With more and more businesses and organisations committing to achieve carbon net zero in the next few decades, Scope 3 emissions generated by supply chains are coming under close scrutiny. It is estimated that supply chain emissions are on average 5.5 times higher than the customer business’ direct emissions.
It has been reported that if 125 multinational companies increased the renewable electricity used by their supply chains by only 20%, over one billion metric tons of emissions would be saved - equal to the carbon emissions of Brazil and Mexico combined. This puts supply chain contracts at the heart of any corporate’s decarbonisation strategy.
However, fewer than 20% of managers report any visibility into sustainability practices in the supply chains of their businesses. This lack of visibility of the greenhouse gas (GHG) emissions in their supply chains may inhibit corporates' efforts to reduce Scope 3 emissions - potentially endangering their Net Zero targets.
At Clyde & Co, we assist our clients in decarbonising all tiers of their supply chains by adopting contractual provisions to such effect into their supply agreements. The Net Zero Target Supply Chain Cascade clauses can require the supplier to set a net zero target that aligns with the client. In addition, the Supplier Environmental Threshold Obligations can be adopted to require that the supplier gives contractual warranties for environmental performance and continuous improvement obligations aimed at achieving the net zero target. Any sustainability obligations can be made mutual by adopting the General Sustainability Clauses.
These clauses can be complemented by the Green Supplier Agreement Terms that will require the supplier to monitor and report on their GHG emissions and efforts made in reducing them. The Carbon Scorecard can be used as a template to obtain this information. Finally, the Carbon Clauses for Environmental Performance provide for a penalty in the form of a mandatory donation to appropriate non-profit organisation if a breach of the above-listed terms causes or contributes to the client missing its GHG targets.
This post is part of a series of short updates summarising the precedent clauses drafted in the course of collaborative hackathons organised by The Chancery Lane Project. Clyde & Co held its own hackathon in partnership with The Chancery Lane Project in July 2020, and has taken a leading role in the Big Hack, another hackathon organised centrally by The Chancery Lane Project throughout autumn 2020.