Climate Contract Playbook Edition 3
98
[Zack’s clause] NEW
The Origin Story
Child’s name
Zack’s clause
Full name
SPA/Investment Agreement Disclosure of Climate Change Plans
Practice Area / Sector
Corporate
The commercial imperative for an investment or corporate deal often overrides climate considerations. As such there is a perceived lack of engagement of directors and managers in businesses to implement and work towards a net zero emissions economy.
Issue
By including pro-active disclosure requirements in M&A or investment transactions, it brings climate targets and aims to the forefront of both the minds of management of the target and the buyer/investors.
Solution
In current transactions and in the context of granting warranties, it is usual for a seller or management of a company to ‘confirm’ that the company adheres to environmental and social regulations which apply to the relevant company, but there is no obligation on them to disclose/explain their plan for reaching a net zero emissions in their business (or what steps they have taken to date). The UK has enshrined into law a 2050 net zero target, meaning that businesses that operate the UK will need to transition to net zero to continue to survive and thrive in the UK economy. Other jurisdictions have net zero targets in law or policy, as governments take steps to implement the net zero goal in the Paris Agreement. By including forced climate disclosure warranties in a share purchase agreement or investment agreement, a buyer or investor can assess the climate risks of the target. If the target discloses that it has not engaged in any actions to reduce its emissions/ does not have a net zero emissions plan in its business, then this could potentially negatively impact on price (resulting in management of the target taking a more proactive approach to climate matters).
Context
Impact
1. Directors/Shareholders 2. Professional Support Lawyers 3. Precedent and Know-How Providers
Stakeholders
4. Private Practice Firms 5. Corporate Financiers
Application
These disclosure clauses can be used alongside the Harry & Lola’s DDQ.
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