Commentary: Why climate clauses in contracts are a powerful tool to reach net zero

A civil servant brings legal documents to the High Court in London. REUTERS/Toby Melville

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June 14 – The global community has spent decades debating our climate goals. We wondered if climate change was happening, what the targets should be, could they be achieved and who should pay the price. As the scale, ferocity and speed of the climate crisis unfold, we have been left with very little time to build a bridge that will take us to the climate goals set out in the Paris Agreement. In other words, we left ourselves a small window to develop a climate strategy.

Many organizations today find themselves in the uncomfortable position of having set a net zero goal but not knowing what to do to get there. Some steps are more obvious than others. Obviously, we all need to get our own house in order. Many organizations have focused on the obvious changes to reduce greenhouse gas (GHG) emissions associated with the operation of their offices and other work environments. While this work is essential, it misses a critical point: we need systemic change in the way our organizations are run to reach net zero.

The Chancery Lane Project (TCLP) is a groundbreaking global collaboration of lawyers and sustainability professionals working to rewire contracts to tackle the climate crisis. The project, which is funded by philanthropic funds, was born out of a London Climate Action Week event in 2019. I had a call with Matt Gingell, general counsel at impact investor Oxygen House, who was looking for someone to help organize a climate hackathon that would bring lawyers together to draft climate language to add to legal agreements and precedents. Matt’s vision (now also TCLP’s) is of a world where every contract is used to drive the transition to net zero emissions and a low carbon economy.

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With our community of over 2,500 participants and 300 organizations worldwide, we have produced a suite of practical resources, including over 100 free and open climate clauses that can be added to contractual agreements and precedents to address climate risk. transactions.

Contracts are a powerful tool to help achieve climate goals for the following reasons:

  • They are immediate. The speed with which climate change is occurring means that we cannot wait for policy, regulatory or legislative changes. Companies can very quickly integrate a new way of doing business into their existing contractual frameworks by deciding what greenhouse gas (GHG) savings or climate action they need for a specific contract, selecting the one of the TCLP clauses and adding that wording to the agreement. .
  • Contracts are flexible. Businesses can incorporate both incentives and enforcement mechanisms to ensure their goals are met.
  • Contract law imposes a well-understood and well-tested framework on net zero goals. This gives a reasonable degree of certainty to their delivery.

Most people use some form of contract during their working lives. Common contracts include supply, supply, employment, financing and real estate agreements, etc. This means that almost everyone has the opportunity to incorporate their organization’s net zero goals into their business operations.

Less than a week after launching changes to its supply contracts, Salesforce vendors began showing interest in adopting TCLP redaction. REUTERS/Brendan McDermid

A growing number of organizations (banks, communication companies, regulators and law firms) are using TCLP clauses to achieve their objectives. We have published a few case studies that describe how they got started in climate contracting. A good example of this is the TCLP-inspired language that Salesforce has added to its contracts with its vendors. Salesforce’s annual supply chain spend is in the billions.

Within the first week of rolling out changes to its supply contract, Salesforce began to see a ripple effect, with suppliers showing interest in adopting the drafting and rolling it out to their own supply chains. Salesforce people’s decision to change their contracts is impacting the world and shows the power that can be unleashed when we do our jobs differently.

Another example is NatWest, which has added language to its supply contract templates to encourage Scope 3 emissions reductions and promote positive sustainability behavior. The new clauses require suppliers to take action to improve their sustainability score, following the production of a scorecard by sustainability rating partner NatWest. Failure to improve this score over a period of time will allow NatWest to terminate the contract. Making these changes to its supply chain contracts is part of the bank’s net zero strategy, which covers its funded emissions (from lending and investing activities), assets under management as well as its own value chain. operational.

For me, the best thing about this project is that it empowers people to change the way they work to make meaningful changes that immediately benefit the climate. There is no need to retrain or change jobs. All it takes is a decision by each of us today to do something different.

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The opinions expressed are those of the author. They do not reflect the views of Reuters News, which is committed to integrity, independence and freedom from bias by principles of trust. Sustainable Business Review, part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.

Becky Clissman

Becky Clissmann is Managing Director of The Chancery Lane Project. Previously, she worked as an environmental lawyer and in the environmental team at Practical Law. Prior to becoming a lawyer, Becky gained extensive experience in climate change policy action working for the Carbon Trust. Becky is also a busy mother of two, trying to do things differently to make the world a less hostile place for future generations.