A clause that sets climate and environmental performance metrics for suppliers, incentives for meeting supplier performance targets and consequences for breach.
This clause incentivises suppliers to meet emissions-reduction targets set out in the contract by introducing remedies tiered according to the level of breach.
[Drafting note: the main agreement may include the following supplementary recitals as standard. The recitals below are a starting point for writing sustainability recitals. You might want to expand the recitals to address other sustainability commitments or consider using Eddie’s recitals (climate recitals) as an alternative to the recitals below.]
(A) The parties acknowledge that the performance of this Agreement will result in certain climate [and ecological] impacts, including the emission of greenhouse gases.
(B) The parties [have signed up to the Race to Zero and] acknowledge their common intention to [achieve their respective decarbonisation OR net-zero targets and] align with the objectives of the Paris Agreement, in particular pursuing efforts to limit global temperature increase to 1.5 Celsius above pre-industrial levels and achieving net-zero or net-negative emissions by 2050 or sooner, in a manner that promotes a just transition to a low-carbon economy and that results in at least a 7 (seven) percent* reduction of greenhouse gas emissions year on year.
(C) The parties recognise and acknowledge that they will need to reduce greenhouse gas emissions relating to the performance of this Agreement continuously so that they can meet their respective interim-targets for immediate emissions reduction.
* [The ‘Carbon Law’; and J. Rockström et al., A roadmap for rapid decarbonisation, Science 355.6331, 1269-1271 (2017).]
[Drafting note: capitalised terms relate to a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]
1. Climate reporting and warranties
[Drafting note: the parties should agree a mechanism for measuring their climate and environmental impacts under this Agreement. The warranties below should be adjusted accordingly. These could also be used as warranties in mergers and acquisitions transaction documents.]
1.1 The Supplier shall:
1.1.1 set an Emissions Target;
1.1.2 provide the first Annual Emissions Report within [12 (twelve)] months after the start date of this Agreement and each other Annual Emissions Report no later than 40 (forty) Business Days after the applicable Emissions Report Date;
1.1.3 measure and calculate its Total Emissions in accordance with the GHG Reporting Standard[, and ensure that they are verified each year by an Independent Third Party before being provided to the Buyer] [Drafting note: before including a third party verification requirement, determine if it's appropriate for the supplier in question in light of the supplier’s size and available resources];
1.1.4 ensure that the Total Emissions for any Emissions Reporting Period shall be equal to or below the Emissions Target;
1.1.5 develop and regularly review a plan, approved by [a director OR committee of the directors OR its board of directors], including short and medium term interim targets, to meet the Emissions Target for each Emissions Reporting Period; [and]
1.1.6 [achieve certification under [insert relevant sustainability OR climate OR carbon industry standard] within [12 (twelve)] months of the start date of this Agreement and afterwards maintain that certification during the term of this Agreement; and]
1.1.7 [Drafting note: insert other climate performance metric as relevant to the performance of this Agreement],
and the Supplier represents and warrants that all Annual Emissions Reports provided to the Buyer are in all material respects complete, accurate and not misleading.
1.2 The Buyer shall:
1.2.1 provide any information reasonably requested by the Supplier that is necessary for the Supplier to prepare the Annual Emissions Report(s); and
1.2.2 [Drafting note: insert any other dependencies on the Buyer for the Supplier to meet its target and provide the reports to be set out here],
and the Supplier shall promptly notify the Buyer upon becoming aware of any failure or anticipated failure by the Buyer to perform any of its obligations set out in this clause 1.2.
1.3 [The parties agree to set respective organisational Net Zero Targets that align with either the criteria of the Race to Zero or the Science Based Targets initiative within [insert time period] of entering into this Agreement.]
1.4 [The Buyer may, in its sole discretion, refer any Annual Emissions Report to an Independent Third Party for verification. [The Supplier agrees to be liable for, and shall reimburse the Buyer on demand for, 50 (fifty) percent of the Independent Third Party's costs of such verification in the event that the verification exercise shows that the Annual Emissions Report is materially inaccurate].] [Drafting note: to be included only if verification requirements are not included in clause 1.1.2.]
2. Notification of climate breach
2.1 The Supplier shall notify the Buyer in writing on each Annual Emissions Reporting Date (or sooner, if it becomes aware) if there has been or is likely to be:
2.1.1 a breach of clause 1.1.4 in the immediately preceding (or, where relevant, current) Emissions Reporting Period[; or
2.1.2 any other [material] breach of clause 1.1],
([together or each] a Climate Breach).
2.2 The Supplier's notification of a Climate Breach to the Buyer pursuant to clause 2.1 (Climate Breach Report) shall set out:
2.2.1 the amount by which the Total Emissions for the relevant Emissions Reporting Period are greater than the Emissions Target [or details of any other breach of clause 1.1];
2.2.2 the cause(s) of the Climate Breach and any steps taken by the Supplier to mitigate such cause(s);
2.2.3 a remedial plan for how the Supplier will:
(a) mitigate the impact of the Climate Breach; and
(b) reduce its Total Emissions in future Emissions Reporting Periods to achieve the Emissions Target in respect of future Emissions Targets; and
2.2.4 if the Supplier reasonably believes that the cause of the Climate Breach is in whole or in part:
(a) a failure by the Buyer to comply with any of its obligations under clause 1.2; or
(b) a requirement by the Supplier to comply with [Applicable Law] which conflicts with the Supplier's obligation under clause 1.1, in which case the Supplier's notice shall also:
(i) identify the relevant obligation(s) and/ or requirement(s) and the impact each has had on the Supplier's obligation under clause 1.1 and refer specifically to the same as being contributing matters for the purposes of this clause 2.2.4 (the Contributing Matters); and
(ii) the amount by which the Supplier reasonably believes its Total Emissions would have been greater than the Emissions Target but for the Contributing Matters.
2.3. If clause 2.2.4 applies, the parties shall meet [within [●] Business Days] (remotely, if reasonably practicable) to discuss the Climate Breach to agree the extent to which (if any) the Contributing Matters have caused or contributed to the Climate Breach and the applicable [Climate Remediation Fee OR Emissions Payment] for which the Supplier should be liable.
2.4 Following receipt of a Climate Breach Report (or, if clause 2.2.4 applies, following agreement on the matters to be discussed pursuant to clause 2.3) or upon the Buyer otherwise becoming aware of a Climate Breach, the Buyer shall be entitled to serve a written notice on the Supplier (a Climate Remediation Notice) which shall:
2.4.1 nominate an Appointed Beneficiary and require the Supplier to pay the relevant [Climate Remediation Fee OR Emissions Payment] to such Appointed Beneficiary in accordance with clause 3;
2.4.2 detail the actions the Supplier will take to ensure the Climate Breach is corrected before the next Annual Emissions Reporting Date;
2.4.3 where a Climate Breach Report was not notified by the Supplier, set out the details of any identified or suspected Climate Breach(es); and
2.4.4 if required by the Buyer, summon the Supplier's [Sustainability Director OR Chief Executive Officer] to present the Climate Breach Report to the Buyer at a location of the Buyer's choosing (including remotely, if required by the Buyer) and/ or discuss the Climate Breach.
3. [Climate remediation fee OR emissions payment]
[Drafting note: delete as applicable according to whether you choose the definition Climate Remediation Fee or Emissions Payment and apply consistently wherever this definition occurs throughout.]
3.1 When the Supplier receives a Climate Remediation Notice absent a Climate Breach Report, the Supplier will promptly investigate.
3.2 If the Supplier is unable to mitigate the Climate Breach to the Buyer’s reasonable satisfaction within 30 (thirty) Business Days of receipt of the notice, the Supplier will pay the [Climate Remediation Fee OR Emissions Payment] to the Appointed Beneficiary within 15 (fifteen) Business Days of the Supplier’s failure to mitigate the Climate Breach.
3.3 Without prejudice to any other claims, rights or remedies under this Agreement, the parties agree that, in respect of any Climate Breach, damages payable by the Supplier to the Buyer would not be an appropriate remedy in the wider context of damage to the climate, the environment and the Buyer’s reputation (all of which the Supplier accepts for the purpose of this Agreement as being losses incurred by the Buyer).
3.4 The parties agree that any [Climate Remediation Fee OR Emissions Payment] shall be reasonable and proportionate to the legitimate interests of the Buyer in mitigating, setting off, counteracting and repairing the damage (and preventing future damage), including to its public commitments to [reduce the Buyer’s GHG Emissions].
3.5 Each Party agrees that it has been properly advised regarding the negotiation of this Agreement, and in particular regarding the inclusion of the [Climate Remediation Fee OR Emissions Payment] as a remedy for Climate Breaches.
[Schedule [●]]
[Drafting note: use this Schedule if using the definition of Emissions Payment. Delete this Schedule if using the alternative definition of Climate Remediation Fee.]
Emissions Payments
If the Supplier's Total Emissions do not meet the Emissions Target, the Emissions Payments shall be paid by the Supplier to the Appointed Beneficiary at the following rates:
| Amount by which the Total Emissions exceeds the Emissions Target in an Emissions Reporting Period | Emissions Payment payable |
| Less than [●] | £[●] |
| [●] or more but less than [●] | £[●] |
| [●] or more but less than [●] | £[●] |
| [●] or more but less than [●] | £[●] |
| [●] or more but less than [●] | £[●] |
| [●] or more | £[●] |
[Drafting note: tiered Emissions Payment to be included, so that a greater failure against the target incurs a larger Emissions Payment liability for the Supplier.]
Annual Emissions Report means a written report setting out the Total Emissions for the relevant Emissions Reporting Period.
Appointed Beneficiary means the beneficiary of the [Climate Remediation Fee OR Emissions Payment], to be chosen from the Beneficiary List by the Buyer and nominated in writing in the relevant Climate Remediation Notice.
[Drafting note: when selecting the Appointed Beneficiary from the Beneficiary List, consider issues like proximity to the environmental harm caused under the performance of this Agreement and other issues relevant to achieving direct remediation of the relevant harm.]
Beneficiary List means [ideally insert a list of reputable NGOs supporting environmental improvement in the UK and globally, managed by a reputable independent third party or parties. Absent such a list, the parties may wish to choose a shortlist of their preferred charitable partners or NGO beneficiaries].
Business Day means any day other than a Saturday, Sunday or any other day which is a public holiday in England.
Climate Breach has the meaning given to it in clause 2.1.
Climate Breach Report has the meaning given to it in clause 2.2.
[EITHER]
[Climate Remediation Fee means:
(a) in respect of clause 2.1.1 (Notification of Climate Breach), an amount equal to the cost of carbon credits that must be purchased to offset each metric ton of CO2e by which Total Emissions exceed the Emissions Target; and
(b) in respect of clause 2.1.2 (Notification of Climate Breach), [[£[●]] [and an additional sum of £[●] for each [Business Day] that the breach continues [up to a maximum of £[●]]] [OR] [[● percent] of the aggregate amount paid by Supplier to Buyer over the prior 12 (twelve) months].]
[OR]
[Emissions Payment means a payment of the amount set out in Schedule [●].]
Climate Remediation Notice has the meaning given to it in clause 2.4.
Contributing Matters has the meaning given to it in clause 2.2.4(b)(i).
Emissions Report Date means, in relation to an Emissions Reporting Period, the first day of the next Emissions Reporting Period.
Emissions Reporting Period means[, firstly, a period of 12 (twelve) months commencing on the start date of this Agreement and ending on the first anniversary of that date, and then consecutive 12 (twelve) month periods ending on the day before the next anniversary of that date]. [Drafting note: to be adapted if required to align with any existing emissions reporting periods of the business.]
Emissions Target means zero Total Emissions or at least [7 (seven)] percent* less than the Total Emissions of the previous Emissions Reporting Period.
* [Drafting note: insert the percentage reduction required by the Buyer to meet its own net-zero targets. This percentage should be no lower than 7 percent and if possible, higher than 7 percent, to meet the target of halving absolute emissions every decade. It may be much higher if necessary to meet the interim targets required by their respective net-zero targets.]
GHG Emissions means [a party’s] emissions of GHGs from all sources [related to this Agreement], classified as scope 1, 2 and 3 emissions by The Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, Revised Edition 2015 as updated periodically.
GHG Reporting Standard means [(i) the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, Revised Edition 2015, (ii) Greenhouse Gas Protocol, GHG Protocol Scope 2 Guidance, An Amendment to the GHG Protocol Corporate Standard, 2015, and (iii) Greenhouse Gas Protocol, Corporate Value Chain (Scope 3) Accounting and Reporting Standard, Supplement to the GHG Protocol Corporate Accounting and Reporting Standard, 2011], each as amended periodically. [Drafting note: consider using one of the GHG Protocol reporting standards as appropriate to the organisation or activity under the Agreement.]
Greenhouse Gases (GHGs) means the gases that trap thermal radiation in the Earth’s atmosphere. They are specified by the United Nations Framework Convention on Climate Change (UNFCCC) in Annex A to the Kyoto Protocol and may be updated periodically.
Independent Third Party means an impartial organisation not affiliated with either party providing climate impact assessment and emissions reporting services, of a standard at least equal to the Carbon Disclosure Project or the Carbon Trust.
[Net Zero Target means a target to reduce and remove GHG Emissions, including by offsetting Residual Emissions, to achieve a balance between a [party’s] sources and sinks of GHGs by [2050 OR insert earlier date] to align with [the goals of the Paris Agreement OR Paris Agreement Goals].] [Drafting note: use this definition if using clause 1.3 (also in square brackets). See also TCLP Glossary for definitions of Offset or Offsetting and Paris Agreement Goals.]
Residual Emissions means GHG Emissions that are emitted after all reasonable efforts have been made [by a [party] to reduce GHG Emissions].
Total Emissions means the sum of the Supplier’s GHG Emissions arising out of the performance of its obligations under this Agreement, in a given Emissions Reporting Period [as verified by an Independent Third Party].
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