A generic reporting/disclosure clause that can be included in the Loan Market Association (LMA) information and undertakings provisions of any corporate loan and is not limited to 'green' loans.Skip to clause
Why use this?
Including such a reporting obligation:
- Starts the conversation with borrowers and can act as a prompt for them to consider their climate-related risks, mitigation opportunities and impacts (and also prompt borrowers’ corporate and social responsibility (CSR)/sustainability teams to interact more with their finance colleagues).
- Helps lenders to consider their own climate-related risks and impacts and comply with their own reporting obligations.
Borrowers may want to adopt this clause because climate-related disclosure is increasingly requested by investors, lenders and financial market participants. Even if most corporates are not within scope of mandatory reporting obligations at present, climate risk reporting by borrowers would demonstrate that they are aware of the full range of climate risks affecting their business and that they are taking actions to transition to a Net Zero economy. This would give them a competitive advantage, as consumers and investors are becoming more aware of climate-related issues and are increasingly attracted to climate conscious businesses. This, in turn, would contribute to a Net Zero economy overall.
From a lender perspective, if their borrower(s) adopt the clause, this has reputational benefits as it shows they are lending to climate-conscious corporates. It also enables lenders to think about their own climate change strategy and reporting obligations. The competitive advantage noted in the above paragraph applies equally to lenders as it does to borrowers. It may also be possible to use this clause in corporate-investing and insurance contexts too.
How it promotes a net zero future
This clause includes flexible framework reporting on both 1) the impact of climate change to the business and its financial performance in the long-term and 2) the impact the business has on climate change (i.e. the double materiality concept in the EU NFRD) and how this will assist in transitioning business activities to be Net Zero.
A fuller consideration of climate-related risks is likely to facilitate a smoother and more proactive 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.
Biodiversity Protection means the protection, conservation and restoration of biodiversity and ecosystems including without limitation by way of protection of natural or semi-natural habitats, species, terrestrial, marine and other aquatic ecosystems; sustainable land use and management; halting or preventing of agricultural practices which contribute to the degradation of soils and other ecosystems, deforestation and habitat loss; or enabling of practices which contribute to sustainable forest management and uses of forests and forest land that contribute to enhancing biodiversity.
Circular Economy means an economy in which there is a reduced demand for natural resources, and the materials that are derived from them. This is achieved by activities that contribute, directly or indirectly, to increasing resource efficiency and decreasing environmental impacts throughout value chains.
Climate Change Adaptation means the process of adjustment or preparation of natural or human systems to the actual or anticipated climate and its effects in a way that moderates harm or exploits beneficial opportunities.
Climate Change Mitigation means human intervention or efforts to reduce the sources and enhance the sinks of Greenhouse Gas Emissions.
Climate-Related Risk means Transition Risk and Physical Risk.
Greenhouse Gas Emissions means emissions of the greenhouse gases listed at Annex A of the 1998 Kyoto Protocol to The United Nations Framework Convention on Climate Change, as may be amended from time to time including: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs) and sulphur hexafluoride (SF6), each expressed as a total in units of carbon dioxide equivalent (CO2e).
Net Zero means when the anthropogenic emissions of greenhouse gases to the atmosphere are balanced by anthropogenic removals over a specified period. Where multiple greenhouse gases are involved, the quantification of net zero emissions depends on the climate metric chosen to compare emissions of different gases (such as global warming potential, global temperature change potential, and others, as well as the chosen time horizon).
Physical Risk means physical risk from climate change arising from a number of factors, and relating to specific weather events (such as heatwaves, floods, wildfires and storms) and longer-term shifts in the climate (such as changes in precipitation, extreme weather variability, sea level rise, and rising mean temperatures).
Pollution Prevention and Control means preventing or reducing pollution including without limitation by way of reduction of pollutant emissions into air, water or land (other than greenhouse gases); improvement of levels of air, water or soil quality; or the reduction of any adverse impact on human health and the environment of the production, use or disposal of chemicals.
Sustainable Water and Marine Resource Use means protecting or improving the qualitative and quantitative status of bodies of water and marine waters including without limitation by protecting the environment from the adverse effects of urban and industrial waste water discharges, ensuring that water is free from any micro-organisms, parasites and substances that constitute a potential danger to human health as well as increasing people’s access to clean drinking water and protecting, preserving or restoring the marine environment.
Transition Risk means transition risk from climate change arising from the process of adjustment towards a low-carbon or Net Zero economy. A range of factors influence this adjustment, including: climate-related developments in policy and regulation, the emergence of disruptive technology or business models, shifting sentiment and societal preferences, or evolving evidence, frameworks and legal interpretations. This includes (without limitation) the impact on the demand for the products and/or services offered by the Company and the financial cost of compliance by the Company as a result of a change in law and regulation facilitating such economic transition).
1.2 Reporting of Climate-Related Risks and Mitigation
The Company shall supply to the Agent, with (or as part of) each annual report:
(a) a report containing the following information, in a form and substance [satisfactory to the Agent] / [agreed between the Company and the Agent]:
(i) details of the processes and procedures implemented by the Company to identify, assess and manage Climate-Related Risks impacting the business, strategy and financial planning of the Company; and
(ii) details of actual or potential impacts of Climate-Related Risks which shall include (without limitation) the assessment of:
I. Physical Risks of climate change affecting the business operations of the Company and the value of the Company’s assets (including without limitation its commercial property);
II. Transition Risks associated with the transition to a Net Zero economy,
and any step(s) being taken to address or mitigate such risks.
(iii) details of processes, procedures and any targets implemented by the Company to (A) contribute to or (B) mitigate any harm to the following environmental objectives:
I. Climate Change Mitigation;
II. Climate Change Adaptation;
III. Sustainable Water and Marine Resource Use;
IV. transition to a Circular Economy;
V. Pollution Prevention and Control; and
VI. Biodiversity Protection,
(together, the Environmental Objectives).