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Climate Contract Playbook Edition 3

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There appear to be two main options when drafting: • Include the obligation (or aspiration) to meet a certain environmental standard or specified climate change goals when meeting its other objectives. • Include that obligation and specify what its relation is to the company’s existing objectives and stakeholders – primary, equal, subsidiary. Depending on this choice, one of the company’s principal raisons d’être could be expressed as operating in an environmentally-conscious and indeed Paris- compliant way. The principal upside is that the directors are incentivised to act, thus it can change behaviour. Among the downsides: • The consequences of non-compliance could be significant for directors – and a deterrent to their joining or staying in post? • Objects clauses could be overridden by shareholders, though one might stipulate that the articles could in this respect only be changed by e.g. 90% approval, or this provision of the articles could be entrenched (section 22, CA 2006). • Shareholders of a solvent company could also authorise and ratify breach of directors’ duty and release directors from liability.

Application

Users may wish to consider reading: • George Goyder, ‘The Just Enterprise’ (1987) • Big Innovation Centre, ‘The Purposeful Company’ (2017)

Where the objects of a company have been specified in its articles, it may be necessary to set out the powers which the company may exercise in their pursuit.] A related approach may be to limit the powers of the company (and therefore the directors) in pursuing its main goal for example by express reference to engaging in, or not engaging in, specified behaviours. These could be generic, tailored to the company’s circumstances or both.] Climate or environmental standards referred to could be the Greenhouse Gas Protocol Corporate Accounting and Reporting Standard, Revised Edition 2015, the Principles on Climate Obligations for Enterprises, the OECD Guidelines for Multinational Enterprises or the UN Global Compact.

Notes for users

Example I: The objects of the Company are to [INSERTAS APPROPRIATE*] and, through its business and operations, to adopt OR engage with [INSERT PREFERRED CLIMATE OR ENVIRONMENTAL STANDARDS/GOALS] Example II: Directors’ General Authority: 1.1 Subject to the articles, the directors are responsible for the management of the company’s business, for which purpose they may exercise all the powers of the company. 1.1.2 The directors shall manage the company’s business in a manner that: (a) benefits wider society and the environment in a manner commensurate with the size of the company and the nature of its operations; and

(b)

reduces harms the company creates or costs it imposes on wider society or the environment, with the goal of eliminating any such harms and costs.

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