Climate clause

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Ayshe's Clause

A clause obliging stakeholders in renewable energy technology supply chains to lower their carbon emissions, minimise their environmental impact and safeguard against modern slavery.

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 helps businesses and their lawyers to promote the use of best-in-industry renewable energy generating assets, meet net zero and ESG commitments, improve renewable energy generating asset supply chain transparency, reduce their Scope 3 emissions, protect their ESG credentials and reputation, and minimise negative social and environmental impacts associated with their energy installations.

How to use this clause

Ayshe’s Clause – Essential notes and guidance

Listen to S1E4 of TCLP’s Contracts for the Climate podcast about Ayshe’s Clause. For an explanation of what the clause does, skip to 12:58. For tips on how to negotiate this clause into a contract, go to 14:16.

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) 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

[Affiliates means, in relation to a body corporate, any subsidiary or holding company of such body corporate, and any subsidiary of any such holding company, in each case from time to time.] [Drafting note: Use if not already defined in the main agreement.]

Breach has the meaning given to it in Clause [5.1].

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 GHGs on the basis of their global warming potential over a specified timescale.

Carbon Budget means the aggregate of [insert value] tonnes of CO2e of GHG Emissions permitted to be released as a result of the Energy Equipment Activities within [a Reporting Period]. [Drafting note: Users of this clause may wish to add a schedule that itemises the carbon budget per activity, with project specific details.]

Carbon Footprint means the total GHG Emissions relating to the Energy Equipment Activities within [a Reporting Period].

Carbon Footprint Standard means one of the internationally recognised standards to measure, manage and demonstrate carbon credentials covering products and services (including but not limited to PAS 2050:2011, ISO 14001 and the GHG Protocol Product Life Cycle Accounting and Reporting Standard). 

Due Diligence Questionnaire means the due diligence questionnaire(s), substantially in the form included at Appendix [A] of this Agreement.

Energy Equipment means any energy generating equipment that will be used in connection with the Project, including but not limited to [wind turbines, inverters, photovoltaic modules, electrical substation equipment, meteorological equipment, transformers, battery storage equipment]* and the raw materials and components comprising such equipment.

* [Drafting note: Insert components that are relevant to/ closely aligned with the Project.]

Energy Equipment Activities means the procurement, mining, production, sourcing, transport [and installation]* of the Energy Equipment [including without limitation any activities relating to the raw materials or services incorporated within the Energy Equipment].

* [Drafting note: Consider removing “installation” if installation is the responsibility of another party (e.g. a subcontractor), and including Ayshe’s Clause in the relevant agreement with such other party (e.g. the subcontractor). If the sourcing of materials, the manufacture and transportation of equipment and installation are all separate activities, users of this clause will need to amend this definition to remove the activities not covered by it. Instead, include Ayshe’s Clause in the related subcontracts that govern the activities not covered by this Agreement.]

Environment means 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.

Environmental Assessment means an environmental audit to: (a) identify, describe and assess the direct, indirect and cumulative effects of the Project on the Objectives; and (b) measure the Carbon Footprint of the Project.

Environmental Assessment Report means a report[, in form and substance that is satisfactory to the Employer] on the results of any Environmental Assessment. [Drafting note: Consider incorporating this report into a Due Diligence Questionnaire instead so that there is only one reporting document to be provided under the Agreement.]

Environmental Issues means (a) emissions, spills, releases or discharges of waste or Hazardous Substances to air, water, ground, or subsoil; (b) production or generation of waste (as defined under Environmental Law [Drafting note: Check that Environmental Law is defined in the main agreement]) or Hazardous Substances; (c) other activities or circumstances that produce GHGs; (d) damage to, or the prevention or inhibition of the preservation, protection, conservation, enhancement or management of, habitats and ecosystems, as well as living organisms present in them; and (e) any other issue that may have a significant or substantial detrimental effect on the environment, ecosystems, biodiversity, human habitation, or climate change in general.

EU Taxonomy Regulation means Regulation (EU) 2020/852 of the European Parliament and of the Council of 18 June 2020 on Establishment of a Framework to Facilitate Sustainable Investment, and amending Regulation (EU) 2019/2088, as it may be amended, restated, supplemented or re-enacted from time to time.

GHG Emissions means emissions of GHGs, each expressed as a total in units of carbon dioxide equivalent (CO2e) and from all sources, categorised as scope 1, 2 and 3 emissions by 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 or 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 at the date of this Agreement, as may be amended from time to time, and which as at the date of this Agreement include: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), nitrogen trifluoride (NF3), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6) and nitrogen trifluoride (NF3).

[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.]  [Drafting note: Use if not already defined in the main agreement.]

Modern Slavery Practices means any practice that amounts to:

(a) slavery, servitude, forced or compulsory labour (each as construed in accordance with Article 4 of the European Convention on Human Rights (as amended by Protocols No. 11 and 14 and as supplemented by Protocols 1, 4, 6, 7, 12, 13 and 16 and as may be further amended or supplemented from time to time)); 

(b) economic exploitation of a child (as defined in Article 32 of the United Nations Convention on the Rights of the Child); and/ or 

(c) any other slavery-like behaviours including, but not limited to, debt bondage, forced marriage, human trafficking, and slave trading. [Drafting note: Consider if this will present jurisdiction-specific issues. It may be helpful to (i) refer to local laws and regulations (e.g. the Modern Slavery Act 2015 in the UK); (ii) include a new provision stipulating compliance with same; and (iii) include an obligation to immediately notify breaches.]

Objectives means the objectives specified in the EU Taxonomy Regulation from time to time. At the date of this Agreement, the objectives are: (1) climate change mitigation, (2) climate change adaptation, (3) the sustainable use and protection of water and marine resources, (4) the transition to a circular economy, (5) pollution prevention and control, and (6) the protection and restoration of biodiversity and ecosystems.

[Personnel means the Supplier’s Affiliates, and the Supplier’s and the Supplier’s Affiliates’ respective directors, officers, employees, agents, representatives, suppliers, contractors and subcontractors.] [Drafting note: Use if not already defined in the main agreement.]

Remedial Plan has the meaning given in Clause [5.2.3].

Reporting Period means each period of 12 months starting on [1 January] and ending on [31 December], or in the case of the first Reporting Period, such shorter period starting on the date of this Agreement and ending on the following [31 December].

Resource Issues means adverse interference with or negative impact on [a local population’s] access to water, land [(including land with ancestral heritage significance)], soil, air and [natural resources/ biodiversity][ and other similar resources].

 

Additional Clauses

1. Minimum Social Safeguards and Mitigation of Environmental Impacts

1.1 The Supplier shall not, and shall [use best endeavours to] procure that its Personnel shall not, use or benefit from Modern Slavery Practices in any Energy Equipment Activities.

1.2 The Supplier shall, and shall [use best endeavours to] procure that its Personnel shall, implement procedures into all Energy Equipment Activities to ensure they align with the OECD Guidelines for Multinational Enterprises and the UN Guiding Principles on Business and Human Rights (as updated from time to time), including the principles and rights set out in the eight fundamental conventions identified in the Declaration of the International Labour Organisation on Fundamental Principles and Rights at Work and the International Bill of Human Rights.

1.3 Without prejudice to Clause [2.1], the Supplier agrees, and shall procure that its Personnel agree, to  cooperate with the Employer and the Employer’s contractors to:

1.3.1 minimise Environmental Issues and Resource Issues in connection with the Energy Equipment Activities; and

1.3.2 do no significant harm (interpreted in accordance with Article 17 of the EU Taxonomy Regulation) to any of the [six] Objectives. [Drafting note: The taxonomy has been included as an exemplary standard to follow even where it is not directly applicable in the jurisdictions where the agreement operates (e.g. the UK). This will need to be reviewed in the context of any local law equivalent or conflicting provisions.]

2. Supply Chain Carbon Footprint

2.1 The Supplier agrees, and shall procure that its Personnel agree, to cooperate in good faith with the Employer and the Employer’s contractors to ensure that the Carbon Footprint of the Energy Equipment Activities does not exceed the Carbon Budget [by more than [10%]].

2.2 The Supplier agrees to measure the Carbon Footprint of the Energy Equipment Activities in accordance with a Carbon Footprint Standard approved by the Employer and [if at any time reasonably required to do so by the Employer,]* appoint an external verification authority [(such as the Carbon Trust)] to certify the Carbon Footprint of the Energy Equipment Activities at the Supplier’s cost.]**

* [Drafting note: Consider removing the bracketed text. Good practice would be independent verification of the Carbon Footprint as a matter of course, rather than only on employer request.]

** [Drafting note: Consider including an obligation to notify of results and set out consequences for non-compliance.]

2.3 The Supplier shall use reasonable endeavours to minimise the Carbon Footprint of the Energy Equipment Activities by designing the Energy Equipment to minimise the GHG Emissions associated with its installation, construction, operation and use.

3. Due Diligence and Environmental Assessment and Reporting

3.1 On or before the date of this Agreement, the Supplier shall provide the Employer with a completed Due Diligence Questionnaire and Environmental Assessment Report.

3.2 The Supplier shall provide the Employer with an updated Environmental Assessment Report within [90] days of each Reporting Period.

3.3 The Employer may from time to time (but no more than [once] a year) request that the Supplier provide an updated Due Diligence Questionnaire and/ or Environmental Assessment Report. On receipt of such a request, the Supplier shall promptly and in any event within [twenty-eight (28) days] of the request provide an updated Due Diligence Questionnaire and/ or Environmental Assessment Report. 

3.4 The Supplier represents and warrants that each Due Diligence Questionnaire and each Environmental Assessment Report provided to the Employer in accordance with this Clause [3] is true and accurate in all material respects as at the date thereof and that no material fact or matter has been omitted that would result in such Due Diligence Questionnaire or Environmental Assessment Report (as the case may be) being misleading in any material respect. [Drafting note: Consider dispute resolution terms to apply if findings are disputed.]

3.5 If the Supplier becomes aware of any fact or matter that would result in a Due Diligence Questionnaire or Environmental Assessment Report provided to the Employer not being true and accurate in all material respects, the Supplier shall notify the Employer immediately with full details of the change in circumstances. 

4. Audit

4.1 The Supplier agrees that the Employer or the Employer’s authorised representative may from time to time during the term of this Agreement, on reasonable notice, inspect and audit the Supplier’s records to evaluate the Supplier’s compliance with Clauses 1 [to 3] (inclusive). 

4.2 The Supplier will provide all assistance reasonably requested by the Employer for the purpose of inspecting and auditing the Supplier’s records pursuant to this Clause [4].

5. Breach and Remedies

5.1 Each of the following events or circumstances is a Breach of this Agreement:

5.1.1 Modern Slavery Practices in any of the Energy Equipment Activities;

5.1.2 a significant* Environmental Issue or Resource Issue arising from the Energy Equipment Activities;

5.1.3 a significant harm** to any of the Objectives from the Energy Equipment Activities; or

5.1.4 where the Carbon Footprint has exceeded the Carbon Budget by [50%] or more during two consecutive Reporting Periods.

* [Drafting note: Parties may wish to define what ‘significant’ means in this context to minimise the risk of disputes arising out of the Employer’s decision to terminate for Breach under 5.1.2. Leaving the meaning of ‘significant’ ambiguous risks exposing the parties to a judge or alternative dispute resolution process ruling on what ‘significant’ means, with the associated wasted time and costs of that process.]

** [Drafting note: Parties may wish to define what ‘significant harm’ means in this context, for example agreeing thresholds that determine what amounts to a ‘significant harm’ to any of the Objectives from the Energy Equipment Activities.]

5.2 The Supplier shall, within [10] Business Days of becoming aware of the same, notify the Employer in writing of any Breach, setting out:

5.2.1 the nature, severity and duration of the Breach; 

5.2.2 the cause(s) of the Breach and any steps already taken by the Supplier to mitigate such cause(s); and

5.2.3 a remedial plan as to how the Supplier will further investigate and remedy the Breach (a Remedial Plan)

5.3 The Employer may comment on the Remedial Plan and provide reasonable suggestions for investigating and remedying the reported Breach. The Employer may also request (acting reasonably) that the Supplier remedies the reported Breach within a specified period. 

5.4 The Supplier shall provide the Employer with an updated Remedial Plan [monthly]. Each updated Remedial Plan shall detail the progress the Supplier has made towards remedying the Breach since the most recent updated Remedial Plan was provided to the Employer.  

5.5 If a Breach is capable of remedy and not remedied to the reasonable satisfaction of the Employer within [thirty/ sixty/ ninety (30/ 60/ 90) [Drafting note: Consider adding a 30 day period in which remedy has to commence, with a longer period for such remedy to be completed]] days of the occurrence of the Breach or such longer period as may be agreed pursuant to Clauses [5.1 to 5.4] above, the Employer shall be entitled to:

5.5.1 terminate this Agreement by giving one month’s written notice to the Supplier; and

5.5.2 recover from the Supplier any costs reasonably incurred by the Employer as a result of the Breach, including but not limited to:

5.5.2.1 the costs of replacing the Energy Equipment (from a supplier that complies with the terms of this Agreement); 

5.5.2.2 the costs of procuring and engaging a new supplier for the Energy Equipment Activities; 

5.5.2.3 the costs of purchasing carbon credits to offset the Carbon Footprint in excess of the Carbon Budget; and/ or 

5.5.2.4 the cost of remedying any Environmental Issues or Resource Issues caused by the Breach (where these can be remedied by the Employer). [Drafting note: Consider if there should be a cap here, which may increase the likelihood of uptake.]

[5.6 If the Employer terminates this Agreement under this Clause [5], the Supplier shall at the Employer’s request provide all reasonable assistance to facilitate the appointment of a replacement supplier by the Employer to carry out the Energy Equipment Activities, including but not limited to novating any contracts in respect of the Energy Equipment Activities to the replacement supplier nominated by the Employer.] [Drafting note: Amend as relevant in the context of any similar or duplicative clauses in the main contract.]

Appendix A

[Drafting note: Append an appropriate Due Diligence Questionnaire (e.g. Raphael’s DDQ, Gordon’s DDQ, or Lola & Harry’s DDQ published by The Chancery Lane Project) and adapt to include specific queries in respect of Modern Slavery, Environmental Issues or other areas of specific interest linked to the Energy Equipment Activities and to disclose the names of companies in the supply chain, the location of mining in the supply chain and the production workforce in the supply chain.]

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