Glossary entry

Net Zero

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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.


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.