Climate Contract Playbook Edition 3
96
Specific tax advice should be taken on linking the loan note coupon or the conversion discount rate to business performance as this could result in the interest on the notes ceasing to be interest deductible. Depending on the context this may or may not be an issue as convertible loan notes are often used in early stage loss making businesses. The targets can be linked to established frameworks, e.g. ISO 14001:2015, and/or amended to align with the nature of a particular business or investor requirements. Consider requiring the provisions of Frank’s clause to be cascaded into the shareholder/investment agreement at conversion of the loan notes. The principles of the Climate Coupon and conditionality linked to Net Zero should be included in any Heads of Terms preceding the loan note instrument. The loan instrument can be subject to the setting of a Net Zero target or if time does not allow a covenant can be given. The Net Zero Target Date is aligned with UK government policy of 2050 but if possible, should be brought forward to 2030 to align with IPCC timelines and advances in our understanding of the climate science and carbon budgets. The drafting assumes Notes, Noteholders, Shares, Relevant Fund Raising etc will be defined as normal. The discounts applied can be varied to suit the noteholder and risk profile but for illustration in this example the money is 50% ‘cheaper’ if Net Zero Targets are hit. The Noteholders shares could convert into a preferential or senior share class if Net Zero Targets have not been met and ordinary shares if the Net Zero Targets have been achieved.
Notes for users
Additional Definitions
Climate Coupon Discount Rate: means a rate of [6] per cent simple interest per annum Climate Conversion Discount : shall mean a price per Share being [10] per cent lower than that offered to investors on a Relevant Fund Raising. Default Conversion Discount shall mean a price per Share being [20] per cent lower than that offered to investors on a Relevant Fund Raising. Default Interest Rate shall mean [12 ] per cent per annum, compounding monthly. Environmental Targets means: (a) the Company achieving the Net Zero Target; (b) the establishment by the Company of a sustainability committee as a committee of the Board chaired by a non-executive director with experience of improving sustainability and mitigating carbon footprint; (c) the purchase by the Company of electricity for its offices [and factory] on a green tariff that uses 100% renewable energy; [and] (d) [others as applicable to the business]. Net Zero Professional: an independent environmental or net zero consultant that specialises in the creation of Net Zero targets. Net Zero Target means that the balance between greenhouse gas emissions from all operations and greenhouse gas removals, accounted for by credits from either insetting or offsetting projects, is zero. Net Zero Target Date : means the date by which the Net Zero Target will be met, such date to be no later than [2050]
Made with FlippingBook - professional solution for displaying marketing and sales documents online