Climate Contract Playbook Edition 3
74
[Frank’s clause]
The Origin Story
Child’s name
Frank’s clause
Full name
Green Investment Obligations
Practice Area / Sector
Corporate, Venture Capital, Private Equity
Climate Risk is Investment Risk 39 . Additionally, investors often want to understand and manage the climate impacts of their investments. Investors in private companies often hold significant influence and control over an investee company through the investment agreements, yet are not currently using this to mitigate climate risks or manage climate impacts of the companies and therefore their investments. Amendments to standard non leveraged investment documents to focus the founders and investee company on climate change and environmental issues with their products, services, and operations. There is growing interest 40 in responsible investing from mainstream investors yet there is significant shortfall in funding and investment to meet the UN Sustainable Development Goals 41 . The clause will ensure environmental obligations are cascaded through the investment documentation so the investors can assess climate risks and demonstrate climate impact. In should also make the investee company more resilient to the Climate Change Risks articulated by the Bank of England. The key stakeholders that you think need to be engaged to deliver this Impact 1. British Venture Capital Association 2. Corporate financiers
Issue
Solution
Context
Impact
Stakeholders
3. Global Impact Investing Network 4. Precedent and know how providers 5. Professional support lawyers 6. Private practice firms
The proposed amendments will mean that a company and founder will have various obligations in relation to climate risk and sustainability reporting. This puts environmental and climate change issues front and centre of the investment and the development of the investee company’s business. The investment could be contingent on adding in a purpose to the articles of association that are likely to be amended as part of the investment round. This could also be achieved through the option to obtain B Corporation certification. The company purposes can be re-prioritised and given different emphasis according to the investor requirements.
Application
Notes for users
39 https://www.blackrock.com/corporate/investor-relations/larry-fink-ceo-letter 40 https://home.kpmg/xx/en/home/insights/2019/03/the-rise-of-responsible-investment-fs.html 41 https://www.undp.org/content/undp/en/home/blog/2017/7/13/What-kind-of-blender-do-we-need-to-finance-the-SDGs-.html
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