Climate-Aligned Contracts for In-House Counsel

In an exclusive Q&A session with Legalwise Seminars, Phoebe Roberts, Senior Associate in MinterEllison’s Climate & Sustainability Risk Governance Team, addresses key questions regarding Climate Aligned Contract Negotiation and Drafting for In-House Counsel. She will be presenting in March at the upcoming In-House Counsel Conference: Legal & Commercial Imperatives conference on this topic.

How would you briefly describe the current state of climate aligned contract negotiation?

In one word, maturing. Corporates are increasingly connecting the dots between their climate and sustainability ambitions, and the importance of their contractual arrangements reflecting and enabling those ambitions. Likewise, the understanding of the growing financial risks associated with climate and sustainability means that contracts are a key risk mitigation tool in the in-house ‘tool box’. Ensuring that your contracts are fit for purpose in a dynamic risk landscape is no longer a ‘nice to have’ – but central to prudent and forward looking organisational risk management.

Is it clear cut which drafting mechanisms to consider when drafting for climate?

Climate and sustainability risks and opportunities are different for every organisation – and impact on almost all contractual arrangements. These risks are complex. For example, there can be delay and damage to the supply of goods due to extreme weather events, changes in emission reduction laws and policies or shifts in consumer or market preferences. A tailored approach is required to ensure that the most pressing risks (and opportunities!) are considered, priced and allocated between the parties. Precedent approaches to risk do not adequately protect you from unprecedented risks.

What are some examples of climate clauses?

The Chancery Lane Project is a global collaboration of lawyers who publish open source climate-aligned clauses across a broad range of corporate transactions. The clause span governance, pre- contract diligence, insurance and financing, in addition to operative clauses across all key sectors. For example, in relation to supply chains:

• The Net Zero Standard for Suppliers (known as Matilda’s clause): This clause can be annexed to any supply agreement to cascade greenhouse gas emissions reporting and reduction obligations throughout the supply chain, to enable parties to meet their net zero targets and reduce their scope 3 emissions.
• SME’s Net Zero Objectives (known as David’s clause): This is a ‘plug and play’ clause for use by SMEs in a variety of contracts. The clause imposes mutual obligations on the parties to take steps towards net zero, with payment of a climate remediation fee for breach.
• Climate Change Due Diligence Questionnaire for Suppliers (known as Raphael’s Procurement DDQ): Customer procurement teams can appraise supplier approaches to climate-related risks and impacts and how well they align with the customer’s own climate strategy and targets.

What are some of the trends and developments you see ahead in the area of collaboration on a global scale?

Climate-adjusted contracting is a key way for inhouse legal and procurement teams to support their organisation’s transition to a low emissions economy. The Chancery Lane Project’s growing community of lawyers from over 113 countries demonstrates how corporate law is responding to this opportunity – and as a means of connecting with likeminded professionals who are passionate about using the power of law for good.

Phoebe Roberts is a Senior Associate in MinterEllison’s market leading Climate & Sustainability Risk Governance Team. Phoebe is also the Co-Lead of APAC and Director of Implementation at The Chancery Lane Project. Connect with Phoebe via LinkedIn.