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Using contracts to get to Net Zero

This chapter is from The Bundle: issue #4 - a quarterly, community-led publication that covers the latest need-to-knows by and for scaleup lawyers. Download The Bundle: issue #4 here for insights from Curve, Heineken, Beamery and more.

The Chancery Lane Project started from an achingly simple idea. In a world which needs fast action on climate, we lawyers don’t need to wait for the law to change - we can use contracts.

“Making things a contractual liability forces people to work out how to make it happen, because they are going to be contractually liable for making it happen”

Why contracts?

Contracts have a number of advantages for delivering climate targets. They’re fast, bespoke, and can be legally enforced using all the same mechanisms that you’d use for any other contractual obligation. They are also the ideal place to specify what you need in order to hit your goals.

When something goes into a document, that contract is reviewed, checked and priced. Many organizations have made ambitious climate pledges but are stumbling on the plan to implement them.

Making things a contractual liability forces people to work out how to make it happen, because they are going to be contractually liable for making it happen.

Every contract has a climate element, even if it is not immediately obvious - because climate touches every facet of human life, and therefore business operations.

Imagine if every process, legal document and contract that touched on value and profit, also talked about carbon reduction and climate change. The impact would be a fundamental shift in how we treat climate change.

We’ve set climate goals - what’s next?

Once an organization has set climate goals, then implementing and delivering them is the next step. It is also the hardest step, involving a total reimagining of plans and processes.

We have a number of tools in our Net Zero Toolkit that can help you gauge where your organization currently is, and map out where it needs to be. For example, if you assess your current carbon emissions, are you on target to meet the limit of 1.5 degrees of warming by 2050 in the Paris Agreement? Are you on target to hit 4 degrees of warming in 2040?

Once you have that big picture you can start to see how much carbon you need to cut and where the biggest impact will be in your business. Our clauses and documents can help along multiple stages of the journey:

Griff’s clause

This is actually a set of board minutes for reviewing major transactions. Most in-house lawyers will be familiar with the various internal governance processes for approving major deals. They usually involve a special board and various papers on risk. This sample board paper requires you to calculate the climate impact and carbon emissions of a major transaction before it is approved.

You can download the free template here.

Hanley’s heads of terms

We have a starter set of clauses which can be used to open dialogue about climate change but which carry little weight when it comes to legal enforcement, like Hanley’s heads of terms. These terms put climate change on the negotiating table, but are unlikely to incur additional costs or a green premium. Other examples include Kaia’s non-disclosure clause and Eddie’s Recitals.

“There’s a great opportunity to use clauses and even the tender process to identify which suppliers can help you meet your climate goals”

Owen’s clause

At the point of the final contract is where you can mandate carbon budgets for the contract, breach of which can lead to termination or penalties to be spent on buying offsets. Clauses such as Owen’s clause come into their own here.

These are the clauses where the carbon really starts to come out and where prices might go up, or attract the green premium as it’s becoming known.

Picking the right supplier for you

For lawyers dealing with supply chains and the tricky Scope 3 emissions they represent, there’s a great opportunity to use clauses and even the tender process to identify which suppliers can help you meet your climate goals. Raphael’s Due Diligence Questionnaire also offers a good set of starting questions to build into a tender. Maria’s Scorecard, shown below, is another great example.

Find out more

We run a number of free workshops on how to use climate clauses and overcome the barriers to implementation. Please sign up to our mailing list to keep up to date with new clauses and tools, case studies and workshops.

Supported with a lot of generously donated pro bono time, The Chancery Lane Project also now publishes over 100 clauses and a Net Zero Toolkit, all for free, to help everyone get clauses into contracts quickly and start getting carbon removed today.

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