Climate Contract Playbook Edition 3
20
[Annie’s clause]
The Origin Story
Child’s name
Annie’s clause
Full name
Green Termination Provision (short form)
Practice Area / Sector
Commercial
Not being able to move to greener suppliers to achieve net zero or other sustainability targets because of the contractual consequences in doing so.
Issue
A clause that allows a right of termination for a customer so that they can pivot to a greener supplier to meet their sustainability, climate or other environmental objectives. See also Agatha’s Clause. Many businesses sign long term supply or other business relationships in order to achieve certainty and value. However, once tied in it is often difficult to terminate without financial consequence. This becomes a problem if a business or organisation has stated a net zero target or declared a climate change emergency and the incumbent counterparty is either a high carbon user or not aligned with a customer’s objectives. If a supplier is “greenwashing” and this becomes publicly acknowledged, then this will reflect on the customer and becomes a reputational issue as well. The clause will allow a customer the ability to move suppliers in order to achieve its environmental aims. This should increase the likelihood of achieving net zero and other environmental targets that are set. It should also mean that the incumbent supplier will seek to ensure that it improves its carbon footprint and sustainability to ensure the contract is not terminated. The key stakeholders that you think need to be engaged to deliver this Impact 1. Procurement teams 2. Contract managers 3. In house lawyers 4. Sustainability managers 5. Precedent and know how providers 6. Professional support lawyers 7. Private practice firms The proposed amendments will mean that a contract can be terminated in a narrow set of environmental circumstances. The requirement of good faith and reasonableness may help to ensure that the clause is only used to meet climate goals and not for commercial convenience. Can be added to the standard termination clause or standalone. This clause does not specifically deal with payments or other consequences that may apply on termination. Users of this clause will need to check the agreement carefully and ensure that the exercise of this clause does not trigger, for example, the payment of minimum purchases, cancellation fees or capital expenditure reimbursement. See [Agatha’s clause] above for an example clause that does address this issue (the final sub-clause).
Solution
Context
Impact
Stakeholders
Application
Notes for users
Made with FlippingBook - professional solution for displaying marketing and sales documents online