Climate clause

Target Product Carbon Footprint (Schedule for Consumer Goods Contracts)

Ming's Clause

A Target Product Carbon Footprint budget (which reduces over time) for each product manufactured and supplied pursuant to the contract.

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?

Practical drafting to reduce Scope 3 emissions from the supply chain by incentivising parties to meet emissions targets through a selection of alternative payment adjustments, to be tailored to requirements. While the continuous emissions reduction is consistent with a 1.5℃ pathway the parties may temporarily pause the reductions if they are unable to meet this pace.

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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.

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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) The parties acknowledge their common intention to fulfil their obligations under this agreement to:

(i) achieve their respective climate goals including net zero targets;

(ii) align with the ultimate objectives of the Paris Agreement, in particular pursuing efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels and achieving net zero or net negative emissions by 2050 or sooner, in a manner that promotes a just transition to a low carbon economy and that results in at least a 7%* reduction of greenhouse gas emissions year on year; and

(iii) minimise their impact on climate change by minimising the greenhouse gas emissions generated through the Provision of the Goods pursuant to this agreement.

* [The ‘Carbon Law’; and  J. Rockström et al., A roadmap for rapid decarbonisation, Science 355.6331, 1269-1271 (2017).]

 

Additional Definitions

Actual Product Carbon Footprint means the Scope 1, Scope 2 and Scope 3 Emissions of GHGs (measured in CO2e) per Unit related, directly or indirectly, to the Provision of the Goods over the whole life of the Goods until delivery to the Customer.

Adjustment Date has the meaning given in clause [3].

Carbon Dioxide Equivalent (CO2e) or (CO2-equivalent) 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 in order to express a carbon footprint that consists of different GHGs as a single number.

Carbon Footprint Report means the report described in clause [5].

Due Date means [[30] days [after delivery of Goods][, varied in accordance with clause [7], Variation in Payment Terms [applies if Option B used]] [as defined in the agreement] 

GHG Reporting Standard means a standard for the measurement, reporting and management of Greenhouse Gases published by [the GHG Protocol / the International Standards Organization / the BSI Group / The Carbon Footprint Standard] [(from time to time)]. 

Goods means [the goods manufactured and supplied pursuant to this agreement and set out in the first column of the Product List] [as defined in the agreement].

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 CO2e. 

Greenhouse Gas (GHG) Emissions means the [Supplier’s] emissions of GHGs from all sources [related to this agreement], categorised as Scope 1, 2 and 3 Emissions.

GHG Protocol means The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated from time to time.

[Offset or Offsetting means the purchase of carbon credits from a project:

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

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

(iv) that prioritises the removal of GHG from the atmosphere rather than avoids or reduces third party emissions of GHG; and

(v) that takes account of a just transition and addresses wider social and ecological goals.] 

Price means [the price of Goods set out in the third column of the Product List[, adjusted in accordance with clause 7, Variation in Price] [applies if Option A used]] [as defined in the agreement].

Product List means the list set out at Schedule [X] of this agreement.

Provision of the Goods means the processes required to produce and deliver the Goods to the Customer, including but not limited to the extraction of raw materials, the manufacture, transportation, use, final re-use, recycling and disposal of the Goods.

Reporting Period has the meaning given in clause [5].

Residual Emissions means the GHG Emissions that are emitted after all reasonable efforts have been made by the [Supplier] to reduce GHG Emissions from all operations including value and supply chains.

Scope 1, 2 and 3 Emissions means the three classifications of emissions in the GHG Protocol [Drafting note: Scope 1, 2 and 3 emissions are defined on page 27 of the GHG Protocol]. 

Target Product Carbon Footprint means the agreed maximum of Scope 1, 2 and 3 Emissions (measured in CO2e) per Unit related, directly or indirectly, to the Provision of the Goods over the whole life of the Goods until delivery to the Customer, set out in the fourth column of the Product List, which may be zero, a positive or a negative number.

Unit means the number of Goods set out in the second column of the Product List.

 

Additional Clauses

1. Price

On or before the Due Date, the Customer will pay the Supplier the Price for the Goods in accordance with clause [x] of the agreement. 

2. Automatic Target Product Carbon Footprint reduction

On [the [second], [fourth] and [sixth] anniversaries] OR each anniversary of the date] of this agreement during the Term (each a Carbon Adjustment Date), by the written consent of the Customer the Target Product Carbon Footprint for each item of the Goods will automatically reduce by EITHER [the percentage specified in Schedule [ ] OR [7]% or any higher percentage that the parties agree in writing will apply from the applicable Carbon Adjustment Date. Starting at least three months before the applicable Carbon Adjustment Date, the parties will negotiate in good faith the highest percentage reduction that is reasonably achievable by the parties.* 

* [Drafting Note: For negotiation. Consider if this is intended to be cumulative year on year or a simple achieve and maintain for the life of the contract requirement. To achieve the widely accepted goal of halving emissions every decade, a minimum 7% year on year emissions reduction is required.]

[3. Offsetting

[The Supplier shall/the parties shall agree to jointly]** Offset any Residual Emissions relating to the Actual Product Carbon Footprint.]

** [Drafting Note: ‘the parties shall agree jointly’ wording is provided on the presupposition that the Customer will assist the Supplier with offsetting Supplier’s residual emissions to align with just transition principles.]

[4. Optional approaches:

[Fixed percentage] [fifteen] percent ([15]%);  

[Rolling agreed percentage] a percentage higher than [fifteen] percent ([15]%) as the parties may agree within [three] ([3]) months prior to each Adjustment Date; or

[Fixed cascading percentages] by no less than the percentages shown in Schedule [X].]}

[Drafting Note: These are more detailed approaches, which aren’t necessary as part of the above baseline and can always be agreed separately later on.]

5. Target Product Carbon Footprint change proposal

Either party may propose in writing at any time during the Term of this agreement that the Target Product Carbon Footprint is aligned to the Actual Product Carbon Footprint of the immediately preceding Reporting Period. The other party agrees to not unreasonably withhold its approval of the proposed alignment if the Actual Product Carbon Footprint during the immediately preceding Reporting Period is [20]% more or less than Target Product Carbon Footprint.

6. Bi-Annual Product Carbon Footprint Report

6.1 Within [30] days of the end of each consecutive [six] month period from the date of this agreement during the Term (each, a “Reporting Period)) (each a “Reporting Date”), the Supplier will provide a written Carbon Footprint Report to the Customer. The Carbon Footprint Report shall be audited by an independent accounting or audit firm. The Customer and Supplier will attempt to agree the appointment of that firm, but, if the parties cannot agree the appointment within 30 days or a request by either party, the Customer will (acting reasonably) choose the firm and the Supplier will cooperate with the appointed firm. The Customer and Supplier agree to share equally the costs of any independent accounting or audit firm engaged with respect to the Carbon Footprint Report. 

6.2 The Carbon Footprint Report must, at a minimum, set out:

A. the Actual Product Carbon Footprint of Goods manufactured and supplied to the Customer pursuant to this agreement in the relevant Reporting Period;

B. the specific GHG Reporting Standard used to calculate the Actual Product Carbon Footprint;

C. the industry best practices on managing and reducing GHGs that have been applied by the Supplier during and prior to the Reporting Period; 

D. the reduction in GHGs achieved measured against the Actual Product Carbon Footprints for each Good stated in previous Carbon Footprint Reports; 

E. the difference between Actual Product Carbon Footprint and Target Product Carbon Footprint of the Goods for that period; and

[F. insert any additional requirements].

[Option A: Customer receives a discount where GHG Emissions exceed the Target Product Carbon Footprint and the Supplier receives a rebate where GHG Emissions are less than the Target Product Carbon Footprint.]

7. Variation in Price

A. There will be no variation to the Price under this [clause OR schedule OR agreement] where the Actual Product Carbon Footprint of Goods is lower than, equal to or is within [1]% of the Target Product Carbon Footprint for those Goods.

[Optional approaches:

[Option A1: Simple discount. In this example, the Price is reduced by [5]% where the Target Product Carbon Footprint has been exceeded.]  [Where the Actual Product Carbon Footprint of Goods is higher than the applicable Target Product Carbon Footprint, the Price for those Goods will be adjusted by multiplying that Price by [0.95].] 

[Option A2: Matching discount. The Price varies depending on the Actual Product Carbon Footprint of the Goods.]  [In relation to each Reporting Period, where the Actual Product Carbon Footprint of Goods exceeds their Target Product Carbon Footprint [by more than 1%], the Price for the affected Goods will be reduced with effect from the first day of the following Reporting Period by the same percentage amount by which the Actual Product Carbon Footprint for the Goods exceeds the Target Product Carbon Footprint for the Goods.  For example, if the Actual Product Carbon Footprint of Goods exceeds their Target Product Carbon Footprint by three percent (3%) of the Target Product Carbon Footprint, the Price will be reduced by three percent (3%).]

[Option A3: Simple rebate. The Price will be increased by 2% where the Actual Product Carbon Footprint is less than the Target Product Carbon Footprint.] [Where the Actual Product Carbon Footprint of Goods is less than their Target Product Carbon Footprint, the Price will be adjusted by multiplying the Price by [1.02]. This adjustment will take effect on [DATE].] 

[Option A4: Matching rebate. The Price varies depending on the difference between Actual Product Carbon Footprint and Target Product Carbon Footprint of the Goods.] [Where the Actual Product Carbon Footprint of Goods is less than their Target Product Carbon Footprint [by at least 1%], the Price will be increased by the same percentage amount that the Actual Product Carbon Footprint for the Goods is less than the Target Product Carbon Footprint for the Goods. For example, if the Actual Product Carbon Footprint of Goods is less than their Target Product Carbon Footprint by three percent (3%) of the Target Product Carbon Footprint, the Price will be increased by three percent (3%).] This adjustment will take effect on [DATE].

B. Unless the relevant discount has been applied in the Price, any discounts, price adjustments or credits to which the Customer is entitled under clause [7A] are payable by the Supplier to the Customer in the manner determined by the Customer as follows:

[Optional approaches:] 

[a. on demand by the Customer;

b. as a credit on the account of the Customer; or 

c. may be withheld from any payment due from the Customer to the Supplier.] 

C. The Supplier is entitled to include any rebates to which the Supplier is entitled under clause [7A] as an additional charge in its next invoice issued by the Supplier to the Customer.

[Option B: Payment terms vary depending on the Actual Product Carbon Footprint of the Goods.]

8.  Variation in Payment Terms

Starting from the [second] Reporting Period, the Due Date for payment of any Goods ordered in a Reporting Period will be adjusted with effect from the first day of each Reporting Period in accordance with the following table:

Actual Product Carbon Footprint of Goods as shown in the Carbon Footprint Report for the preceding Reporting Period Due Date
Less than [0.7] times the Target Product Carbon Footprint for the Goods  On delivery of the Goods.
Equal or more than [0.7] times the Target Product Carbon Footprint for the Goods but less then [1] times the Target Product Carbon Footprint for the Goods [15] days after delivery of the Goods.
Equal or more than [1] times the Target Product Carbon Footprint for the Goods but equal or less than the Target Product Carbon Footprint for the Goods. [30] days after delivery of the Goods.
More than the Target Product Carbon Footprint for the Goods but less than [1.2] times the Target Product Carbon Footprint for the Goods. [45] days after delivery of the Goods.
Equal or more than [1.2] times the Target Product Carbon Footprint for the Goods. [60] days after delivery of the Goods.

 

SCHEDULE

Product List

First Column: Item / SKU Second Column: Units Third Column: Price ([$]) Fourth Column: Target Product Carbon Footprint (CO2e) 

 

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