Get it in writing: A step-by-step guide for SMEs to take climate action via contracts, by The Chancery Lane Project.
by Leonie Brabant, Associate at The [Chancery Lane] Project.
This article is guest written by Leonie Brabant, Associate at The [Chancery Lane] Project.
As agile and innovative organisations, small and medium-sized enterprises (SMEs) can take immediate action to reduce emissions and reach climate targets. Businesses need to demonstrate climate awareness and deliver net zero emissions targets through measurable action. Yet, whilst SMEs are aware of the importance of climate action, many struggle to understand where to make changes to create impact.
The Chancery Lane Project’s (TCLP’s) free climate clauses provide a solution to these challenges. These clauses can be added into contracts to address climate issues and help the parties achieve their emissions targets.
The power of a contract to meet environmental targets
Contracts are at the heart of business. Companies are governed by Articles of Association. Employees are engaged with an employment contract and according to the guidelines in an employee handbook. New suppliers sign a supply agreement that outlines the terms of the relationship.
Currently, the majority of legal agreements lock companies in to business-as-usual scenarios and discourage action that could reduce negative environmental impacts. What would be the impact if each of these agreements considered the climate? What if each contract was aligned with your greenhouse gas (GHG) emissions targets? This would rewire transactions to tackle climate impacts, and climate considerations would shape decision making throughout the organisation.
The Chancery Lane Project: Climate Clauses
The Chancery Lane Project’s mission is to provide contract clauses that consider the climate and embed climate solutions throughout an organisation. The project convenes lawyers and other professionals from around the world to draft contract clauses that can be added to agreements to enable immediate action on climate change.
Their 100+ clauses are free to download and use. They can be added to agreements without amendment or tailored to your organisation’s specific requirements. You do not need to be a lawyer to understand the benefits the clauses can provide. The clauses cover a wide variety of legal agreements, from employment contracts and company articles to supply chain and finance agreements.
How can you use them?
There are 5 suggested steps to take:
So, what clauses could you explore?
The following sections cover three clauses that will help you to improve your internal climate strategy, followed by three clauses that look at your supply chain.
👉 Building a climate strategy for your organisation
Set a net zero target
Lila’s Clause: Board Paper for Implementing Net Zero for SMEs
A net zero target should consider scope 1, 2 and 3 emissions, build in interim targets, and include reporting and disclosure frameworks. Lila’s Clause provides a paper to brief a board on setting a net zero target and a decarbonisation strategy. (Look out for the video linked in the clause to explain what a good net zero plan looks like).
Ensure all employees receive climate and GHG emissions education
Athena’s Clause: Employee Climate Engagement Provisions
Employee engagement and empowerment can catalyse climate action throughout your business. Adding Athena’s Clause to employment contracts will ensure that all employees receive climate change education, enabling teams to make informed decisions on reducing emissions and find innovative ways to reduce emissions from the bottom up.
Embed climate action at the heart of your business
Ragnar’s Clause: Green Company Articles
Any company who has set net zero targets, is a registered BCorp or has signed up to the UNFCC Race to Zero campaign must be able to demonstrate their ambition with action. Adopting Green Articles demonstrates a clear corporate commitment to reducing climate impact, generating brand loyalty, attracting business partners and even increasing investment interest.
👉 What about your suppliers? (Scope 3 emissions)
Many businesses have set or are setting net zero targets. Many find Scope 3 emissions (indirect emissions associated with supply or value chains) difficult to measure and reduce due to lack of data and transparency. It is important to know your suppliers and their environmental impact, and then work together to reduce emissions and reach mutual climate targets.
Carry out due diligence on a supplier’s emissions and climate targets
Raphael’s Procurement Due Diligence Questionnaire for Suppliers
Knowing a supplier’s emissions empowers both parties to work collaboratively to achieve mutual emissions reductions. Raphael’s Procurement DDQ provides a framework to assess potential suppliers on factors such as their Net Zero Target, sustainability policy, emissions, climate change risk register, and offsetting plans.
You may also find it helpful to think about how you would answer these questions. Are you thinking about these issues? What steps are you taking to meet such obligations? If you are a supplier, you may start to receive questionnaires like these more frequently.
Set a carbon budget for individual products
Ming’s Clause: Target Product Carbon Footprint
A net zero goal can be as granular as setting targets for individual goods. Ming’s Clause requires parties to set a carbon budget for each product and reduce the budget year on year, to ensure that emissions are removed from the bottom-up.
With an exponential increase in the number of ‘conscious consumers’ who have greater climate awareness, customers are demanding transparency in the production of goods and are willing to switch to other brands if products are not up to scratch.
Reduce single use plastic throughout your supply chain
Alice’s Clause: Reduction of CO2 from Single Use Plastic
Not only does the production of plastic create excessive amounts of waste, but its carbon intensity is now set to emit more greenhouse gases than coal power plants by 2030. Alice’s clause sets a financial incentive for suppliers to reduce the use of single use plastic.
Explore the clauses on TCLP’s website. Which ones are most appropriate for you? You can search for key terms and sort by business type and sector to find the relevant clauses.
Would you like to learn more about net zero in contracts or see the clauses in practice? Attend an ‘Introduction to Climate Clauses’ event, covering all levels of climate knowledge and experience.
Create a roadmap to incorporate net zero clauses in your contracts. Who is responsible for managing this process? How will you communicate changes internally and with your supply chain? Is this a collaborative process?
Tailor TCLP’s clauses to suit your organisation’s climate goals and insert them into your contracts. We recommend obtaining legal advice before making changes to your contracts. Bring your lawyer along to one of TCLP’s events.
About The Author: Leonie Brabant is an Associate at The [Chancery Lane] Project. She is simultaneously finishing her LPC qualification, and will be starting her training contract at Bates Wells in 2023.