Climate Contract Playbook Edition 3
67
[Arlo’s clause]
The Origin Story
Child’s name
Arlo’s clause
Full name
Draft Paris-compliant objects clause for use in company’s articles of association
Practice Area / Sector
Corporate
The historic legal requirement for companies to constitutionally state their objects, and to abide by that statement, was removed by the Companies Act 2006 (CA 2006). It was regarded as redundant in the light of previous legal changes to place a company’s capacity beyond challenge as ultra vires. There is a concern that companies’ activities have negative climate impacts and are not consistent with the goals of the Paris Agreement. While it is no longer possible to insert an objects clause into a company’s memorandum of association, it is possible to do so in its articles. This could appear as an option in a firm’s precedents or on an open source basis. The default position is that a company’s objects are unrestricted unless its articles specify otherwise (section 31(1), CA 2006). This draft objects or general-purpose clause is appropriate for inclusion in an SPV (or any) company’s articles of association in order to concentrate its stakeholders’ (including directors’) minds on the importance of making sure that the company’s activities proceed in an environmentally-appropriate and Paris-compliant manner.
Issue
Solution
Legal services providers, including law firms and company formation agents, are a prime source of documentation and advice when adopting or amending a company’s constitution.
Context
The principal upside of this approach from the point of view of addressing climate risks and impacts is that: • It alerts clients potentially from the very beginning of the enterprise to the need to prioritise addressing climate risks to and impacts of the enterprise. • If an objects clause is inserted in the articles, it incentivises directors to act – they risk personal liability if they fail to act in accordance with their company’s constitution ( section 171, CA 2006 ). Thus, a newly-framed objects clause giving appropriate weight to the environmental challenges that face us could have an extraordinary impact.
Impact
1. Private practice firms 2. Precedent and know how providers
3. Professional support lawyers 4. Company formation agents 5. Investor/shareholder bodies 6. Professional associations of General Counsels
Stakeholders
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