In this series, we have explored a number of climate-related clauses published by The Chancery Lane Project. These range from climate-related drafting for commercial leases, construction contracts and commercial agreements, through to navigating the complex landscapes of climate related disputes, climate related financial disclosures and green procurement.
In this final instalment, we focus on the impact of the wider value chain and consider renewable energy requirements in supply contracts and the transparent sourcing of renewable energy.
Reducing emissions from electricity generation and using low-carbon electricity to power the UK economy is a key part to the Government's strategy to reach Net Zero - and the Government has made a commitment to have a fully decarbonised power system by 2035.
Against this backdrop and as organisations turn to evaluate and reduce their own carbon footprints, the need to be able to require suppliers and service providers to deliver energy from renewable sources is a key piece of the puzzle. Often clients find they are locked into existing supply or services contracts or have few contractual levers to ensure the energy they are receiving is from renewable sources. In other contexts, clients that are investing in or undertaking the development of renewable energy assets (including solar and wind farms or battery storage projects) are increasingly at risk of projects not delivering on carbon reduction requirements because of a lack of a robust approach to supply chain obligations.
The Chancery Lane Project has developed two clauses which seek to address these issues.
Viola's Clause requires the counterparty (whether that is a supplier or contractor) to procure all (or an agreed proportion) of its energy from wholly renewable sources during the term of its appointment. The clause aims to future proof contracts, meet funder, business or Government procurement requirements and promote alignment of Net Zero objectives across its value chain. The drafting is relatively straightforward and includes optional wording where the supplier/contractor needs to run a procurement process. Importantly, it also covers audit provisions and reporting obligations in order to promote transparency and accountability and paves the way for greater oversight of a business' energy supply chain.
In our view, the key benefits of the clause are simplicity and potential flexibility. For many organisations, the current objective is to gather emissions data from across their various suppliers. This isn’t always simple, particularly when dealing with smaller suppliers and cross-border organisations. This clause introduces that concept of transparency through the audit and reporting provisions which means requirements can be passed down the supply chain. The clause could also be expanded to cover other aspects of an organisation's indirect emissions – eg to require its supply chain to adopt sustainable waste strategies or commit to targets for the transition to zero-emission fleet vehicles.
Ayshe's clause goes further and draws together drafting from other TCLP precedent clauses (including the Green Supplier Agreement and Due Diligence Questionnaire) to tackle concerns around the carbon footprint and environmental impact of stakeholders involved in renewable energy technology supply chains.
The clause obliges developers, manufacturers, installers and contractors to reduce greenhouse gas emissions – and requires stakeholders to minimise environmental impact and safeguard against modern slavery.
The concepts of the drafting are useful – particularly in terms of issues to raise as part of a project due diligence process (e.g. on an acquisition). The clause also includes useful drafting which obliges developers to reduce the greenhouse gas emissions of the manufacturing, installation and construction of renewable energy assets. These general obligations could be adapted for use across a range of construction and infrastructure projects. The link to modern slavery is self-explanatory and is likely to be already covered separately in construction and operational contracts – but is helpful to highlight the wider ESG commitments.
In general terms, both clauses seek to address a gap in the existing legal framework around these issues, promote greater transparency and encourage the take up of renewable energy.
Well advised organisations are already looking at their supply chain contracts and building in suitable drafting to future-proof contracts and promote alignment of wider objectives such as Net Zero and achievement of ESG criteria. As highlighted throughout this series, the clauses published by The Chancery Lane Project provide a useful starting point, but need careful review and adaptation for use in a project-specific context.
