of the total number of SPTs [on more than [●] [successive] Sustainability Performance Test Dates, as indicated by a Sustainability Performance Evaluation.] [Drafting note: Users of this clause may want to tailor this drafting to the lenders’ requirements and borrower’s circumstances weight targets which are the most critical. Rather than specifying a percentage of the total SPTs should be achieved, the Sustainability Performance Evaluation could be assessed on a failure to achieve specific SPTs.]

4.3 A Sustainability Linked Borrower fails to provide a Sustainability Compliance Certificate pursuant to Clause 3.1(a) for a Sustainability Performance Evaluation.

4.4 [A Sustainability Linked Borrower fails to remedy a [material] breach reported under Clause 3.4(a) within [60] days of a written request by the Sustainability Coordinator (acting on the instructions of the Majority Lender).]

5. Conditions Subsequent

5.1 [Publication of each Sustainability Linked Borrower’s Sustainability Strategy and [its/ the corresponding] SPTs on the relevant Sustainability Linked Borrower’s website within [●] Business Days of the date of this Agreement.]

5.2 [Validation of each Sustainability Linked Borrower’s Net Zero Target by the Science Based Targets initiative within [one year] of the date of this Agreement.]

5.3 [Each Sustainability Linked Borrower signs up to Race to Zero within [six months] of the date of this Agreement.]

 

Schedule [1] – Conditions Precedent

1. Sustainability linked documentation

(a) The Sustainability Strategy initialled by the Sustainability Linked Borrower and the Sustainability Coordinator.

(b) A certificate of the Sustainability Linked Borrower (signed by a director) confirming that the Sustainability Linked Borrower will undertake its business activities and apply proceeds of the Sustainability Linked Facilities in accordance with the Sustainability Strategy.

(c) A report by the relevant Sustainability Experts addressed to the Lenders confirming that the Sustainability Strategy is appropriate, uses suitable and reasonable methodologies and that its application can reasonably be expected to enable the Sustainability Linked Borrower to achieve its SPTs.

(d) [Insert specific SPTs CPs/ Industry standard reports/ ratings related to SPTs etc.]

Schedule [2] – Sustainability Performance Targets

Drafting note: The SPTs listed below are additional to the SPTs listed in Appendix 1 of the Sustainability Linked Loan Principles. Users of Casper’s clause will need to add to this schedule such of the SPTs listed in Appendix 1 that meet their requirements.

SPT  Category SPT Targets
SPT1 GHG emission reduction [Quarterly progress toward reaching a [7%]* reduction in the Carbon Footprint against the previous year’s Carbon Footprint and meeting all interim targets towards achieving the Net Zero Target by the corresponding dates specified in the Sustainability Strategy.]

 

SPT2   Employee Training Programme [Training staff on sustainability/ climate issues and how to improve on the borrower’s Carbon Footprint.]

 

SPT3 Offsetting [Targets from the Offsetting Strategy to gradually transition the underlying offsetting projects to purely Offsets that remove emissions, rather than avoid or reduce others’ emissions.]

 

SPT4 [●] [Insert additional categories and SPTs listed in Appendix 1 of the Sustainability Linked Loan Principles.]

 

Schedule [3] – Form of Sustainability Compliance Certificate

To: [●] as Sustainability Coordinator 

From: [Sustainability Linked Borrower] 

Dated:

Dear Sir or Madam,

[Sustainability Linked Borrower] – Facility Agreement
dated [●] (the “Agreement”)

1. We refer to the Agreement. This is a Sustainability Compliance Certificate. Terms defined in the Agreement have the same meaning when used in this Sustainability Compliance Certificate unless given a different meaning in this Sustainability Compliance Certificate.

2. Sustainability Linked Borrower’s report on its Sustainability Performance Targets as at most recent Sustainability Performance Testing Date.

SPT SPT Category Developments during period since the immediately preceding Sustainability Performance Testing Date Self-evaluation of Sustainability Linked Borrower
SPT1   GHG emission reduction [●] [Achieved SPT] [Unachieved SPT]
SPT2 Employee Training Programme [●] [Achieved SPT] [Unachieved SPT]
SPT3 Offsetting [●] [Achieved SPT] [Unachieved SPT]
SPT4 [Insert additional categories listed in Appendix 1 of the Sustainability Linked Loan Principles.] [●] [Achieved SPT][Unachieved SPT]
Signed: ………… …………
Director Director
of of
[Sustainability Linked Borrower] [Sustainability Linked Borrower]

[Insert applicable certification language] [Drafting note: To be agreed with the Sustainability Linked Borrower, Sustainability Expert and the Lenders before signing the Agreement.]

[Include Sustainability Expert’s verification reporting] 

…………

for and on behalf of 

[name of Sustainability Expert of the Sustainability Linked Borrower]

Schedule [4] – Form of Sustainability Performance Evaluation

To: [●] as Sustainability Linked Borrower From: [●] as Sustainability Coordinator Dated:

Dear Sir or Madam,

[Sustainability Linked Borrower] – Facility Agreement 

dated [●] (the “Agreement”)

1. We refer to the Agreement. This is a Sustainability Performance Evaluation. Terms defined in the Agreement have the same meaning when used in this Sustainability Performance Evaluation unless given a different meaning in this Sustainability Performance Evaluation.

2. We have evaluated your Sustainability Compliance Certificate dated [Date]. [It is our assessment that [SPT][, SPT][ and SPT] are Achieved SPTs.] [It is our assessment that no SPTs are Achieved SPTs/]

3. [Sustainability Linked Borrower] has achieved [●]% of its SPTs.

4. As [Sustainability Linked Borrower] has achieved [[75%] or more][[50%] or less][between [50%] and [75%]] of its SPTs, [Sustainability Linked Borrower] [will have a Sustainability Linked Margin [Increase][Decrease]][no Sustainability Linked Margin Increase or Sustainability Linked Margin Decreased] shall be applied.

5. Margin from the date of this certificate until delivery of the next succeeding certificate (“Temporary Margin Interest Period”) shall be [●]%. per annum.

Signed: ………..
Authorised Signatory
of
[Sustainability Coordinator]

 

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