Climate Contract Playbook Edition 3
11
[Hanley’s clause]
The Origin Story
Child’s name
Hanley’s clause
Full name
Climate change clauses for Heads of Terms
Practice Area / Sector
Universal
Heads of Terms for a commercial transaction or deal drive many of the workflows and set the tone and spirit of a negotiation. Precedent heads of terms do not include a section on climate change or the transition to net zero.
Issue
Incorporate a dedicated section into heads of terms precedents so that climate change issues become a key consideration for any deal team. This will be particularly relevant where one or both of the parties has a publicly stated net zero target. Heads of terms are commonly used in commercial transactions ² . They allow parties to focus on key issues to ensure time is used efficiently and to set the tone, scope and timetable of the transaction. It is rare to see sustainability or climate change issues represented on heads of terms. As such they are often overlooked or are only picked up by environmental lawyers as part of a wider legal due diligence review. Climate change risks are now a board issue 3 and as such should be given equal prominence in transactions. The clauses will ensure climate change is considered from the earliest part of a transaction and that carbon saving opportunities will become part of the due diligence exercise alongside the normal legal, financial, commercial and technical due diligence. It will also allow boards to demonstrate how climate change was considered as part of a transaction and thus potentially help mitigate future liability risk.
Solution
Context
Impact
1. Corporate finance houses 2. Banks 3. Precedent and know how providers 4. Professional support lawyers 5. Law firms and legal businesses
Stakeholders
The clauses will mean that a deal team will have to undertake specific due diligence relating to climate change issues and make known their position on these issues to the counterparty. This makes the evaluation and allo-cation of climate change risk a key part of any transaction.
Application
2 https://uk.practicallaw.thomsonreuters.com/0-107-6683?transitionType=Default&contextData=(sc.Default)&firstPage=true&bhcp=1 , https://uk.practicallaw.thomsonreuters.com/w-014-4519?view=hidealldraftingnotes 3 https://www.nortonrosefulbright.com/en/knowledge/publications/c528fde6/the-time-is-now---climate-risk-a-mandatory-issue-for-all-boards
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