The Chancery Lane Project

Contracts are one of the easiest levers for accelerating decarbonisation goals. They provide clarity and certainty on climate expectations for both parties and turn voluntary targets into enforceable action. Just as corporate contracts integrate terms that govern delivery times, service specifications and price, climate considerations can be similarly incorporated. This is a practice known as climate contracting, where clauses that pertain to decarbonisation are inserted into contractual agreements and other legal documents.

Below, we’ve highlighted five simple steps that businesses can take to start their climate contracting journey and meet their net zero goals.

1.  Prioritise

The first step is to identify which contracts within the organisation represent the most carbon. Identifying the most carbon-intensive areas within a value chain is crucial in ensuring effective carbon savings and knowing which contracts to prioritise. This can be determined by a number of relevant factors, including industry, activity and geographical location.

Then, the expiration date of these contracts needs to be considered; the contracts with the closest expiration dates become primary targets for incorporating new climate clauses. A significant theme within climate contracting is time. The climate crisis requires fast and efficient climate action, so it is vital to seize windows of opportunity as they come.

2.  Determine which clauses can be added in

The type of climate clauses that can be integrated into a contract depend on the type of contract in question. There are a wide range of solutions available, such as requiring contracting parties to set Paris-aligned net zero targets to reporting greenhouse gas emissions, for example.

Ambitious organisations could go one step further by setting a carbon footprint target for the contract, with a specified yearly reduction rate.

And, compliance mechanisms can take many forms. Organisations may take a collaborative approach through an incentives regime that rewards contracting parties for outstripping climate targets. On the other hand, some organisations may need to insert a damages provision for persistent non-compliant parties.

Ultimately, it is important to begin at a realistic level appropriate for the industry, with incremental increases in climate ambition. Every supplier relationship is different and complex and will require its own approach. But, there are a wealth of options out there and these conversations can start now.

3.  Collaborate with your suppliers to secure buy-in

Climate contracting may be a new practice, especially to smaller organisations. Thus, to ensure cooperation, organisations should have these conversations with their contracting parties upfront. This could take the form of educational webinars, meetings to discuss climate clauses