Climate Contract Playbook Edition 3
82
[Lauren’s clause]
The Origin Story
Child’s name
Lauren’s clause
Full name
Green Shareholders’ Agreement (Early Stage)
Practice Area / Sector
Corporate
Many companies and shareholders prioritise fast growth and maximum financial returns above all other considerations. This creates business strategies that ignore the consumption of Natural Capital and their impact on Climate Change. There is evidence that these companies also do not perform as well as those that have ESG matters as a core strategy 44 .
Issue
Amendments to a standard early stage shareholders’ agreement which (a) gives rights to investors in holding the company to account on climate change and sustainability issues; and (b) aligns all parties’ interests in the company achieving net zero by placing obligations on all shareholders.
Solution
We seem to be coming out of a period where purely fast growth and fast capital returns were prioritised above everything else. Investors and companies are starting to take a more “holistic” approach to early stage investing and the management of business 45 . It has been consistently shown that large companies that prioritise ESG issues outperform those that don’t 46 , and so this should be a consideration for all companies from the earliest possible opportunity and what better way than to enshrine this culture in the core corporate documents that drive shareholder behaviour and value. Sustainable investing is a growth market, and this solution extends that concept further in that by investing such a company the investor is also held to account in helping the company achieve its climate goals. Aligning shareholder rights and future value to environmental outcomes, would see companies and directors placing climate goals at the forefront of company strategy, but it would also encourage investors to (whether individuals or institutions) to monitor and incentivise achievement of climate goals as they are directly linked to the value of the shares.
Context
Impact
1. Angel investors and VC seed and pre-seed funds 2. BVCA 3. Private practice firms
Stakeholders
4. Impact investing groups 5. Early stage companies
44 https://hbr.org/2019/05/the-investor-revolution 45 https://www.cnbc.com/2019/12/14/your-complete-guide-to-socially-responsible-investing.html 46 https://hbr.org/2019/05/the-investor-revolution
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