Guide

Introduce climate provisions to contract parties

This guide enables organisations to:

  • make climate considerations part of the commercial rationale for transactions and contracts from the outset
  • collaborate with stakeholders and counterparties to ensure their buy-in to meeting climate targets
  • embed climate considerations in pre-contract documents (for example, heads of terms and requests for proposals)
  • write climate-aligned preambles (recitals) that lead to legally binding obligations to reduce greenhouse gas emissions and make climate considerations part of fulfilling the contract.

Make climate considerations part of the commercial rationale

Obtain board approval on the climate terms of a contract at the earliest opportunity. For example, set a limit to greenhouse gas emissions associated with a contract. Read our guide Factor climate considerations into board decisions.

Climate issues are more likely to be included in the final contract that governs a transaction if they are raised early in commercial discussions and contract negotiations.

Collaborate early with counterparties and stakeholders

To embed meaningful climate action in contracts requires support from counterparties, suppliers and other stakeholders. Engage early with these actors to establish clarity on their climate ambitions and expectations in commercial dealings.

Collaborate with them before entering into a specific transaction. This helps to embed meaningful decarbonisation into contracts, rather than attempting to add climate as an after-thought.

Commit to climate considerations in pre-contract documents

Embed climate considerations into pre-contract documents, such as heads of terms, non-disclosure agreements, and requests for proposals. This formalises climate considerations in the commercial purpose of a transaction.

Pre-contract documents set the tone and expectations for the transactions. Use these to raise the profile of climate considerations in future negotiations, including:

  • transaction financing
  • design and materials specifications
  • team appointments
  • the main contracts governing the transaction.

Example wording

The parties will do all of the following:

  • consider how to achieve the Climate-change Purpose as part of the Commercial Purpose and any future commercial relationship arising from those discussions and negotiations
  • [structure, deliver, design or finance] the [proposed transaction] in a manner that aligns with the Climate-change Purpose.

Climate-change Purpose means achieving the parties’ climate commitments and emissions-reduction targets which align with the Paris Agreement goal of limiting global temperature increase to 1.5C above pre-industrial levels.

Commercial Purpose means [insert commercial purpose].

Require counterparties to help achieve decarbonisation targets at pre-contract and contract stages

Use pre-contract and contract documents to embed:

  • collaboration between the parties in their commercial relationship
  • the parties’ expectations that the contract will help them meet their climate goals.

Write concrete emissions-reductions goals into pre-contract and contract documentation. This will:

  • help reduce transaction-related emissions
  • set up processes for gathering data on emissions. These processes will enable parties to report on and manage emissions reductions. Read our guide Get information on contract emissions.

Example wording

The parties shall work together to do all of the following:

  • identify and implement opportunities to reduce the greenhouse gas emissions relating to [the proposed transaction]
  • incorporate emissions-reduction targets and related financial incentives into the proposed transaction [and, where possible, involve other stakeholders in such emissions reductions] 
  • measure and report on emissions relating to the proposed transaction.

Use preambles to frame the intention of the parties

Use preambles in pre-contract documents (like heads of terms) and the contracts governing the transaction to make clear the parties’ climate ambitions for the contract.

Preambles, or recitals, explain the context, commercial rationale and intentions of the parties entering the contract. Preambles are non-operative and not binding. They are low-risk but highly influential, allowing organisations to align commercial relationships and contracts with decarbonisation objectives and Paris Agreement goals.

Example wording

The parties acknowledge their common intention to do all of the following:

  • achieve their respective emissions-reduction targets and [net-zero or decarbonisation] transition plans
  • align with the Paris Agreement goal of limiting global temperature increase to 1.5C above pre-industrial levels.

Clauses using the contractual solutions in this guide

Hanley’s Clause

Climate Change Clauses for Heads of Terms

Jurisdiction: England & Wales

Updated:

Kaia’s Clause

Climate Purposed NDA Terms (Confidentiality Agreement)

Jurisdiction: England & Wales

Updated:

Eddie’s Recitals

Climate Recitals

Jurisdiction: England & Wales

Updated:

Owen’s Clause

Net Zero Target Supply Chain Cascade Clauses

Jurisdiction: England & Wales

Updated:

Griff’s Clause

Template Board Paper for Significant Contracts/ Transactions

Jurisdiction: England & Wales

Updated:

Glossary definitions used in this guide

Glossary term

Greenhouse Gas Emissions

Updated:

Definitions: 3

Glossary term

Paris Agreement Goals

Updated:

Definitions: 1

Glossary term

Transition Plan

Updated:

Definitions: 1

Guide

Factor climate considerations into board decisions

Ensure the board makes decisions that support rather than undermine its transition plan
Guide

Get information on contract emissions

Gather data on emissions related to contracts to help measure, manage and report on them
Guide

Measure, manage, reduce and report on emissions

Commit to understanding and communicating emissions, and developing a transition plan to reduce them

Disclaimer

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