Achieving the transition to a carbon neutral future will require mobilising private finance. Some estimate that meeting Net Zero targets by 2050 would require $1 trillion to $2 trillion a year of additional investments globally in infrastructure. The need for investment and financing is particularly true for establishing clean energy and reducing emissions in emerging markets, where, even absent any need for change, there is often an infrastructure deficit. Not only are infrastructure assets and networks required to reduce their own emissions, but they also play a critical role in developing and delivering clean energy and carbon capture solutions.
Private and public finance can be harnessed to meet this demand in the form of conventional investment and finance and project finance (incorporating green finance principles), grants and ESG funds. Such finance can be directed towards low carbon and sustainable investment by integrating sustainability obligations into traditional financing, equity and project documentation.
Investors are increasingly active in this area and have the financial leverage to make a difference. Investors can prioritise climate solutions and incentivise the building of clean energy industries and low carbon infrastructure.
However, it is not clear how investors can ensure the intended result - this is key to dispel fears of criticism that investments have failed to achieve significant positive impacts. The cause of such discontent can be due to a lack of due diligence, wrong incentives, lack of monitoring and a disparity between investor-investee environmental values. This issue spurs the continued development and promotion of investment principles such as Loan Market Association and ICMA guidelines on green finance.
Clyde & Co is proud to be assisting clients interested in adopting an approach to Net Zero in their contracts. We can assist clients in adopting Climate Standard Transaction Terms incorporating sustainability goals, incentives and supplying impact data to allow inspections and restricting the use of funds. Such terms will incentivise reduction in emissions and sustainable practices.
Please reach out to me or one of our climate change experts if such clauses are of interest.
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.