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

An official wheels legal documents past the High Court in London. REUTERS/Toby Melville

June 14 - The global community has spent decades debating our climate goals. We have argued about whether climate change was even happening, what the goals should be, could they be achieved and who should pay for them. As the magnitude, ferocity and speed of the climate crisis unfolds, we have left very little time to build a bridge to take us to the climate goals set in the Paris Agreement. That is, we have left ourselves a tiny window to develop a climate strategy.

Many organisations today find themselves in the uncomfortable position of having set a net-zero goal but without knowing what to do to get there. Some steps are more obvious than others. Clearly, we all need to get our own house in order. Many organisations have focused on the obvious changes to bring down the greenhouse gas (GHG) emissions associated with running their offices and other working environments. While this work is essential, it misses a critical point: we need systemic change to how our organisations are run to reach net zero.

The Chancery Lane Project (TCLP) is a ground-breaking global collaboration of lawyers and sustainability professionals working to rewire contracts to tackle the climate crisis. The project, which is philanthropically funded, was born following 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 organise a climate hackathon that would bring lawyers together to draft climate wording to add to legal agreements and precedents. Matt’s vision (now also TCLP’s) is of a world where every contract is used to deliver the transition to net-zero emissions and a low carbon-economy.

With our community of more than 2,500 participants and 300 organisations globally, we have produced a suite of practical resources, including more than 100 free, open access-climate clauses that can be added to agreements and contract precedents to address the climate risks of transactions.

Contracts are a powerful tool to help deliver climate targets for the following reasons:

  • They are immediate. The speed with which climate change is happening means we can’t wait for policy, regulatory or legislative changes. Companies can hardwire a new way of doing business into their existing contract frameworks very quickly by deciding the greenhouse gas (GHG) savings or the climate action they need a specific contract to deliver, selecting one of TCLP’s clauses, and adding that wording to the agreement.
  • Contracts are flexible. Companies can build in both incentives and enforcement mechanisms to ensure their goals are delivered.
  • Contract law imposes a well understood and well-tested framework onto net-zero targets. This gives a reasonable degree of certainty to delivering them.

Most people use some form of contract during their working lives. Common contracts include in supply, procurement, employment, and finance and real estate agreements and so on. That means that nearly everyone has an opportunity to wire their organisation’s net-zero targets into their business operations.

Within a week of launching changes to its supply contracts, Salesforce suppliers started showing interest in adopting the TCLP drafting. REUTERS/Brendan McDermid

An increasing number of organisations (banks, communications companies, regulators and law firms) are using TCLP’s clauses to deliver their targets. We have published some case studies that describe how they got started on climate contracting. A great example of this is the TCLP-inspired wording that Salesforce added to its contracts with its suppliers. Salesforce’s annual supply chain expenditure falls in the billions.

Within the first week of launch of the changes to its supply contract, Salesforce began to see a ripple effect, with suppliers showing interest in adopting the drafting and cascading it through their own supply chains. A decision by Salesforce staff to change their contracts is having an impact around the world and shows the power that can be unleashed when we do our jobs differently.

Another example is NatWest, which added wording to its template supply contracts to incentivise reductions in Scope 3 emissions and promote positive sustainability behaviour. The new clauses require suppliers to take steps to improve their sustainability score, following the production of a scorecard by NatWest’s sustainability ratings partner. Failing to improve that 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 financed emissions (from loans and investment activities), assets under management as well as its own operational value chain.

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

Opinions expressed are those of the author. They do not reflect the views of Reuters News, which, under the Trust Principles, is committed to integrity, independence, and freedom from bias. Sustainable Business Review, a part of Reuters Professional, is owned by Thomson Reuters and operates independently of Reuters News.

Becky Clissmann is managing director at The Chancery Lane Project. She previously worked as an environmental lawyer and in the environment team at Practical Law. Before qualifying as a lawyer, Becky obtained extensive experience of climate change policy measures working for the Carbon Trust. Becky is also a busy mother of two.