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Tech & Sourcing @ Morgan Lewis

TECHNOLOGY, OUTSOURCING, AND COMMERCIAL TRANSACTIONS
NEWS FOR LAWYERS AND SOURCING PROFESSIONALS

The Chancery Lane Project, a UK-based nonprofit network of legal professionals, has published a “Net Zero Toolkit” to help organizations achieve net zero goals. The toolkit includes 100 “climate clauses” aligned with the 2015 Paris Agreement goals.

Coinciding with the United Nations' November 2021 Climate Change Conference of the Parties (COP26), the toolkit provides a timely prompt for organizations to consider how their commercial contracts, among other arrangements, could take account of the net zero transition.

WHAT IS THE TOOLKIT?

The toolkit contains suggested clauses available under English law and US law across multiple practice areas. In the foreword to the toolkit, former UK Supreme Court Justice Lord Robert Carnwath states that its purpose is to offer lawyers guidance and resources for the net zero transition.

Commercial clauses published in the toolkit include:

  • Recitals to frame a contract and the intentions of the parties in terms that are aligned with achieving net zero or net negative emissions and the Paris Agreement goals.
  • Climate-aligned practical steps organizations can require counterparties to take to transition to net zero.
  • Various contract clauses to address key issues for the net zero transition.
  • A due diligence questionnaire that asks potential suppliers to provide information on a wide range of climate-related issues.

WHAT CAN SUPPLIERS AND CUSTOMERS DO?

Typically, customers may require suppliers to comply with standards equivalent to the customers’ internal policies, which may include climate-related objectives. The toolkit contains more visible contractual tools that, depending on the sector, both suppliers and customers could find agreeable. Recitals could include a climate-related narrative of the agreement, for example, if services might involve producing high volumes of paper, international travel, or use of fossil-fueled power that both parties would like to minimize. The outsourcing of business processes or technology to jurisdictions with less stringent climate-related regulations could also be addressed with mutual, nonbinding commitments.

The toolkit suggests some creative, direct obligations for parties to consider, such as late payment remedies involving payments made either to a “green cause” or a carbon offset provider rather than solely interest paid to the nondefaulting party. For the design and supply of any products, customers could consider from the toolkit an obligation on manufacturers, whether as their counterparty or as a flow-down obligation, to embed "repair, reuse, and recycle" concepts in procurement and supply agreements. If a party considers that the performance of services could be modified in order to reduce their carbon footprint, the toolkit includes a mutual notification right (and parameters to that right) in order to facilitate such modification by agreement of the parties.

Other suggestions in the toolkit would require greater negotiation, including the so-called “high ambition” clauses, such as a termination right for climate-related reasons and carbon performance targets as part of continuous improvement obligations.

LOOKING AHEAD

Earlier this year, we highlighted developments from governments and public bodies around the world toward achieving net zero emission commitments. We also examined commitments by private corporations on corporate sustainability in order to reduce their emissions.

The suggestions in the toolkit could be a timely starting point for organizations to consider addressing climate-related issues with commercial counterparties, whether in the United Kingdom, the United States, or in other jurisdictions. As addressing climate change becomes more urgent on the global political and regulatory agenda, considering these issues now could present commercial relationships with a new, meaningful perspective.