Wendy Miles QC of Twenty Essex discusses legal considerations of the transition to net zero
As the UK COP26 Presidency gathers momentum toward the November 2021 Glasgow COP, non-party participants from all sectors of business, industry and non-public enterprise are stepping up to join the UNFCCC Race to Zero.
The Race to Zero campaign seeks to rally leadership and support across businesses, cities, regions, investors. The goal is to achieve a healthy, resilient, zero carbon recovery that prevents future threats, creates decent jobs, and unlocks inclusive, sustainable growth. The UNFCCC Race to Zero Climate Action Pathways comprise comprehensive roadmaps to achieve the goals of the Paris Agreement across sectors.
The legal instrument most readily available to the private sector is the contract
Sectoral transition requires a response across sectors from government, cities, regions and private business and industry. A key instrument to facilitate and accelerate transition is the law. The legal industry has a critical role to play in mobilising the law to help achieve the Race to Zero goals and ambitions set by public and non-public actors alike.
International law agreements such as the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement set globally agreed decarbonisation goals. Other international treaties separately deal with environment, trade, investment, aviation and shipping, intellectual property and human rights. All govern relations between states. All may be utilised to contribute to achieving global objectives across sectors.
At state level, individual governments, and to some extent cities and regions, have the power to accelerate change through policy, regulation and legislation. Civil society pressures governments to increase ambition through democratic process and, in some cases, legal proceedings holding them to account for climate goals.
The legal instrument most readily available to the private sector is the contract. In its provision of services to business and industry, the ICC, through its Commission on Commercial Law and Practice, has contributed to the development of standard industry model contracts and clauses. Private commercial lawyers, both within law firms and inhouse, negotiate, implement and enforce contracts day-to-day. These contracts are the connective tissue that bind sector relationships and systems together to enable the wheels of commerce to continue to turn.
The ICC Commission and Court of Arbitration play an instrumental and world leading role in the enforcement of contracts through dispute resolution outside national courts.
Commercial contracts offer a means by which private sector can drive the upgrade of sectors of the global economy to deliver a healthy, resilient, zero-carbon future and whole-economy transformation, including in harder to abate sectors. Contracts govern each and every relationship that provides a good or service within business and industry. These include but are not limited to goods and services for the purpose of financing and investment, procurement, infrastructure, manufacturing, technology sharing, trading, insurance and retail. Most modern contracts are based on standard form industry precedents that have developed within sectors and industries. As commercial parties seek certainty, standard form contracts tend not to change dramatically over time.
As private sector moves through transition, lawyers are already engaged in drafting new instruments or suites of contracts for sale and purchase of new kinds of goods and services. Banks are innovating in the provision of new ‘green’ financial services products, such as new green bonds. Industry groups like Terrawatt have partnered with the International Renewable Energy Agency (IRENA) to develop a suite of supply and demand side solar power contracts. Currently Standard Chartered Bank and McKinsey are working on controls required to scale up voluntary carbon markets, and in that context examining the role of harmonized contractual standards and primary and secondary trading instruments.
The contractual territory that remains relatively untouched is the body of existing and long-established contractual instruments that govern standard and existing private law relations. Just as financial institutions have been encouraged to shift focus from ‘green finance’ (new ‘green’ products) to ‘financing green’ (standard banking services that align with customer climate goals), commercial legal services is capable of a similar transition. Commercial lawyers, in law firms and inhouse, have the skills, the tools and the talent to innovate not just in designing new products but in transforming existing standard form legal contracts into instruments that enable the contracting parties better to align with, facilitate and accelerate transition within their sectors, in accordance with their own stated net zero ambitions.
Commercial lawyers can help convert net zero ambitions into net zero obligations.
Like much of the Climate Action Pathways roadmaps, this exercise cannot be conducted in a vacuum. It requires coalition and cooperation across expertise and disciplines, across sectors. The Mission Possible Partnership, run by a lawyer, is already working on tools to design and execute net zero pathways for harder to abate industries, including across their customers, suppliers and capital providers. Other industry groups are undertaking similar exercise. For each of them, ultimately, the pathway will take them to the contracts. Commercial contracts are indeed the connective tissue within systems and will be instrumental in their transition.
Commercial lawyers are increasingly acknowledging this opportunity and imperative. There is no single approach or answer, save to ensure that commercial lawyers are engaged as much as possible in the Race to Zero and in the journey to COP26. The UK, and in particular the City of London, is headquarters to some of the largest law firms in the world. These firms have tremendous global footprint and potential impact. London dispute resolution is world renown, both the court system and as a seat for international commercial arbitration. English law remains one of the single most popular choice of governing law in international agreements across sectors.
CEOs should be alert to the opportunity to harness the extraordinary resource of commercial legal services both in law firms and inhouse and deploy it to help implement individual business transition plans as well as broader sectoral transition. The flip side is that those same lawyers have the expertise to assist businesses to manage risk in this new and uncertain emerging landscape of transition to net zero.