Sunset clauses

The past few years have seen an intensification of extreme weather events with huge destructive force – from severe storms to record-breaking temperatures. Almost everyone accepts that these are the result of a warming planet, and that the cause is human behaviour. ‘We are in an existential crisis,’ reflects David Hunter, senior counsel at Bates Wells. ‘We all need to be doing all we can.’

The Paris Climate Agreement, adopted by 196 countries at the UN Climate Change Conference (COP21) in 2015, was a landmark moment. For the first time, countries came together in a binding agreement to combat climate change, and keep the global temperature rise this century to 1.5C.

In May, the World Meteorological Organization gave the dire prediction that the likelihood that temperatures would break the 1.5C threshold was now 66%.

‘It can feel overwhelming,’ Hunter says, ‘but there is something that we as lawyers can do collectively.’

And, indeed, lawyers have begun to act, along with the rest of society. Climate pledges have been signed and financial commitments made to ensure that the road to net zero by 2050, as set out in legislation and regulation, can become a reality.

Against this backdrop, last week’s decision by the government to redraw the parameters on climate change targets was met with widespread dismay, and in some cases outright disbelief, among business leaders.

Hunter expresses the mood of many in response to the government’s political curve ball: ‘What springs to mind immediately is that all those meaningfully engaged with the issues raised by the heating climate – whether scientists, policy makers, financiers, business leaders or lawyers – know that they do not go away just because some politician chooses to ignore them out of personal expediency. It is a deeply frustrating and morally questionable stance, but one which will only affect those serious about creating a liveable future to the extent that it is one more bump on the road.’

As a signatory to Legal Charter 1.5, which is designed to support law firms responding to the climate crisis, Bates Wells, along with a growing body of other law firms, has become increasingly aware of the role of the legal profession in responding to climate change. The Charter, developed by a group of corporate and commercial law firms, commits signatories to a set of core principles aimed at reducing greenhouse gas emissions at the speed and scale needed to limit global heating to 1.5C.

Lawyers directly involved in mapping a road to net zero are clear: the law is driving changes. They also note that the legal framework is now moving from voluntary to mandatory. And that is driving clients’ concerns.

'The guidance was introduced as a response to the Law Society Resolution on Climate Change, recognising that there was a climate emergency, and the law and lawyers have a significant role to play'

Caroline May, Norton Rose Fulbright

In the summer, the Law Society launched its guidance on the impact of climate change on solicitors. Caroline May, chair of the working group on climate change, explained the background to the guidance on Radio 4’s Law in Action: ‘The guidance was introduced as a response to the Law Society Resolution on Climate Change, recognising that there was a climate emergency, and the law and lawyers have a significant role to play… looking at how it may impact their practices and their day-to-day business, but also more importantly, how they advise their clients, and the framework in which they are operating. What our guidance does is recognise climate change as having an impact on solicitors’ advice.’ 

While the Greenhouse Gas Protocol references three well-established markers, scopes 1 to 3, ‘scope 4 emissions’, or ‘advised emissions’, have come under increasing scrutiny among clients and lawyers at the cutting edge of sustainability initiatives.

One of the eight charter principles of Legal Charter 1.5 references finding a methodology on advised emissions. At paragraph 4, the guidance notes that: ‘For lawyers, the most significant [greenhouse gas] emissions associated with your organisation are likely to be the matters upon which they advise.’

When deciding whether to advise or not, the guidance provides a reminder: ‘The principle of access to justice and the right to legal representation are fundamental aspects of our legal system… solicitors are not obliged to provide advice to every prospective client that seeks it… Climate-related issues may be valid considerations in determining whether to act.’ These include any potential impact on a firm’s reputation and ‘a client’s willingness to engage in such issues’.

While the guidance is clear that solicitors have ‘wide discretion’ on whether to act in such instances, some argue that not only is the guidance advisory, but that consideration needs to be given to the SRA Principles.

May told Law in Action: ‘We have a framework of environmental law in this country, and obviously if environmental damage is caused it will lead to prosecution, but I think there is a tendency in this debate to be slightly over-simplistic. If we are going to deliver the energy transition, and changes that are necessary to reach net zero, and the commitments that parliament has made, we are going to need all sectors, and particularly the energy sector, to develop new solutions… they are an important part of this transition. Demonising a sector is not going to help drive the investment that is necessary. In reality, the energy companies are the ones that will be leading the charge with the energy transition, because they have the structures and frameworks in place to deliver what’s needed.’

A clause-by-clause approach

Working with clients to enable a ‘just transition, so these advised emissions reduce over time in a manner that is consistent with scientifically supported targets’, may be one way of responding to the increasing scrutiny around advised emissions, notes the Law Society guidance.

The Chancery Lane Project (TCLP) provides legal and sustainability professionals with the contractual tools to play a part in making this transition, clause by clause. The project uses what it calls ‘the power of climate contracting to deliver fast and fair decarbonisation’. Its resources include more than 100 free, open-access ‘climate clauses’ that can be inserted into agreements and contract precedents, covering common climate obligations, including everything from setting decarbonisation targets to measuring and reporting on emissions.

‘When people think of law and climate change, they think of litigation and regulation,’ says Becky Annison, head of engagement at TCLP. She adds that when the idea for TCLP first emerged, there was no blueprint for what climate clauses would look like.

‘The biggest change between then and now is that people have started using the clauses. In three years, we have gone from people not even using climate clauses in their contracts, to large organisations keeping them in their precedent bank: NatWest and Salesforce have used them in their supply chain contracts, and the Environment Agency,’ she continues.

'The finance sector has the Partnership for Carbon Accounting Financials, which is a methodology for measuring financed emissions. If the banks are doing it, why aren’t accountants and lawyers?'

Matthew Gingell, Oxygen House

Oxygen House, a business which focuses on impact investment, recently launched a white paper with a suggested framework for measuring advised emissions for law firms. Matthew Gingell, general counsel at Oxygen House, and founder and chair of the TCLP, explains the premise behind it: ‘Historically, we’ve partnered with law firms, and entered into sustainability partnerships with them, but a couple of years ago we started thinking: what’s the next step? We want to be able to report to our board that the legal services we buy are from a firm that recognises the transition to net zero and is not hindering it. We’re not saying don’t act for certain clients, but we want to be able to report back that they are doing more good than bad.’

‘The finance sector has the [Partnership for Carbon Accounting Financials], which is a methodology for measuring financed emissions. If the banks are doing it, why aren’t accountants and lawyers?’ he asks. ‘The methodology we’ve used has a very simple first step, and then a more complicated one. It isn’t perfect, but we have put something out to spark conversations to see whether we can have some standardisation.’

Lawyers can have an important role to play in the climate change conversation, Hunter says: ‘The first step is to understand that, while historically the temptation would be to draw a narrower boundary around our responsibilities, we as lawyers can have a positive impact here. Drafting contracts is something that we lawyers are used to doing day in and day out. Addressing things in a granular way through contract drafting is quite an easy way for us to use our skills to do something quite tangible.’

How receptive clients are to such additions to their agreements varies, he admits: ‘Typically, our clients have half an eye or both eyes on purpose and impact. Quite a lot of them may be focused on other issues, like homelessness or alleviating poverty, but they are more receptive to these discussions, although the environment may not be their core mission. It’s about broadening the conversation and getting clients to think laterally and look at the tangential benefits.

‘With existing clients, we are trying to train our staff to have those conversations when having review meetings; to make that part of the agenda. For the big commercial organisations, they are thinking about this stuff already. They know this is an issue they need to address, and they want to be leaders in this world.’

Nichola Westlake, associate general counsel at Centrica, notes that in-house lawyers can play an important role in making a change: ‘In an energy company with a heavy focus on renewables, we are in a position to be the challengers, educators and enforcers.

‘One of our biggest areas of influence is supply chain contracts. When we go out to tender we have started to include TCLP clauses. We use these as a starting point and the response has been great, so we have been able to strengthen them incrementally. Sometimes you have to pay a higher price for that. We do understand that. It is about embedding this in the procurement mindset. If we have to pay a bit more for it we will.’

TCLP expanded to the US and Germany earlier in September, with new clauses adapted for use in each jurisdiction. ‘Our vision is [for] every contract in the world to be a climate contract,’ says Gingell. ‘This is for the greater good. None of us can solve this problem on our own. Climate litigation takes a long time to get through the courts. Legislation and regulation also have their own timeline. What we can do with contracts allows things to happen straight away.’

 

Maria Shahid is a freelance journalist