Model clause

Green Investment Obligations

Frank's Clause

Amendments to standard non-leveraged investment documents to focus the founders and investee company on climate change and environmental issues with their products, services, and operations.

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Why use this?

The clause will ensure environmental obligations are cascaded through the investment documentation so the investors can assess climate risks and demonstrate climate impact. In should also make the investee company more resilient to the Climate Change Risks articulated by the Bank of England.

How it promotes a net zero future

The proposed amendments will mean that a company and founder will have various obligations in relation to climate risk and sustainability reporting. This puts environmental and climate change issues front and centre of the investment and the development of the investee company’s business.

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

Additional Definitions

Capital Purpose” means to preserve the value of the Investors capital invested in the Company;

Commercial Purpose” means to make the company profitable so as to provide a return to shareholders whilst having regard to the Social Purpose and Capital Purpose;

Company” means [Insert name of Company that is being invested in]

Founders” means the founders and senior Founders of the Company listed in schedule [INSERT]

Investor Consent” means the consent of 75% of the Investors.

Net Zero Target” means a reduction of greenhouse gas emissions from all operations [including value and supply chains] to net zero by [INSERT DATE] so there is a balance between sources and sinks of greenhouse gases in a calendar year and for each subsequent year thereafter.

Social Purpose” means [Insert relevant purpose for investee company which is likely to be linked to a UN Sustainable Development Goal]

Sustainable Promotion of the Company’s Business

4.1 The Founders and the Company shall promote the best interests of the Company and ensure that its Business is conducted responsibly, sustainably, ethically and in accordance with all applicable laws and good business practice.

4.2 The Founders and the Company shall run and manage the business:

4.2.1 Primarily to advance the Social Purpose;

4.2.2 Secondly to achieve the Capital Purpose; and

4.2.3 Thirdly to achieve the Commercial Purpose.

4.3 The Founders and the Company undertake to procure, in so far as it is in their respective powers to do so, that the Company shall:

4.3.1 [publicly] set a Net Zero Target and within 6 months of Completion provide the Investors with a plan to deliver the Net Zero Target;

4.3.2 as soon as reasonably practical and no later than 12 months after Completion:

4.3.2.1 purchase electricity for its offices [and factory] on a green tariff that uses a 100% renewable energy;

4.3.2.2 use web hosts and cloud service providers which run their servers on 100% renewable energy or have a net zero target;

4.3.2.3 source all consumables used by the Company from sustainable and ethical sources;

4.3.2.4 create KPIs to measure the Company’s impact of its operations and goods and services it provides;

4.3.2.5 [ensure the [casing/packaging] for the Company’s products are sourced from as much recycled material as possible and are themselves designed to have the smallest environmental impact];

4.3.2.6 [For online businesses][provide the Company’s customers the option to offset the carbon footprint of delivering the Company’s products at the point of sale on the Company’s website];

4.3.2.7 establish a sustainability committee as a committee of the board chaired by a non-executive director with experience of improving sustainability and mitigating carbon footprint;

4.3.2.8 establish the company’s pension scheme with an ESG/green investment fund as the default;

4.3.2.9 become a certified B Corporation [achieving the Planet Mark];

4.3.2.10 set targets to support the achievement on one or more United Nations Sustainable Development Goals that are relevant to the Business;

4.3.3 report [annually] [quarterly] [monthly] to the Investors; 

[Note: To select reporting aligned with needs and goals of Investors.]

4.3.3.1 the climate risks and opportunities to the Company and the Business in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD),

4.3.3.2 sustainability information in accordance with the standards set out by the Sustainability Accounting Standards Board (SASB); and

4.3.3.3 other environmental, social and governance factors that are requested by the Investors from time to time.

4.3.4 prepare and provide to Investors an annual sustainability report which, without limitation, demonstrates the activities undertaken by the Company in furtherance of this clause; and

4.3.5 once profitable, donate 1% of its net profits to environmental causes that are mitigating the impact of climate change.

Green Decisions Requiring the Consent of an Investor Majority

5.1 Each party shall use all the voting rights and powers of control deriving from their holding of Shares in order to procure that the Company shall not take any of the actions listed in this clause 5.2 without first obtaining the approval of an Investor Majority.

5.2 The actions requiring the approval of a Investor Majority are:

5.2.1 the amendment or revocation of the Net Zero Target; and

5.2.2 the entry into any contract or arrangement that conflicts with its Net Zero Target.

Founder Green Covenants

6.1 To assure the Investors that the Founders are aligned with the Investor’s environmental aims and to enable the Investors to achieve the full benefit of the impact of their investment in the Company, each Founder hereby undertakes and covenants with the Investors and the Company that they shall not:

6.1.1 while they are a director or employee of, or a consultant to, the Company carry on or be directly concerned, engaged or interested in any trade or business that is:

6.1.1.1 not taking demonstratable steps to set and implement a net zero target equivalent to the Net Zero Target; or

6.1.1.2 operates in the following sectors [Insert sectors or industries that the Investor does not want the Founders to be involved in/ conflict with their ESG aims];

6.1.2 do or omit to do anything which could reasonably be expected to cause the Company to not achieve the Net Zero Target, whether pursuant to this contract or otherwise.

Glossary references: Net Zero Target Social Purpose

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