Model Clauses on Sustainability – A Key Tool in a Lawyer’s Arsenal

Colin Telford, Senior Legal Counsel, NatWest

The Climate Emergency is one of the key challenges facing our modern World. Most corporate organisations will have the transition to Net Zero as a key strategic goal. So if you are working “In House” you can expect to be asked how you can support that; you may well already have been put on the spot. 

Within our team we pride ourselves on being strategic lawyers and promote the importance of being customer centric in order to support a high-performance culture. Assisting the business in making supplier contracts more Sustainable is a perfect example of why that approach is required. Acting in isolation, an in-house legal team can’t be impactful in the climate space. An initial step must be speaking to others in the business in order to understand what the strategy is and what practical steps will be taken. 

For us, a key step was to upskill on key Sustainability issues. We had to learn that the requirement to report on Scope 3 Emissions means that as well as the goods and services which we purchase from a supplier, we also inherent and have to report on their carbon emissions. 

A key reason why legal can’t resolve issues in isolation is that contractual clauses are by their nature reactionary. Obligations are assigned to the parties and failure to meet an obligation may have consequences. However, the supplier selection process provides a key opportunity to assess how sustainable a potential supplier is and taking a proactive approach by selecting a more sustainable supplier rather than disregarding sustainability at that point and looking to manage through a supplier agreement. With that understood, we were able to have meaningful discussions with our colleagues in procurement about what NatWest was doing practically when selecting suppliers. 

Once a supplier has been selected, incorporating model contract clauses is a further opportunity to help ensure that a supplier is under an obligation to continue to work on sustainability.

In our case, it was important to agree what our preferred approach was so that we could tailor clauses accordingly. While it might be tempting to set clear demands of the Supplier on reductions of emissions etc. in order to make that “their problem”, we recognised that even with “good Suppliers” who have made it through our selection process, they will still have to go through a transition process and will require time to do that. 

We believe that we were the first Bank to include sustainability clauses in our Supplier agreements and that’s something that we take great pride in. The initial requirement is not overly onerous. We require suppliers to submit to an assessment with our sustainability ratings partner, agree an improvement plan with that partner and to make improvements over a period of 12 months. Repeated failure to make progress or non-cooperation would ultimately lead to a termination right for NatWest. 

For the moment we believe that is the right approach to take. It balances the need to work with Suppliers and to nudge them in the correct direction with the requirement to make sure that our approach does have “teeth” should a Supplier prove to be non-cooperative. We expect that our approach will evolve over time and that our sustainability clauses will become a darker shade of green in future when Suppliers and industries have become more sophisticated – and when the low hanging fruit has already been taken by them. 

Model clauses, and particularly those created by The Chancery Lane Project, are a brilliant weapon in a Lawyer’s arsenal. This is a technically complex area which is constantly changing and to have ready-made contractual solutions should prevent delay in companies taking action on Sustainability. 

To come back to where I started though, this cannot be “done by legal”. Model clauses should not be “dropped into” agreements unless there is confidence that they align with the processes and procedure which a company is deploying around Sustainability. A company must also have the expertise necessary in order to ensure that contractual obligations can be enforced by it.

Where the necessary groundwork has been done and a joined-up approach is ensured, model contractual clauses would allow for Legal professions to be a vital cog in the machinery allowing for organisations to make successful Net Zero transitions.