Glossary entry

Net Zero

Disclaimer - please read

The definitions 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 definitions 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 definitions 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 definitions 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 definitions 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 definitions, 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 definitions or any other person. Users should use their own professional judgement in the application of these definitions to any particular circumstance or jurisdiction or seek independent legal advice.

At present, all the definitions are based on the laws of England and Wales. We encourage the conversion of these precedent definitions for use in other jurisdictions.

Definitions

Option 1

Net Zero means a state of balance by [2050/ Insert other date] between all [of [a party’s]/ [the [Company’s/ Parties’]] sources and sinks of emissions of Greenhouse Gases (GHGs) [in each calendar year] achieved by both an overall reduction and a removal of emissions of GHGs [to achieve [the goals of the Paris Agreement/ Paris Agreement Goals]]

Option 2

Net Zero means a state of balance by [2050/ Insert other date] between sources and sinks of GHG Emissions [in each calendar year] [and for each subsequent year thereafter] achieved by both reducing GHG Emissions overall and removing GHG Emissions [to achieve [the goals of the Paris Agreement/ Paris Agreement Goals]].

Option 3

Net Zero means the time when the Company [and its Affiliates] has, according to an Independent Expert appointed by [x]: 

  1. reduced its Scope 1, 2 and 3 Greenhouse Gas (GHG) Emissions to a level consistent with the goals of the Paris Agreement/ Paris Agreement Goals
  2. fully offset its Residual Emissions by permanently removing an equivalent amount of GHGs through the use of Climate Change Mitigation Measures; and 
  3. adhered to the UNFCCC requirements for a just transition.

Drafting notes

Option 1 requires additional defined terms: Greenhouse Gases (GHGs) and Paris Agreement Goals

Option 2 requires additional defined terms: Carbon Dioxide Equivalent, Greenhouse Gases (GHGs), and Paris Agreement Goals.

Option 3 requires additional defined terms: Scope 1, 2 and 3 Emissions, Greenhouse Gas Emissions, Residual Emissions, Climate Change Mitigation Measures, and potentially, just transition. For more information on just transition, please see the UNFCCC Just Transition of the Workforce and the Creation of Decent Work and Quality Jobs Technical Paper.

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.

Application

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

Net Zero is used in the following TCLP clauses:

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

[Anna’s Clause] Climate Related Disclosure in Loans; 

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

[Felix’s Clause] Net Zero Completion Adjustment Clause; 

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

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

[Rory’s Clause] Net Zero Land Promotion Agreement; 

[Rose’s Clause] GHG Emissions Management Plans in Infrastructure and Construction Project Finance; and 

[Sasha’s Clause] Net Zero Within Company Whistleblowing Policies.