Model clause

Target Product Carbon Footprint (Schedule for Consumer Goods Contracts)

Ming's Clause

A Target Product Carbon Footprint budget (which reduces over time) for each product manufactured and supplied pursuant to the contract.

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Why use this?

Many companies are committing to making their supply chain carbon-neutral - this schedule provides one practical way of doing so.

Parties will be incentivised to meet or reduce carbon emissions targets through rebates, discounts and adjustments to payment terms set out in their supply contract.

How it promotes a net zero future

This clause will drive change from the bottom up. Holistic decision-making that takes into account and internalises the cost of carbon emissions will drive a change in the behaviour and decision-making of contracting parties as they understand the “true” cost of their activity.

Contracting parties will need to be proactive, forward-looking and collaborative regarding the carbon emissions their relationship and activities are creating.

Customers will expect suppliers to demonstrate that they are ‘cheaper’, in financial - and carbon-emission terms.

The global supply chain will, by reason of economics, be compelled to de-carbonise. The shift in the private sector would also make it easier for governments and international organisations to legislate and regulate in accordance with these economic drivers.

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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.

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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

In this agreement:

“Actual Product Carbon Footprint” means the Scope 1, Scope 2 and Scope 3 Emissions of Greenhouse Gases (measured in CO2e) per Unit related, directly or indirectly, to the Provision of the Goods over the whole life of the Goods until delivery to the Customer.

“Carbon Adjustment Date” has the meaning given in clause [2].

“Carbon Footprint Report” means the report described in clause [5].

“CO2e” or “CO2-equivalent” means the standard metric measure used [by the UN’s Intergovernmental Panel on Climate Change (IPCC)] to compare various 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.].

“Due Date” means [[30] days [after delivery of Goods][, varied in accordance with clause [7], Variation in Payment Terms [applies if Option B used]] [as defined in the agreement].

“GHG Reporting Standard” means a standard for the measurement, reporting and management of Greenhouse Gases published by [the GHG Protocol / the International Standards Organization / the BSI Group / The Carbon Footprint Standard] [(from time to time)]. 

“Goods” means [the goods manufactured and supplied pursuant to this agreement and set out in the first column of the Product List] [as defined in the Agreement].

“Greenhouse Gases” or “GHGs” means the natural and anthropogenic gases which trap thermal radiation in the Earth’s atmosphere 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).]

“Price” means [the price of Goods set out in the third column of the Product List[, adjusted in accordance with clause 5, Variation in Price] [applies if Option A used]] [as defined in the Agreement].

“Product List” means the list set out at Schedule [X] of this agreement.

“Provision of the Goods” means the processes required to produce and deliver the Goods to the Customer, including but not limited to the extraction of raw materials, the manufacture, transportation, use, final re-use, recycling and disposal of the Goods.

“Reporting Date” has the meaning given in clause [4].

“Reporting Period” has the meaning given in clause [4].

“Scope 1, 2 and 3 Emissions” means the following classifications of Greenhouse Gas emissions: 

Scope 1 Emissions means all direct GHG emissions from the activities of [Company/Organisation] or under its control, including but not limited to on site fuel combustion and emissions from chemical production in owned or controlled process equipment, refrigerant losses and company vehicles. [Company/ Organisation specific examples may be added]. 

Scope 2 Emissions means all indirect GHG emissions from electricity purchased and used by [Company/Organisation] where the emissions occur at sources owned or controlled by another company. [Company/Organisation examples may be added]. 

Scope 3 Emissions means all indirect GHG emissions other than Scope 2 Emissions, that are a consequence of the activities of the [Company/ Organisation], but occur from sources not owned or controlled by [Company/Organisation], including but not limited to business travel, procurement, waste and water. [Company/Organisation specific examples may be added].

“Target Product Carbon Footprint” means the agreed maximum of Scope 1, 2 and 3 Emissions of Greenhouse Gases (measured in CO2e) per Unit related, directly or indirectly, to the Provision of the Goods over the whole life of the Goods until delivery to the Customer (“whole life” shall mean), set out in the fourth column of the Product List, which may be zero, a positive or a negative number.

“Unit” means the number of Goods set out in the second column of the Product List.

 

Recitals

(A) The parties acknowledge their common intention in the fulfilment of their obligations under this agreement is to minimise their impact on climate change by minimising the Greenhouse Gas emissions generated through the Provision of the Goods [by the Supplier and the purchase, receipt and use of those Goods by the Customer] pursuant to this agreement.

 

Additional Clauses

Price

1. On or before the Due Date, the Customer will pay the Supplier the Price for the Goods in accordance with clause [x] of the agreement. 

Automatic Target Product Carbon Footprint reduction

2. On [the [second], [fourth] and [sixth] anniversaries] OR each anniversary of the date] of this agreement during the Term (each a “Carbon Adjustment Date“), by the written consent of the Customer only the Target Product Carbon Footprint for each item of the Goods will automatically reduce* by [the percentage specified in Schedule [ ] OR [PERCENTAGE]% or any higher percentage that the parties agree in writing will apply from the applicable Carbon Adjustment Date. Starting at least three months before the applicable Carbon Adjustment Date, the parties will attempt in good faith to negotiate the highest percentage reduction that is reasonably achievable by the parties.

* [Drafting Note: for negotiation. Consider if this is intended to be cumulative year on year or a simple achieve and maintain for the life of the contract requirement.]

[Optional approaches**:

A. [Fixed percentage] [fifteen] percent ([15]%);  

B. [Rolling agreed percentage] a percentage higher than [fifteen] percent ([15]%) as the parties may agree within [three] ([3]) months prior to each Carbon Adjustment Date; or

C. [Fixed cascading percentages] by no less than the percentages shown in Schedule [X].]}

** [Drafting Note: These are more detailed approaches, which aren’t necessary as part of the above baseline and can always be agreed separately later on.]

Target Product Carbon Footprint change proposal

3. Either party may propose in writing at any time during the Term of this agreement that the Target Product Carbon Footprint is aligned to the Actual Product Carbon Footprint of the immediately preceding Reporting Period. The other party agrees to not unreasonably withhold its approval of the proposed alignment if the Actual Product Carbon Footprint during the immediately preceding Reporting Period is [20]% more or less than the Target Product Carbon Footprint.

Bi-Annual Product Carbon Footprint Report

4. Within [30] days of the end of each consecutive [six] month period from the date of this agreement during the Term (each, a “Reporting Period)(each a “Reporting Date”), the Supplier will provide a written Carbon Footprint Report to the Customer. The Carbon Footprint Report shall be audited by an independent accounting or audit firm. The Customer and Supplier will attempt to agree the appointment of that firm, but, if the parties cannot agree the appointment within 30 days or a request by either party, the Customer will (acting reasonably) choose the firm and the Supplier will cooperate with the appointed firm. The Customer and Supplier agree to share equally the costs of any independent accounting or audit firm engaged with respect to the Carbon Footprint Report. 

5. The Carbon Footprint Report must, at a minimum, set out:

A. the Actual Product Carbon Footprint of Goods manufactured and supplied to the Customer pursuant to this agreement in the relevant Reporting Period;

B. the specific GHG Reporting Standard used to calculate the Actual Product Carbon Footprint;

C. the industry best practices on managing and reducing Greenhouse Gases that have been applied by the Supplier during and prior to the Reporting Period; 

D. the reduction in Greenhouse Gases achieved measured against the Actual Product Carbon Footprints for each Good stated in previous Carbon Footprint Reports; 

E. the difference between Actual Product Carbon Footprint and Target Product Carbon Footprint of the Goods for that period; and

F. [insert any additional requirements].

[Option A: Customer receives a discount where carbon emissions exceed the Target Product Carbon Footprint and the Supplier receives a rebate where carbon emissions are less than the Target Product Carbon Footprint.]

Variation in Price

[6.] A. There will be no variation to the Price under this [clause OR schedule OR agreement] where the Actual Product Carbon Footprint of Goods is lower than, equal to or is within [1]% of the Target Product Carbon Footprint for those Goods.

[Optional approaches:]

[Option A1: Simple discount.  In this example, the Price is reduced by [5]% where the Target Product Carbon Footprint has been exceeded.]  [Where the Actual Product Carbon Footprint of Goods is higher than the applicable Target Product Carbon Footprint, the Price for those Goods will be adjusted by multiplying that Price by [0.95].] 

[Option A2: Matching discount.  The Price varies depending on the Actual Product Carbon Footprint of the Goods.]  [In relation to each Reporting Period, where the Actual Product Carbon Footprint of Goods exceeds their Target Product Carbon Footprint [by more than 1%], the Price for the affected Goods will be reduced with effect from the first day of the following Reporting Period by the same percentage amount by which the Actual Product Carbon Footprint for the Goods exceeds the Target Product Carbon Footprint for the Goods.  For example, if the Actual Product Carbon Footprint of Goods exceeds their Target Product Carbon Footprint by three percent (3%) of the Target Product Carbon Footprint, the Price will be reduced by three percent (3%).]

[Option A3: Simple rebate. The Price will be increased  by 2% where the Actual Product Carbon Footprint is less than the Target Product Carbon Footprint.] [Where the Actual Product Carbon Footprint of Goods is less than their Target Product Carbon Footprint, the Price will be adjusted by multiplying the Price by [1.02]. This adjustment will take effect on [DATE].] 

[Option A4: Matching rebate.The Price varies depending on the difference between Actual Product Carbon Footprint and Target Product Carbon Footprint of the Goods.] [Where the Actual Product Carbon Footprint of Goods is less than their Target Product Carbon Footprint [by at least 1%], the Price will be increased by the same percentage amount that the Actual Product Carbon Footprint for the Goods is less than the Target Product Carbon Footprint for the Goods. For example, if the Actual Product Carbon Footprint of Goods is less than their Target Product Carbon Footprint by three percent (3%) of the Target Product Carbon Footprint, the Price will be increased by three percent (3%).] This adjustment will take effect on [DATE].

B. Unless the relevant discount has been applied in the Price, any discounts, price adjustments or credits to which the Customer is entitled under clause [6A] are payable by the Supplier to the Customer in the manner determined by the Customer as follows:

[Optional approaches:] 

a. [on demand by the Customer;

b. as a credit on the account of the Customer; or 

c. may be withheld from any payment due from the Customer to the Supplier.] 

C. The Supplier is entitled to include any rebates to which the Supplier is entitled under clause [6A] as an additional charge in its next invoice issued by the Supplier to the Customer.

[Option B: Payment terms vary depending on the Actual Product Carbon Footprint of the Goods.]

Variation in Payment Terms

[7.] Starting from the [second] Reporting Period, the Due Date for payment of any Goods ordered in a Reporting Period will be adjusted with effect from the first day of each Reporting Period in accordance with the following table:

Actual Product Carbon Footprint of Goods as shown in the Carbon Footprint Report for the preceding Reporting Period Due Date
Less than [0.7] times the Target Product Carbon Footprint for the Goods  On delivery of the Goods.
Equal or more than [0.7] times the Target Product Carbon Footprint for the Goods but less then [1] times the Target Product Carbon Footprint for the Goods [15] days after delivery of the Goods.
Equal or more than [1] times the Target Product Carbon Footprint for the Goods but equal or less than the Target Product Carbon Footprint for the Goods. [30] days after delivery of the Goods.
More than the Target Product Carbon Footprint for the Goods but less than [1.2] times the Target Product Carbon Footprint for the Goods. [45] days after delivery of the Goods.
Equal or more than [1.2] times the Target Product Carbon Footprint for the Goods. [60] days after delivery of the Goods.

 

SCHEDULE

Product List

First Column: Item / SKU Second Column: Units   Third Column: Price ($)  Fourth Column: Target Product Carbon Footprint (CO2e) 

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