Climate clause

Template Board Paper for Significant Contracts/ Transactions [New]

Griff's Clause

Template drafting for board papers with detailed prompts for consideration of the climate impacts of a significant contract/ transaction and the associated climate risks to the business.

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Griff’s Clause enables business-aligned climate conversations within a normal governance structure, supporting companies to meet their net zero commitments and build climate resilience.

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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) 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

Issues: Material climate aspects to the [significant contract/ transaction]*

* [Drafting Note: insert the description used in the rest of the board paper.]

[Rehearse an introduction of Climate Transition Action Plan (CTAP)**, or emissions reductions targets of Corporate Social Responsibility, Responsible Business or ESG plans]

** [Drafting Note: For an example, see Unilever Climate Transition Action Plan.]

1. STRATEGY IMPLICATIONS

Alignment 

1.1 The proposal to enter into the [significant contract/ transaction] is [fully/ partially/ not] aligned to our agreed net zero target*, interim emissions reductions targets, Paris-aligned business strategy and operational plan on climate change, and in particular the delivery of near- and medium-term milestones that are a prerequisite to reaching the longer-term net zero target, for the following reasons. [Explain/ Insert reasons. If the contract is aligned in one aspect, but not another, please explain.]

* [Drafting Note: A net zero target means setting a date (ideally before 2050) to achieve both a reduction of greenhouse gas emissions and a removal of greenhouse gas emissions to achieve a balance between the Company’s sources and sinks of greenhouse gas emissions (of all types of gas and all scopes) in a calendar year and for each subsequent year thereafter, to achieve the goals of the Paris Agreement. The removals are achieved by the purchase of carbon credits (offsets) from a project that has been verified in accordance with a voluntary standard or under the United Nations Framework Convention on Climate Change (UNFCCC) clean development mechanism and should only be acquired to address the greenhouse gas emissions that remain after all reasonable efforts have been made by the Company to reduce greenhouse gas emissions from all operations including value and supply chains.]

1.2 The [significant contract/ transaction] will help us achieve our net zero strategy by enabling us to deliver on the  interim industrial or M&A goals that are consistent with our near- and medium-term emissions reductions targets for the following reasons. [Explain/ Insert.]

1.3 The [significant contract/ transaction] may hinder our achievement of our net zero strategy and interim industrial, M&A and emissions reductions targets.  

1.3.1 This is necessary because [insert rationale].

1.3.2 This can be mitigated by [insert mitigation options].

1.3.3 [These mitigation options do not involve the use of offsets, or include a limited use of highest-quality offsets that apply to residual emissions that cannot be mitigated after adoption of best-available technologies, so are aligned with international best practice on net zero strategy.] [These mitigation options involve the use of offsets to mitigate all or a substantial proportion of the emissions without making use of best-available technologies, and as such are not aligned with international best practice on net zero strategy. They are subject to the following risks [insert reputational risks from offsets and commercial risks should assumptions on cost and the continued availability of offsets differ materially from actual outcomes.]]

1.4 [Our Scope 3 emissions targets have/ have not been cascaded to the counterparty as part of [the significant contract/ transaction], and therefore do/ do not bring us closer to meeting our near- and/ or medium-term Scope 3 emissions targets. [See Owen’s Clause (Net Zero Target Supply Chain Cascade).]

1.5 Once signed we [will/ will not] be able to terminate the [significant contract/ transaction] to move to an alternate, lower-carbon counterparty. [See Agatha’s Clause (Termination for Greener Supplier) or Annie’s Clause (Green Termination (Short Form)).]

1.6 The following due diligence has been undertaken on the counterparty to ensure they are aligned with our net zero targets and corporate climate strategy:

1.6.1 [Our net zero and interim targets are aligned];

1.6.2 The counterparty’s SECR carbon intensity ratio has reduced in the last [#] years;

1.6.3 The counterparty’s decarbonisation strategy focuses primarily on greenhouse gas emissions reduction, with limited recourse to high-quality offsets for residual emissions, rather than large-scale offsetting as a substitute for mitigation; and

1.6.4 The climate/ sustainability team has reviewed their transition/ decarbonisation plan and concluded it is [credible/ not credible/ needs work].

Emissions 

1.7 [Our best estimate of the emissions arising from the [significant contract/ transaction] are: 

[  ] Scope 1: [#]; 

[  ] Scope 2: [#]; and

[  ] Scope 3: [#].] OR

[It is not possible to estimate the emissions arising from the [significant contract/ transaction] because [insert reason].]

[Drafting Note: Scope 1, 2 and 3 emissions are categorised by The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 (as updated from time to time). Scope 1 Emissions means all direct emissions from the activities of the Company or under its control. Scope 2 Emissions means all indirect emissions from electricity purchased and used by the Company where the emissions occur at sources owned or controlled by another company. Scope 3 Emissions means all indirect emissions other than Scope 2 Emissions, that are a consequence of the activities of the Company, but occur from sources not owned or controlled by the Company (e.g. either upstream or downstream in its value chain).]

1.8 This means our carbon footprint will increase/ decrease by [Insert] tn. CO2.eqv.

[Drafting Note: Carbon footprint means the total annual Scope 1, 2 and 3 greenhouse gas emissions of the company [or transaction] (as appropriate), expressed as a carbon dioxide equivalent (CO2e).]

[Drafting Note: 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 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.]

1.9 The [significant contract/ transaction] is estimated to [delay/ accelerate] the achievement of our net zero target/ interim target by [#] years. This will be announced to shareholders/ markets. 

Measurement and progress

1.9.1 The [significant contract/ transaction] contains contractual rights to information to support the measurement and progress towards our net zero target, interim emissions reductions targets, Paris-aligned business strategy and operational plan on climate change. [Explain].

[Drafting Note: Paris Alignment means that the GHG reduction targets and climate mitigation measures of the Company support the achievement of the three goals set out in Articles 2.1 and 4.1 of the UNFCCC’s Paris Agreement.]

Commercial Opportunities

1.9.2 The climate considerations and net zero reduction created by the [significant contract/ transaction] contains the following commercial opportunities for the Company. [Explain. For example, is there an opportunity to share value if management believes a transaction will bring forward the achievement of a net zero/ interim target?].

2. FINANCIAL IMPLICATIONS

2.1 The [significant contract/ transaction] involves or will result in capital or operational expenditure that is [fully/ partially/ not] aligned with our agreed net zero target, interim emissions reductions targets, Paris-aligned business strategy and operational plan on climate change. [Explain.]

2.2 The climate risks and issues underlying the [significant contract/ transaction] have been identified and [are/ are not] likely to require specific mention in our TCFD (Task Force on Climate-related Financial Disclosures) aligned disclosures or financial statements in accordance with IFRS Educational Materials on the Effects of Climate-related Matters.

2.3 [There is no ‘green premium’ for this transaction]. [The [significant contract/ transaction] has a ‘green premium’ of [#%] This green premium will be recovered/ mitigated by [explain.]

[A ‘green premium’ is the extra cost incurred in, or value attached to, a transaction as a result of reducing certain negative environmental impacts, including greenhouse gas emissions.]

3. RISK ANALYSIS

Climate risks to our business 

3.1 The [significant contract/ transaction] may lead to the following climate-related financial risks to our business:

[Insert risk analysis for the physical, economic transition or litigation risks associated with climate change and the transition to a net zero emissions economy in accordance with the company’s enterprise risk management framework.]

Contractual risk allocation

3.2 Climate change continues to significantly alter the nature and allocation of material contractual risks. The [significant contract/ transaction] involves the following climate-related contractual risks. 

[Insert risk analysis for climate-related contractual risks. In particular, identify:

  • Physical risks – for example where there is long-term engagement, contracts relating to physical assets or operations, goods requiring extensive supply chain distance, assets located near the ocean or rivers or in areas with scarce waters, critical input supply contracts; and
  • Transition risks – for example contracts for the sale of a high-carbon commodity, long-term projects, non-transferrable inputs, cross-border transactions including the potential introduction of carbon border adjustment mechanisms, the continued cost and availability of project finance and insurance, counterparty credit ratings.
  • Climate counterparty reputational risk – for example where a counterparty acts in a way to hinder rather than accelerate the transition, which could reflect badly on the company, or where their wider business is not in keeping with the acts of the counterparty.]

Risk mitigation strategies

3.3 These risks have been identified through the due diligence process,* addressed through contractual drafting and negotiation, and will be managed throughout the life of the contract by [insert risk management and mitigation strategies].

[Drafting Note: See Lola & Harry’s DDQ.]

4. TRIPLE BOTTOM LINE IMPLICATIONS

4.1 In addition to the core strategic and financial implications set out above, the [significant contract/ transaction] may lead to broader environmental and social impacts that are relevant to sustainable stakeholder and enterprise value and our culture and purpose. These are distinct from standard ESG considerations and include:

4.1.1 Just transition – [describe any positive or negative impacts on the company’s contribution to a just transition for employees, supply chains and communities];

4.1.2 Culture – [describe any positive or negative impacts on the company’s net zero culture, employee engagement and satisfaction, recruitment and retention of talent, upskilling/ reskilling]; and

4.1.3 Biodiversity and nature – [describe any positive or negative impacts on biodiversity loss and ecosystem services].

5. CORPORATE GOVERNANCE AND REGULATORY COMPLIANCE

5.1 For the purposes of section 172 of the Companies Act 2006, it is noted that the [significant contract/ transaction] may have implications for the following stakeholder groups: [insert details of stakeholder groups relevant in the context of this board paper (e.g. investors, employees, customers, suppliers, community, environment) why they matter and the issues or concerns that they may have in relation to the significant contract or transaction. Cross-reference discussion on just transition at 4.1.1 above if relevant.]

5.2 The following actions have been or will be taken to address such stakeholder concerns and/ or to generate value for such stakeholders [add details of relevant trade-offs or concessions adopted or parts of the significant contract/ transaction that may be tailored to address stakeholder concerns.]

5.3 Such actions will create opportunities for value creation and [are [fully/ partially] aligned with][have no impact on][will help us to achieve] our [net zero strategy/ interim emissions reductions targets/ Paris-aligned business strategy/ operational plan on climate change/ long-term sustainable success]. [Add details including how the analysis of implications for stakeholders and steps taken to address these align the significant transaction/ contract with business strategy.]

5.4 The [significant contract/ transaction] [does not] raise issues of regulatory compliance. [Detail.]

6. MANAGEMENT RESPONSIBILITY

[Identify manager/ committee who is responsible for the climate-related strategic and operational issues, if different from the manager/ committee responsible for the other commercial aspects of the [significant contract/ transaction].]

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