Glossary entry

Net Zero Target

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Definitions

Option 1

Net Zero Target means a Paris Aligned target to achieve by 2050 both a reduction of GHG Emissions overall and a removal of GHG Emissions associated with Offsets acquired to address Residual Emissions of [a party] to achieve Net Zero in a calendar year and for each subsequent year thereafter.

Option 2

Net Zero Target means both a reduction of GHG Emissions overall and a removal of GHG Emissions associated with Offsets acquired to address the Residual Emissions of [a party/ the [Company/ Parties] by [INSERT DATE/ 2050 or sooner] to achieve a balance between the [Company’s/ Parties’] sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter and to achieve [the goals of the Paris Agreement/ Paris Agreement Goals].

Option 3

Net Zero Target means a Paris Aligned target to achieve by 2050 a balance between the sources and sinks of GHG Emissions in a calendar year and for each subsequent year thereafter by both removing GHG Emissions overall and using Offsets to cover Residual Emissions.

Option 4

Net Zero Target means the goal of achieving by [2050/INSERT OTHER DATE] a balance between a party’s emissions and removals of greenhouse gases aligned with the Paris Agreement goals.

Model Laws

Net Zero Target means the net reduction of Greenhouse Gases (GHGs) from all sources to zero by [INSERT DATE] so there is a balance between emissions by sources and removals by sinks of Greenhouse Gases that is consistent with the goals of the Paris Agreement, taking into account the need for a just transition.

Drafting notes

A number of countries have already set Net Zero Targets, or committed to do so, for reaching net zero emissions on timescales compatible with the Paris Agreement’s temperature goals. The Net Zero Tracker shows each countries’ targets and progress. Organisations should ensure that their own Net Zero Targets are also compatible with the Paris Agreement’s temperature goals.

To increase ambition, drafters should consider inserting a requirement that the party adopt a Science Based Target validated by the Science Based Targets initiative: https://sciencebasedtargets.org/

The words “all operations” in the contract definition and “all sources” in the model law definition are intended to refer to Scope 1, 2 and 3 Emissions. If the clause being drafted is intended to refer only to one or two of these categories of emissions then this definition will need to be amended. To ensure that a Net Zero Target is met, it is recommended that organisations and countries also set interim milestones that describe their trajectory to Net Zero. The trajectory that will be appropriate will depend on the sector[s], level of ambition and available investment for the relevant entities/country, and is likely to be the result of advice from a Climate Professional.

The Net Zero Target date in the contract’s definition should align with the relevant organisation’s target. This will vary, but for many organisations it will be 2050.

While the terms Net Zero and Carbon Neutral are used interchangeably, the concept of Net Zero is distinct from Carbon Neutral: 

  • Carbon neutrality can be achieved entirely through offsetting, allowing companies to continue to emit Greenhouse Gases as normal.
  • Net Zero, while it allows for some offsetting, requires companies to reduce their Greenhouse Gas emissions in order to achieve the Paris Agreement’s temperature goals.
  • The Carbon Trust differentiated the two terms using PAS 2060, an internationally-recognised standard, to define carbon neutral and SBTi’s draft net zero definition to define net zero.

It is important to keep in mind that Net Zero and Carbon Neutral are distinct terms and care should be taken in using them in contracts.

Application

Supply chain clauses, national climate laws, green leases, investment agreements and corporate governance documents.

Net Zero Target is used in the following TCLP clauses:

[Aatmay’s Clause] Sustainable and Circular Economy Principles in Leasing Arrangements for Repairs and Alterations;

[Alex’s Clause] Circular Economy Product Design Obligation; 

[Alexandro’s Clause] Net Zero Sponsor Activation Clause; 

[Austen’s Clause] Sustainability Clauses in Supply Chain Contracts;

[Bella’s Clause] Management Equity Ratchet Terms; 

[Cassie’s Clause] Insurance: Disclosure and Mitigation of Pending Climate Change Litigation; 

[Dottie’s Clause] Climate Purchase Agreement and Underwriting Sponsor Warranties; 

[Elliot’s Handbook] Net Zero Culture Employment Handbook; 

[Emma’s Clause] Green Residential Lease Clauses; 

[Estelle’s Clause] Climate Standard of Care (Construction); 

[Frank’s Clause] Green Investment Obligations; 

[Gordon’s Clause] Capital Markets Due Diligence Questionnaire; 

[Hanley’s Clause] Climate Change Clauses for Heads of Terms; 

[Jessica’s Clause] Carbon Contract Clauses for Environmental Performance, and Associated Incentives and Remedies; 

[Kaia’s Clause] Climate Purposed NDA Terms (Confidentiality Agreement); 

[Luna’s Clause] Net Zero Aligned Construction Modifications;

[Owen’s Clause] Net Zero Target Supply Chain Cascade Clauses; 

[Nozomi’s Clause] Net Zero Convertible Loan Note; 

[Pasfield’s Clause] Paris Aligned Company Articles; 

[Ragnar’s Clause] Green Company Articles; 

[Raphael’s Procurement DDQ] Climate Change Due Diligence Questionnaire for Suppliers; 

[Rosie’s Clause] Alteration/ Improvement Provisions in Leases to Improve Climate/ Environmental Impact of Buildings and Better Use of Shared Space; 

[Scarlett’s Performance Conditions] Environmental, Social and Governance (ESG) Based Performance Conditions for Employee Incentive Awards; 

[Sebastian’s Clause] Entire Business Net Zero Objectives; 

[Sienna’s Clause] Green Acquisition Obligations; and 

[Zack’s Clause] SPA/ Investment Agreement Warranties.