Amendments to a standard early stage shareholders’ agreement which allow investors to hold the company to account on climate issues and oblige all shareholders to support Net Zero.Skip to clause
Why use this?
Many companies and shareholders prioritise fast growth and maximum financial returns above the consumption of Natural Capital and their impact on Climate Change. There is evidence that these companies also do not perform as well as those that have ESG matters as a core strategy.
These clauses offer drafting to:
(a) place obligations and restrictions on the company and the management to ensure the company is run in the “greenest” possible manner; and
(b) place obligations upon the investors to engage in climate change mitigation or relinquish benefits from the investment.
How it promotes a net zero future
Aligning shareholder rights and future value to environmental outcomes, would see companies and directors placing climate goals at the forefront of company strategy, but it would also encourage investors to (whether individuals or institutions) to monitor and incentivise achievement of climate goals as they are directly linked to the value of the shares.
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.
(A) The Shareholders wish to align the operation and management of the Company with various Climate Change and Sustainability Goals.
“Capital Purpose” means to preserve the value of the Shareholders’ capital as invested in the Company;
“Carbon Footprint” means the amount of carbon dioxide equivalent units that will be released into the atmosphere as a result of the Business operations as determined in accordance with the GHG Protocol;
“Carbon Neutral” means the reduction and maintenance of the Company’s Carbon Footprint to net zero;
“Carbon Neutral Date” means the date set by the Board for the Company to achieve Carbon Neutral status which date should not be more than 24 months from the date of the meeting convened under clause 10.1;
“Carbon Offsetting” means the purchase of a quantity of carbon credits from a project that has been verified by a Carbon Offset Provider or by United Nations Framework Convention on Climate Change clean development mechanism project;
“Carbon Offset Provider” means the following organisations [INSERT];
“GHG Protocol” means the current GHG Protocol Corporate Accounting and Reporting Standard;
“Material Climate Breach” means a breach of any terms of this Agreement which is material with regard to all relevant circumstances, including, without limitation:
(a) increasing the Company’s Carbon Footprint;
(b) missing the Carbon Neutral Date; or
(c) taking any action that is contrary to the achievement of the Sustainability Goals.
“Sustainability Alignment” means the operation of the Business in a manner which (i) supports the achievement of the goals of the Paris Agreement, as set out in Articles 2.1 and 4.1 of the United Nations Framework Convention on Climate Change Paris Agreement and/or (ii) supports the achievement one or more of the United Nations Sustainable Development Goals as set out in the 2030 Agenda for Sustainable Development;
“Sustainability Goals” means the Company’s goals and objectives for achieving and maintaining Sustainability Alignment as set by the Board from time to time in accordance with clause [X];
- SHARE OPTION SCHEME
2.1 The Founders undertake to include terms in the Share Option Scheme (which shall include the relevant share award agreement for the purpose of this clause 6.3) that make the vesting of Shares under the Share Option Scheme conditional upon the Company having achieved its Sustainability Goals on or before the agreed vesting date.
- DIVIDEND POLICY
3.1 Where a Shareholder has failed to comply with the obligations under clause 11.6 it shall not be permitted to receive any portion of the dividend distributed under clause 7.1 and the amount of the dividend shall be reduced proportionate to such Shareholder’s pro-rata allocation of the dividend (a “Portion”). Such Portion of the dividend will be retained by the Company and will be distributed to the defaulting Shareholder in accordance with clause 7.1 subject to the relevant Shareholder’s achieving compliance with clause 11.6.
- BUSINESS OF THE COMPANY
4.1 The Shareholders will each act in good faith to promote the best interests of the Company and ensure that the Business is conducted and developed in accordance with good business practice and any business plan for the Company that is adopted from time to time in furtherance of (in equal emphasis): (i) the Capital Purpose; and (ii) the Sustainability Goals.
- COMPANY SUSTAINABILITY GOALS
5.1 Within 30 Business Days from the date of execution of this Agreement the Board shall meet and resolve to: (i) adopt the Company’s Sustainability Goals; (ii) adopt a framework sustainability management standard by reference to [INSERT SPECIFIC STANDARD] (the “Sustainability Management Standards”) and (iii) designate a member of the Board to be the Company’s Chief Sustainability Officer (“CSO”). As soon as reasonably possible following the date of such meeting the Board shall provide a copy of meeting minutes to the Shareholders detailing the adopted Sustainability Goals along with a copy of the Company’s Sustainability Management Standards.
5.2 Independent of each formal Board meeting convened in accordance with clause [#], the impact of the Company’s Sustainability Goals shall be reviewed and evaluated by the Board on a quarterly basis (a “Sustainability Review Meeting”), which evaluation shall include the Board considering, without limitation:
(a) the Company’s progress in achieving its current Sustainability Goals;
(b) whether any modifications should be made to the current Sustainability Goals;
(c) whether any modifications should be made to the Sustainability Management Standards;
(d) the effect of the current Sustainability Goals of the Company’s Capital Purpose; and
(e) any additional Sustainability Goals.
5.3 The Board shall provide copies of the meeting minutes from all Sustainability Review Meetings to Shareholders within 14 Business Days of the meeting date and any material changes to the Sustainability Goals shall be proposed to the Shareholders with such minutes in accordance with clause 5.1.
5.4 The Board shall provide any further information reasonably requested by Shareholders in respect of the Sustainability Goals, provided that such request is made by a Shareholder within 30 Business Days of receipt of the minutes provided under clause 5.3.
- CARBON FOOTPRINT MANAGEMENT
6.1 Independent of the Board’s obligation to ensure that the Business is conducted and developed in furtherance of its Sustainability Goals, the Board shall procure that the Business of the Company be conducted in a manner which is Carbon Neutral.
6.2 At the meeting to be convened under clause 5.1, the Board shall determine the Company’s plan to achieve and maintain its Carbon Neutral status, [which should be determined by reference to ISO14001/the GHG Protocol], and should include, without limitation, a proposed Carbon Neutral Date (the “Carbon Neutral Plan”). The Board shall include details of the Carbon Neutral Plan with the Sustainability Management Standards to be provided under clause 5.1.
6.3 At each Sustainability Review Meeting the Board shall review and evaluate the Company’s Carbon Neutral status and Carbon Neutral Plan and minutes of such meetings shall be provided to all Shareholders which shall include, without limitation, a measurement of the Company’s Carbon Footprint at the date of such meeting.
6.4 The Board shall provide any further information reasonably requested by Shareholder in respect of the Company’s Carbon Neutral Plan and Carbon Footprint, including but not limited to any information recommended to be disclosed by a Company under the GHG Protocol, provided that such request is made by a Shareholder within 30 Business Days of receipt of the minutes provided under clause 6.3.
6.5 At the end of the Company’s financial year the Board shall provide the Shareholders with details of the Company’s total Carbon Footprint for the year which information must also be included in the Directors’ Report for that financial year.
6.6 During the continuance of this Agreement, the Company and each of the Shareholders agrees to undertake annual Carbon Offsetting at the following levels:
(a) any Shareholder that is a body corporate [partnership or other undertaking] shall purchase carbon credits from a Carbon Offset Provider to offset not less than  metric tonnes of carbon dioxide equivalent units in each of the Company’s financial years;
(b) any Shareholder that is an indivudal shall purchase carbon credits from a Carbon Offset Provider to offset not less than  metric tonnes of carbon dioxide equivalent units in each of the Company’s financial years; and
(c) the Company shall purchase carbon credits from a Carbon Offset Provider to offset its total annual Carbon Footprint as determined in accordance with clause 11.5.
[ALTERNATIVE TO CLAUSE 6.6 – “During the continuance of this Agreement, the Company and each of the Shareholders agrees to undertake annual Carbon Offsetting at the following levels:
- In each the Company’s financial years, each Shareholder shall purchase carbon credits from a Carbon Offset Provider to offset an amount of carbon dioxide equivalent units equal to a Shareholder’s share of the total annual Carbon Footprint in the preceding year as determined in accordance with clause 6.5, where such Shareholder’s share is determined by reference to a Shareholder’s percentage holding of Shares in the Company; and
- the Company shall purchase carbon credits from a Carbon Offset Provider to offset its total annual Carbon Footprint as determined in accordance with clause 6.5.]
6.7 Evidence of each Shareholder’s compliance with clause 6.6 should be provided to the CSO by each Shareholder as soon as reasonably possible following the completion each Company financial year but in any event by no later than one month after the end of such financial year. If applicable, evidence of the Company’s compliance with clause 6.6 shall be provided with the minutes of the Board’s first Sustainability Review Meeting in each financial year.
6.8 Without affecting any other right available to the Company under this Agreement, where a Shareholder fails to submit evidence of compliance with clause 6.6 by the date due and remains in default after having been given 14 Business Days’ notice to comply, the Shareholder shall be considered to be in Material Breach of this Agreement and the provisions of clause 11 shall apply.
6.9 Notwithstanding clause 6.5, the obligations under clause 6.6 shall cease to apply in any financial year where the Company achieves Carbon Neutral status for the preceding financial year. In this event, each Shareholders shall be obliged to undertake Carbon Offsetting in the financial year but the quantum of carbon credits to be purchased by a Shareholder shall be at its own discretion. Each shareholder shall provide evidence of its Carbon Offsetting its CSO for the financial year and the Board shall be permitted to share such information will all Shareholders.
- FURTHER ISSUE OF SHARES – PRE-EMPTION
7.1 Notwithstanding the foregoing, clause 12.1 shall not apply to benefit any Shareholder who has failed to comply with clause 6.6 and the Company may disregard any such Shareholder’s Shares when computing the offer to be made under clause 12.[#].
- TRANSFER OF SHARES – PERMITTED TRANSFERS
8.1 Notwithstanding the foregoing, clause 12.1 shall not apply to benefit any Shareholder that has failed to comply with clause 6.6 and the provisions of clause 13 shall apply to any purported transfer by such a Shareholder.
- TRANSFER OF SHARES – PRE-EMPTION
9.1 Notwithstanding the foregoing, any Shareholder that has failed to comply with clause 6.6 shall not be considered an Eligible Shareholder for the purpose of clause [#] and the Board shall be under no obligation to offer any Sale Shares to such a Shareholder.
- TRANSFER OF SHARES – VALUATION
10.1 “Fair Value” shall, in any case, be the price of the relevant Shares determined in writing by the Independent Accountant on the following bases and assumptions:
(a) [Insert normal valuation provisions [; and
(b) Reflect a discount proportionate to the Company’s [consumption of Natural Capital in the previous 12 months][or time left to the Carbon Neutral Date] [Other alignment to sustainability goals that have not been achieved].
- COMPULSORY TRANSFERS – MATERIAL CLIMATE BREACH
11.1 In the event that a Shareholder is (in the opinion of the Board, acting reasonably) in Material Climate Breach of any of the provisions of this Agreement (a “Defaulting Shareholder”), the Board may, in its absolute discretion, serve a notice on that Shareholder notifying him that he has been deemed, with immediate effect, to have served a Transfer Notice in respect of his or her Shares (together with any Shares held by Permitted Transferees of the Defaulting Shareholder), and the provisions of Clause 9 shall apply to any such transfer, save as provided by this Clause 11. In such event, the Shareholder (together with his or her Permitted Transferees) shall be treated as a Bad Leaver, in accordance with Clause [#], for the purposes of the valuation and transfer of his or her Shares[, provided that the Sale Price shall be at a 50% discount to Fair Value of the relevant Shares.
- DRAG ALONG
12.1 Notwithstanding any other provision of this clause [ ], a Shareholder may refuse to be dragged or otherwise sell or transfer any or all their Shares to the Drag Purchaser if acting reasonably and in Good Faith she believes that the Drag Purchaser, its group or affiliates are operating in a way that can reasonably considered a Material Climate Breach or otherwise contrary to the Sustainability Goals.
13.1 In addition to the restrictions set out in Clause [#] Shareholder undertakes to the other and separately to the Company that they will not at any time, without the prior consent of the Board, carry on or be employed, engaged, or interested in any business which has not publicly set a target of achieving Carbon Neutral status or is not otherwise operating with or towards Sustainability Alignment.
(a) use recycled paper and non-solvent based ink when printing a notice;
(b) if the notice is being delivered by hand, use a courier service which operates zero or ultra-low emission vehicles only; and
(c) allow notices to be given electronically.
MATTERS REQUIRING SHAREHOLDER CONSENT
- Enter into any contract, transaction or arrangement in relation to the Company that it is likely to impede the achievement of the Sustainability Goals, the Sustainability Management Plan or Carbon Neutral Plan.
- Make any material change to the Sustainability Goals.
- Make any change to the target Carbon Neutral Date.