Climate clause

The Net Zero Standard for Suppliers [New]

Matilda's Annex

A simplified and consolidated version of TCLP’s existing supply chain clauses, the ‘Net Zero Standard for Suppliers’ can be annexed to any supply agreement, across all sectors and industries.

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 drafting can be annexed to any supply agreement to cascade greenhouse gas (GHG) reporting and reduction obligations throughout the supply chain, to enable parties to meet their net zero targets and reduce their Scope 3 emissions.

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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

ANNEX [●] : GREEN SUPPLY STANDARD

Additional Definitions

Annual Emissions Report has the meaning given in clause [1.3].

Auditor means [the Carbon Trust]/[an impartial third party auditor not affiliated with either party providing independent climate impact assessment and emissions reporting services, of a standard at least equal to the Carbon Disclosure Project or the Carbon Trust, as agreed by the parties].

Climate Discount has the meaning given in clause [5.2].

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, each expressed as a total in units of carbon dioxide equivalent (CO2e).

Net Zero Target means the goal of achieving by [2050/ insert earlier date] a balance between a party’s emissions and removals of GHGs aligned with the the three goals set out in Articles 2.1 and 4.1 of the UNFCCC’s Paris Agreement.

[Offset 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 GHG 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.] [Drafting note: Offset definition for use with clause 4, if included.]

Reporting Period has the meaning given in Clause [1.3].

Reporting Standard means:

(i) in relation to Scope 1, 2 and 3 Emissions of organisations and supply chains, The Greenhouse Gas Protocol: A Corporate Accounting and Reporting Standard, Revised Edition 2015 (including the Scope 2 Guidance and Scope 3 Supplement), as updated from time to time; and

(ii) in relation to the Scope 1, 2 and 3 Emissions of projects, product and services, the GHG Protocol Product Life Cycle Accounting and Reporting Standard, as updated from time to time.*

* [Drafting note: Drafters may wish to consider PAS 2050:2011, ISO 14001 and the GHG Protocol Product Life Cycle Accounting and Reporting Standard as standards specific to measuring emissions of projects, products and services.]

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

Target Total Emissions means [7]%* less than the Total Emissions of the preceding [Contract Year].

* [Drafting note: This percentage should be no lower than 7% and if possible, higher than 7%, to meet the target of halving absolute emissions every decade. It may be much higher if necessary to meet the interim targets required by their respective net zero targets and if achievable, but lower if the sector is one that is much harder to decarbonise. The ‘Carbon Law’; and  J. Rockström et al., A roadmap for rapid decarbonisation, Science 355.6331, 1269-1271 (2017); Summary Report: Race to Zero criteria consultations; EU Technical Expert Group on Sustainable Finance, TEG final report on EU climate benchmarks and benchmark ESG disclosures (September 2019).]

Total Emissions means the sum of the Supplier’s Scope 1, 2 and 3 Emissions, in each case arising out of the performance of its obligations under this agreement during the relevant Reporting Period.*

* [Drafting note: This definition and its operation in clause 1 is deliberately limited to the emissions under the contract. If used in conjunction with organisational requirements as suggested in clause 2, consider amending the measuring and reporting provisions of clause 1 to include the organisational emissions of the Supplier and Supplier’s group.]

 

Additional Clauses

1. Contract Emissions Reporting and Targets

1.1 The Supplier acknowledges and understands the Customer’s Net Zero Target. Accordingly, the Supplier agrees to measure, manage and report the Total Emissions in accordance with the provisions of this clause [1] [and to develop and implement a plan of continual improvement with the objective of reducing the Total Emissions as rapidly as possible to contribute to efforts to limit global temperature increase to 1.5 degrees Celsius above pre-industrial levels]. [Drafting note: Bracketed wording is not needed if including similar organisational requirements in clause 2.]

1.2 The Supplier shall measure and calculate the Total Emissions in accordance with the Reporting Standard during each Contract Year. 

1.3 Within [30 days] of the Commencement Date and no later than [30 days] following the end of each Contract Year, the Supplier shall submit a report to the Customer in respect of the 12 month period preceding the Commencement Date or the preceding Contract Year (as applicable) (the Reporting Period) [in the format provided in [Appendix ]] (or in such other format as the Customer shall specify from time to time) which shall include: 

1.3.1 the industry best practices on managing and reducing Total Emissions that the Supplier has applied during the Reporting Period;

1.3.2 the Total Emissions as measured during the Reporting Period;

1.3.3 any reduction in the Total Emissions for the Reporting Period measured against the Total Emissions in the Contract Year preceding the Reporting Period (where relevant);

1.3.4 the difference (if any) between the Total Emissions for the Reporting Period and the Target Total Emissions for that period (where relevant); and

1.3.5. the steps to be taken by the Supplier with a view to achieving, at a minimum, the Target Total Emissions, during the current Contract Year [(including, but not limited to, any steps taken by the Supplier to encourage a reduction in the Total Emissions emitted from sources in the Supplier’s supply or value chain that relate to the Supplier’s obligations under this agreement),

(the Annual Emissions Report).

1.4 The Supplier represents and warrants that the content of any Annual Emissions Report provided by the Supplier to the Customer in accordance with this Clause [1] is in all material respects complete, accurate and not misleading.

1.5 The Annual Emissions Report shall be verified by the Auditor, the costs of which shall be met by [the Supplier/ the Customer/ both parties jointly].* [If the parties are unable to agree on the appointment of an Auditor within 10 business days from the beginning of the appointment process, the Customer (acting reasonably) shall appoint an Auditor of its choosing.]**

* [Drafting note: Consider whether a third party audit is required and/ or appropriate in respect of the relevant supplier. An alternative would be to require this on request of the Customer rather than as an automatic annual obligation, as in clause 5.2 of Zoë and Bea’s Clause.]

** [Drafting note: Exclude if the auditor is pre-selected from the options in the definition of Auditor.]

2. Supplier Organisational Requirements 

[Insert organisational requirements of the Supplier, as required, from Sebastian’s Clause.]

[Drafting note: Some Customers may not deem it appropriate to make requests relating to the whole supplier’s business and will want to limit this Annex to the emissions relating to the contract. Zoë and Bea’s, Luke’s and Owen’s Clauses and Maria’s Scorecard all include organisational requirements in addition to contract targets.]

3. Cascading Obligations

The Supplier shall [as far as possible/ use best endeavours to]* ensure that this Annex will be added into any and all of its [supply chain/ procurement] contracts that relate to its obligations under this agreement.

* [Drafting note: Consider adding exceptions, such as if the Supplier is locked into contracts and will be legally unable to amend them to include this annex.]

[4. Offsetting 

The [parties shall agree to jointly/ Supplier shall] Offset the Total Emissions within [60/ 90 days] of the end of the relevant Reporting Period.]

[Drafting note: If organisational requirements are added into clause 2, responsible offsetting of organisational emissions is included and therefore offsetting of contractual emissions is not required here.]

5. Variation in Price

5.1 There will be no variation to the [Price] under this agreement where the Total Emissions are lower than, equal to or are within [1]% of the Target Total Emissions.

5.2 [Option 1: Simple discount. Where the Total Emissions are greater than the Target Total Emissions [by more than [1]%], the [Price] shall be reduced by [5]% (the Climate Discount). This adjustment will take effect on [insert date].]*  [OR]

* [Drafting note: Consider whether it is necessary to use wording similar to clauses 3.4 – 3.6 of Jessica’s Clause to avoid the Climate Discount being unenforceable as a penalty clause.]

[Option 2: Matching discount. In relation to each Reporting Period, where the Total Emissions exceeds the Target Total Emissions [by more than [1]%], the [Price] will be reduced by the same percentage amount by which the Total Emissions exceeds the Target Total Emissions [up to a cap of []%] (the Climate Discount).* This adjustment will take effect on [insert date].]** [OR]

* [Drafting note: For example, if the Total Emissions exceed the Target Total Emissions by three percent (3%), the price will be reduced by three percent (3%).]

** [Drafting note: Consider whether it is necessary to use wording similar to clauses 3.4 – 3.6 of Jessica’s Clause to avoid the Climate Discount being unenforceable as a penalty clause.]

[Option 3: Simple rebate. Where the Total Emissions are less than the Target Total Emissions [by more than [1]%], the [Price] will increase by [2%]. This adjustment will take effect on [insert date].] [OR]

[Option 4: Matching rebate. Where the Total Emissions are less than the Target Total Emissions [by at least 1%], the [Price] will be increased by the same percentage amount that the Total Emissions are less than the Target Total Emissions [up to a cap of []%].* This adjustment will take effect on [insert date].]

* [Drafting note: For example, if the Total Emissions is less than the Target Total Emissions by three percent (3%), the price will be increased by three percent (3%).]

5.3 Unless the Climate Discount has been applied to the [Price], it [shall be payable on demand by the Customer/ as a credit on the account of the Customer][may be withheld from any payment due from the Customer to the Supplier]. 

5.4 The Supplier is entitled to include any rebates to which the Supplier is entitled under this Clause [5] as an additional charge in its next invoice issued by the Supplier to the Customer.

5.5 The Customer shall pay the Climate Discount to a [UK/ insert applicable jurisdiction] registered charity with a primary focus on tackling climate change and/ or nature conservation, as selected by the Customer [and notified to the Supplier].

6. [Supplier Code of Conduct/ Environmental and Sustainability Policy]

In performing its obligations under this agreement, the Supplier is required to comply with the Customer’s [Supplier Code of Conduct/ Environmental and Sustainability Policy].

[Drafting note: A wider Environmental and Sustainability Policy or Annex might include indirect contributions to net zero, such as employee training and engagement (incorporating Athena’s Clause), food procurement (incorporating Runa’s Clause), sustainable land use (incorporating Rowen’s Clause), circular economy considerations (incorporating Alex’s Clause), reduction of single use plastics (incorporating Alice’s Clause), governance, just transition and risk/resilience considerations as well as other parts of a supply chain taxonomy as referred to in this article (e.g. mentoring and coaching, environmental process design, operations management or procurement & logistics policy, development of industrial networks, supplier assessment). It might also include sector specific elements.]

 

Appendix [●]: Form of Annual Emissions Report

[Insert pro forma Annual Emissions Report.]

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