Model clause

Carbon Performance Clauses

Jessica's Clause

Include climate metrics for performance in all contracts. Provide a mechanism akin to liquidated damages for breaches with negative climate impacts, in the form of mandatory donations to non-profits.

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Why use this?

Currently the carbon costs of producing goods or delivering services are not usually specified in contracts and, therefore, there is no incentive to reduce carbon emissions.

Here, the supplier warrants it will meet certain targets for the climate and environmental impacts of delivering the goods or services under the agreement. If breached, the supplier must pay a climate remediation fee to a selected environmental charity.

How it promotes a net zero future

Cascading environmental clauses which provide a remedy for breaches that impact a purchaser’s GHG targets - and therefore cause negative climate impacts - should increase the speed of transition to net zero.

Disclaimer - please read

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

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

The clause

Recital

[Note: Agreement to contain recital below in addition to the other recitals relevant to the agreement.]. 

The parties acknowledge that performance of this agreement by the parties is expected to have climate and ecological impacts as detailed in this agreement.

1. Climate and Ecological Impacts Under this Agreement

1.1 The parties acknowledge that the performance of this agreement will result in certain climate [and ecological] impacts, including the emission of greenhouse gases. For the purpose of this agreement, the parties agree that the quantity of greenhouse gas emissions related to this agreement will be quantified first in the Initial Emissions Report and then in subsequent Annual Emissions Reports.

1.2 Each party agrees to use all reasonable endeavours, and co-operate in good faith with the other party and its contractors, to minimise as far as reasonably practicable the quantity of greenhouse gas emissions related to this agreement as set in accordance with clause 2.1.

2. Climate Reporting and Warranties

[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 M&A transaction documents.]

2.1 The Supplier agrees to:

2.1.1 collect sufficient data, and analyse that data as required, to populate the Initial Emissions Report and the Annual Emissions Reports;

2.1.2 provide the Customer with the Initial Emissions Report within [twelve (12)] months after the start date of this agreement;

2.1.3 provide an Annual Emissions Report no later than forty (40) Business Days after the applicable Emissions Report Date; [and]

2.1.4 measure and calculate its Projected Total Emissions and Actual 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 Customer; [and]

2.1.5 [insert other climate performance metric as relevant to the performance of this Agreement].

2.2 The Supplier warrants and agrees that:

2.2.1 It will provide the reports required under clause 2.1 within the required period and as specified in clause 2.1.

2.2.2 The Initial Emissions Report and all Annual Emissions Reports provided to the Customer are in all material respects complete, accurate and not misleading.

2.2.3 The Actual Total Emissions during an Emissions Reporting Period will be less than the Actual Total Emissions of the previous Emissions Reporting Period.

2.2.4 It will not commit any Climate Breach during the term of the agreement.

3. Climate Remediation Fee

3.1 Without prejudice to any other claims, rights or remedies under this agreement, the parties agree that, in respect of any breach of the warranties set out in clause 2.2, damages payable by the Supplier to the Customer would not be an appropriate remedy in the wider context of damage to the climate, the environment and the Customer’s reputation (all of which the Supplier accepts for the purpose of this agreement as being losses incurred by the Customer). Without prejudice to the Customer’s right to damages, the Supplier agrees to pay the Climate Remediation Fee as set out in this clause 3.

3.2 The parties agree that any Climate Remediation Fee payable under this agreement to provide compensation for damage caused by the Supplier’s Climate Breach or breach of clause 2.2 is reasonable and proportionate to the legitimate interests of the Customer in mitigating, setting off, counteracting, and repairing that damage (and preventing future damage), in part reflecting its public commitments to [reduce greenhouse gas emissions]. 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 as a remedy for Climate Breaches and breaches of clause 2.2.

3.3 If the Customer identifies or suspects a Climate Breach or breach of clause 2.2, the Customer may serve a Climate Remediation Notice on the Supplier at any time within twenty (20) Business Days of [the occurrence of such breach / becoming aware of such breach], whichever is later.

3.4 Upon receipt of a Climate Remediation Notice, the Supplier will promptly investigate the matter and in respect of any Climate Breach or breach of clause 2.2 pay the applicable Climate Remediation Fee to the Appointed Beneficiary within fifteen (15) Business Days of receipt of the notice.

4. Definitions

4.1 Actual Total Emissions” means the Total Emissions that were actually emitted over the relevant Emissions Reporting Period, as verified by an Independent Third Party;

4.2 Annual Emissions Report” means a written report setting out the Actual Total Emissions for the relevant Emissions Reporting Period, and the Projected Total Emissions for the next Emissions Reporting Period;

4.3 Appointed Beneficiary” means the beneficiary of the Climate Remediation Fee, to be chosen from the Beneficiary List by the Customer and nominated in writing in the relevant Climate Remediation Notice;

4.4 Beneficiary List” means the [ideal position – a list of reputable NGOs supporting environmental improvement UK and globally managed by reputable independent third party; in the absence of such a list, the parties may wish to choose a shortlist of their preferred charitable partners / NGO beneficiaries];

4.5 Business Day” means any day other than a Saturday, Sunday or any other day which is a public holiday in England;

4.6 Climate Breach” means any of the following events:

4.6.1 in an Annual Emissions Report, the Actual Total Emissions exceed the Projected Total Emissions by more than [Total Emissions per calendar year / per month / per Unit / per Emissions Reporting Period] or [X%][Xt/CO2e]];

4.6.2 [the Supplier fails properly to measure its Total Emissions [in the relevant Emissions Reporting Period]];

4.6.3 [the Supplier’s fails to have its Total Emissions [in respect of the relevant Emissions Reporting Period] verified by an Independent Third Party;]

4.6.4 [where the Supplier has agreed to achieve certification under [insert relevant sustainability / climate / carbon industry standard] by a particular date, the Supplier fails to achieve that certification by that date and afterwards maintain that certification during the term of the agreement; or]

4.6.5 [insert failure to achieve other specified climate performance metric];

4.7 Climate Remediation Fee” means:

4.7.1 [an amount equal to [£X] for each [percentage point / Xt/CO2e] that the Actual Total Emissions stated in a given Annual Emissions Report exceed the Projected Total Emissions set out in the previous Annual Emissions Report (or the Initial Emissions Report, in the case of the first Annual Emissions Report); and]

4.7.2 in respect of any Climate Breach or breach of any of the warranties set out in clause 2.2, but not covered by another element of the Climate Remediation Fee, [£[X]] [ and an additional sum of £[x] for each [day] that the breach continues [up to a maximum of £[x]];

4.8 Climate Remediation Notice” means a written notice by the Customer containing details of any identified or suspected Climate Breach(es) and nominating an Appointed Beneficiary;

4.9 Emissions Reporting Period” means, firstly, a period of twelve months commencing on the start date of this agreement and ending on the first anniversary of that date, and then consecutive 12 month periods ending on the day before the next anniversary of that date;

4.10 Emissions Report Date” means, in relation to an Emissions Reporting Period, the first day of the next Emissions Reporting Period;

4.11 GHG Reporting Standard” means [the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, Revised Edition 2015];

4.12 Initial Emissions Report” means a report setting out the Projected Total Emissions for the first Emissions Reporting Period;

4.13 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;

4.14 Projected Total Emissions” means an estimate of Total Emissions for the Emissions Reporting Period commencing on the relevant Emissions Report Date, calculated in accordance with the GHG Reporting Standard;

4.15 Scope 1 Emissions” means the direct greenhouse gas emissions emitted from sources directly owned or controlled by the Supplier;

4.16 Scope 2 Emissions” means the indirect greenhouse gas emissions associated with the generation of electricity purchased by the Supplier;

4.17 Scope 3 Emissions” means all indirect greenhouse gas emissions emitted from sources which are not directly owned or controlled by the Supplier, excluding Scope 2 Emissions, which occur both upstream and downstream in the Supplier’s supply or value chain related to the [Product/Services];

4.18 Total Emissions” means the sum of the Supplier’s Scope 1 Emissions, Scope 2 Emissions, and Scope 3 Emissions, in each case arising out of the performance of its obligations under this agreement, in a given Emissions Reporting Period; and

4.19 Unit” means [the item(s) to be supplied under the provisions of this Agreement].

[Note: Issues to consider in selecting the Appointed Beneficiary from the Beneficiary List may include proximity to the environmental harm caused under the performance of this Agreement and other issues relevant to achieving direct remediation of the relevant harm.]

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