Climate Contract Playbook Edition 3
101
[Sienna’s clause] NEW
The Origin Story
Child’s name
Sienna’s clause
Full name
Green Acquisition Obligations
Practice Area / Sector
Corporate
Purchasers of ‘green’ companies may have no direct incentive to maintain the company’s green credentials or behaviours post-acquisition, despite the seller’s vision for that company.
Issue
A clause to be inserted into a Share Purchase Agreement (or Asset Purchase Agreement) requiring the purchaser to maintain/improve the target company’s green credentials post acquisition, linked to payment from escrow if successful.
Solution
Sellers that have invested heavily (financially, reputationally or otherwise) to create a green company will want the company to continue to trade as a green company (and improve how it trades as a green company) post-acquisition. Regardless of the assurances given by a purchaser on acquisition, sellers will have limited control over this post-acquisition. The clause can be linked to the payment mechanics under the Share Purchase Agreement (or Asset Purchase Agreement), specifically payments from escrow. For example, the purchaser pays 110% of the purchase price and if in a year/X years later, the company is still meeting/has improved on its green credentials then the seller pays back 10% (indexed) of the purchase price to the purchaser i.e. if the purchaser upgrades a fleet of vehicles from diesel to hybrid/EV in year 1, this could unlock the extra 10% payment from escrow.
Context
The clause will encourage and financially incentivise the purchaser to invest in the sustainability of the target company post-acquisition. It ensures that the seller’s vision for the company operating with due regard to the climate emergency is continued to be realised for a period of time post-acquisition.
Impact
1. Shareholders 2. Investors 3. Sustainability managers
4. Service providers and contractors 5. Precedent and know how providers 6. Professional support lawyers
Stakeholders
7. In-house legal counsel 8. Private practice firms
Application
Share or asset purchase agreements.
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