Climate Contract Playbook Edition 3
24
[Jessica’s clause]
The Origin Story
Child’s name
Jessica’s clause
Carbon contract clauses for environmental performance, and associated incentives and remedies
Full name
Practice Area / Sector
Commercial
While the climate and environmental impact of goods or services is increasingly important to business customers (including to meet their own greenhouse gas (GHG) targets), this is not being captured in their supply agreements. If a breach of contract causes or contributes to the customer to miss its GHG targets, this has negative climate impacts and may be hard to quantify and evidence the loss caused to the injured party in missing in their GHG targets. So, in effect, there may be no remedy available to the customer. Additionally, most contractual remedies (other than those triggering termination and suspension rights) are pecuniary in nature - there is no standard practice of alternative remedies or consideration given to options which are not designed to improve the financial position of the injured party. 1. Include climate considerations in standard contract drafting. 2. Include climate metrics for performance in all contracts. 3. Provide a mechanism akin to liquidated damages for breaches with negative climate impacts, in the form of a mandatory donation to appropriate non-profit organisation. This provides an alternative to pure cash compensation. Currently the carbon costs of producing goods or delivering services are not usually specified in contracts and, therefore, there is no incentive to reduce carbon emissions.
Issue
Solution
Context
Cascading environmental clauses which provide a remedy for breaches that impact a purchaser’s GHG targets and therefore that cause negative climate impacts should increase the speed of transition to net zero.
Impact
1. Public sector procurers 2. Trade (standards) bodies 3. Contractors 4. Investors 5. Precedent and know how providers 6. Professional Support lawyers 7. Law firms
Stakeholders
The supplier warrants it will meet certain targets for the climate and environmental impacts of delivering the goods or services under the agreement. If breached, the supplier must pay a climate remediation fee to a selected environmental charity.
Application
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