New clause: Gain-share incentive for reducing GHG emissions

What does the clause do?

[Jess and Rory’s Clause] sets out a powerful new incentivisation mechanism for counterparties to reduce greenhouse gas emissions during a contract. A major public sector infrastructure project has been using this clause for some time, with great success. The legal team who wrote the clause have anonymised it, creating template wording and permitting TLCP to share it with our community as Jess & Rory’s Clause.

How does it achieve this? 

This clause incentivises a counterparty to reduce greenhouse gas emissions in exchange for a gain-share payment calculated by reference to the value of the goods or services provided under the contract. 

The supplier produces (or commissions) a report assessing the emissions attributable to the contract and therefore the level and reduction of greenhouse gases. This allows both parties to better understand the emissions produced by their operations and take the necessary steps to deal with them. 

Why is the clause needed? 

Receiving a gain-share payment in exchange for reducing greenhouse gas emissions during the term of a contract is a powerful incentive for a contracting party to decarbonise – especially in sectors that operate on narrow margins (like construction) or commercial environments undergoing aggressive cost savings. Using this clause helps organisations to decarbonise at pace and scale. 

Dan Summers, who developed Jess & Rory’s Clause whilst working as a Senior Lawyer at the Environment Agency, comments:

Jess & Rory’s Clause aims to provide suppliers with a tangible incentive to reduce their carbon emissions, rather than a punishment if they do not. At the same time, it gives the customer reductions at a discounted rate compared to offsetting, whilst helping them to gather information about the emissions caused by their activities. In this way, the clause takes a holistic and collaborative approach to addressing climate change, by incentivising both contract parties to understand and act on their carbon footprint.

Where can I find out more? 

Click here to see our library of climate clauses and here to view Jess and Rory’s Clause in full. To keep up to date with our events and activities, sign up to our newsletter here