Model clause

SPA/Investment Agreement: Disclosure of Climate Change Plans

Zack's Clause

Include pro-active disclosure requirements in M&A or investment transactions, bringing climate targets and aims to the forefront for both the management of the target and the buyer/investors.

Skip to clause

Why use this?

By including forced climate disclosure warranties in a share purchase agreement or investment agreement, a buyer or investor can assess the climate risks of the target.

If the target discloses that it has not engaged in any actions to reduce its emissions/does not have a net zero emissions plan in its business, then this could potentially negatively impact on price (resulting in management of the target taking a more proactive approach to climate matters).

How it promotes a net zero future

The commercial imperative for an investment or corporate deal often overrides climate considerations. As such there is a perceived lack of engagement of directors and managers in businesses to implement and work towards a net zero emissions economy.

In current transactions and in the context of granting warranties, it is usual for a seller or management of a company to ‘confirm’ that the company adheres to environmental and social regulations which apply to the relevant company, but there is no obligation on them to disclose/explain their plan for reaching a net zero emissions in their business (or what steps they have taken to date).

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 

Carbon Budget means [x] the aggregate of [value] tonnes of Carbon Dioxide Equivalent of Greenhouse Gas emissions permitted within the period of [YEAR to YEAR].

Carbon Dioxide Equivalent (CO2e or CO2eq) means the standard metric measure used by the UN’s Intergovernmental Panel on Climate Change (IPCC) to compare the emissions from various Greenhouse Gases (GHGs) on the basis of their global warming potential over a specified timescale in order to express a Carbon Footprint that consists of different GHGs as a single number.

Carbon Footprint means the amount in tonnes of Carbon Dioxide Equivalent of Greenhouse Gas emissions that will be released into the atmosphere as a result of the [manufacture/supply/use] of [the Product/Service] determined in accordance with international carbon reporting practice, being the accepted practice from time to time in relation to reporting for the purposes of the protocols to the United Nations Framework Convention on Climate Change.

Disclosure Letter means the disclosure letter in the agreed form having the same date as this Agreement from the [Sellers] addressed to the [Buyer].

Disclosure Documents means the Disclosure Letter and the USB memory stick containing the documents included in the electronic data room maintained by the [Sellers], an index of which is attached at Schedule [1] of the Disclosure Letter.

Greenhouse Gases (GHGs) means the natural and anthropogenic gases which trap thermal radiation in the earth’s atmosphere and as specified in Annex A to the Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) [or otherwise specified by the UNFCCC at the date of this agreement]. [These GHGs are currently: carbon dioxide (CO2), methane (CH4), nitrous oxide (N2O), hydrofluorocarbons (HFCs), perfluorocarbons (PFCs), sulphur hexafluoride (SF6), and nitrogen trifluoride (NF3)].

Material Climate Contracts means any contract, agreement, arrangement or similar between the Company and a third party that:

a) contributes to more than [5]% of the Company’s [Scope 2 [or] Scope 3] emissions;

b) a failure to perform by either party or a material breach by the counterparty could result in a material risk that the Company will not meet an interim target it has set as part of its Net Zero Target and/or exceed its Carbon Budget; or

c) is identified as an onerous contract or otherwise relates to a material risk on the climate change risk register referred to in clause 2.

Net Zero Target means a net reduction of Greenhouse Gas emissions from all operations [including value and supply chains] to zero by a specified date so there is a balance between sources and sinks of Greenhouse Gases in a calendar year and for each subsequent year thereafter.

Clauses

1. Details of:

1.1. how climate change issues are considered in the Company’s corporate strategy and Business Plan (including examples of where the Company has mapped against the United Nations Sustainable Development Goal 13 (Climate Action));

1.2. the Company’s Net Zero Target (if any);

1.3. the Company’s Carbon Budget (if any); and

1.4. if and how the Company assesses and discloses climate risks and opportunities with regard to the recommendations of the Task Force on Climate-related Financial Disclosure, 

are set out in the Disclosure Letter.

2. The Company has and maintains a climate change risk register (detailing (i) any known or reasonably foreseeable climate change risks to its business (including upstream in its supply chain and downstream in its value chain), (ii) possible legal, financial and commercial impacts of climate change on its business, and (iii) any mitigation measures of such impact which the Company could reasonably adopt) and is included in the Disclosure Bundle.

3. The Company has a board member or an executive committee who/which is primarily accountable for measurement, management and reporting on climate risks, and the Company’s Net Zero Target and Carbon Budget (if any), and details of the board member or executive committee are Disclosed.

4. Details of how the Board integrates climate change factors into decision-making are set out in the Disclosure Letter.

5. Copies of all Material Climate Contracts are included in the Disclosure Bundle and identified as such.

6. [Where the Company conducts its business online, the Company offers customers, at the point of sale, the option to offset the Carbon Footprint.] OR [Details of opportunities offered by the Company to its customers to offset the Carbon Footprint are set out in the Disclosure Letter.]

7. Details of the steps the Company takes to reduce, recycle and reuse its waste (including plastic waste) are set out in the Disclosure Letter.

8. Details of engagement activities which the Company undertakes to educate and consult with its employees regarding climate change issues within the business of the Company are set out in the Disclosure Letter.

Join hundreds of lawyers fighting climate change

Help us and take part