Giga Net Zero
Energy, Utilities, Mining and COP28
GIGA Net Zero involves integrating climate action into corporate contracts for large projects, supported by The Chancery Lane Project's legal tools to promote sustainability and reduce emissions.
Law Update: Issue 363 - Energy, Utilities, Mining and COP28
Francis Patalong Senior Counsel,Corporate Commercial
Becky AnnisonDirector of Engagement, The Chancery Lane Project
Commenting on climate data for 2023 Samantha Burgess, of the EU’s Copernicus Climate Change Service, has said:
“The unprecedented temperatures for the time of year observed in September have broken records by an extraordinary amount. 2023 [is] on track to be the warmest year and about 1.4C above pre-industrial average temperatures. Two months out from COP28, the sense of urgency for ambitious climate action has never been more critical.”
The UN Secretary General, António Guterres, has been most stark in his most recent pronouncements on the severity of the climate crisis. Understandably, the focus has been on his coining of the phrase, “global boiling” to describe the current predicament we face. However, he went on:
“The evidence is everywhere: humanity has unleashed destruction. This must not inspire despair, but action. We can still stop the worst.”
During COP28, the first global stocktake of the implementation of the Paris Agreement will be concluded. To recap, the Paris Agreement is directed at holding the increase in the global average temperature to well below 2°C above pre-industrial levels and pursuing efforts to limit the temperature increase to 1.5°C above pre-industrial levels by undertaking rapid reductions in emissions in accordance with best available science.
So, the question arises: what action can we take? This Article will look at some practical measures that corporates can adopt in their business to (in the words of the Secretary General) “…turn a year of burning heat into a year of burning ambition.”
There are a prodigious number of mega and giga projects[1] currently under development in the Kingdom of Saudi Arabia and elsewhere in the region. Most of these projects have clear “sustainable” aspirations over the long term which are, to varying degrees, consistent with the host country’s stated nationally determined contributions under the Paris Climate Agreement. These projects should have a fundamental and transformative impact on the way that climate clauses are mainstreamed into contracts.
But how does this manifest itself in actual contract terms? How are those aspirations to be policed and enhanced over the longer term, as the global boiling accelerates? When a giga-project is built, it brings with it a giga-supply-chain. That supply chain presents a signal opportunity to eliminate emissions – pump-priming a new business-as-usual modus operandi for all involved. If emissions reduction is not in the contract terms, how will it be done at all. No business or contract leaves essentials such as price, delivery time, quality control to chance, these are baked into the legal terms of an agreement. Being serious about climate change means putting it in the contract. This is especially the case where many of the new projects involve significant numbers of visitors using facilities which are sold on the basis of “green” credentials, with the concomitant prospect of minimising, if not eliminating, Scope 3 (indirect) emissions from the start. A Giga-Net-Zero approach is required.
One of the most promising and urgent initiatives in the legal industry is The Chancery Lane Project (TCLP). This is the largest global network of lawyers and business leaders using the power of climate contracting to deliver fast and fair decarbonisation – all done pro bono. TCLP have written 160 climate clauses, an extensive glossary and a suite of tools to help decarbonise contracts. The TCLP glossary is the bedrock on which the climate clauses rest and is a core document. Most of the clauses are based on English law but there is a concerted effort to internationalise and transpose the content into other legal systems.
Al Tamimi & Company has collaborated with TCLP to help translate the glossary into Arabic. We are also engaged on a transposition exercise to recapitulate many of the original TCLP clauses into versions suited to each of our jurisdictions. Since this is a collaborative exercise, we hope to work with other law firms and clients in the region to deliver more clauses, having more discussions on Net Zero and act with the ambition and urgency required. The collaborative nature of this exercise – lawyers working in unison with common purposes – is an essential characteristic of the endeavour.
The TCLP clauses are freely available for anyone to incorporate into commercial agreements and legal documents to encourage rapid decarbonisation and reduced climate impact. They have been written and peer reviewed by sector and legal specialists to provide high quality, commercially viable climate solutions. A climate contracting approach constitutes the glue which will hold together various climate initiatives – each contract represents an opportunity for a company and its legal team to make a difference. (For a more in-depth exploration of TCLP and its purpose, listen to our podcast).[2]
So, what do these clauses actually cover? The range is what you would expect from any decently stocked precedent bank. This is not about “environmental” law per se. Rather, it is about looking at practice areas (from real estate, corporate/commercial through to financial services/capital markets and insurance) and sectors (energy, healthcare, materials and communications) and advancing drafting that can be efficiently woven into contracts and which will imprint a Net Zero imperative. Importantly, it provides the customer or procuring authority with the necessary levers to incentivise delivery and performance. Case studies showcasing actual deployment of the clauses can also be accessed on the TCLP website[3].
There are some TCLP products which are particularly relevant to giga-projects. Raphael[4]’s Procurement Due Diligence Questionnaire for Suppliers is a case in point.
A UK study conducted in early 2021 found that for 76% of companies pressure from procurement has been an important incentive to act more sustainably and 63% of lenders and 58% of investors assess supply chain when looking at the overall performance of a business against ESG criteria (a dramatic increase from 7% and 5% in 2015).
The environmental context for this clause is Scope 3. Addressing Scope 3 (indirect) emissions is fundamental for companies to realize credible climate change commitments. The average UK company’s supply chain emissions are estimated to be 5.5 times greater than those generated by their direct operations. Operations in the harsher climate of Saudi Arabia are likely to significantly increase those emissions. Supply chains are both a massive area of climate risk and a key leverage point to combat it. A UK study conducted in early 2021 found that for 76% of companies pressure from procurement has been an important incentive to act more sustainably and 63% of lenders and 58% of investors assess supply chain when looking at the overall performance of a business against ESG criteria (a dramatic increase from 7% and 5% in 2015). A similar scale of improvement could be anticipated in any giga-project procurement. This is the kind of improvement that lends itself to be included in any ESG reporting requirement – something that is becoming increasingly mandated by regulators and stock exchanges globally.
The legal risks of ignoring the potential impacts of climate change on a supplier include the customer not fully understanding or considering whether its relationship with the supplier or reputation could be jeopardised by climate risks or how prepared the supplier is to make their own net zero transition. If the supplier has a poor record on climate change, this could damage the reputation of the end user – where a giga-project’s sales pitch is sustainability or the preservation of a pristine environment, the implications are clear. The project’s procurement team will need to ensure that any procurement agreement aligns with their strategy, which may include environmental, social and corporate governance (ESG) targets against which they will be held to account and any climate-related legal, regulatory or contractual requirements to which they are subject.
The TCLP due diligence questionnaire asks potential suppliers to provide information regarding a wide range of climate change-related issues going beyond the standard questions. The questionnaire will help projects assess at an early stage in a procurement exercise the suppliers that can best help them achieve their goals. The questionnaire is part of a series of tools to cascade the achievement of net zero target to suppliers. This identifies Scope 3 emissions to aid reduction and climate adaptation measures. Crucially, it also promotes awareness and action amongst a wider group of companies about the actions that they should be taking to address their climate-related impacts and risks.
A due diligence questionnaire gets you part of the way there. In Owen’s Clause (Net Zero Target Supply Chain Cascade Clauses), TCLP provides clauses that “back-to-back” or align a business’s net zero target with its supply chain and business partners, thus enabling the business to achieve its target or take control to achieve it. Cascading net zero obligations through a value chain will accelerate the rate of change in the economy and mean that net zero targets become commonplace. Owen’s Clause provides that the fulfilment of obligations should not be at the expense of emissions elsewhere in the supplier’s business and, in the event of default, also provides for termination (along with a range of other remedies which can include the planting of native trees or other greenhouse gas emission offsets).
Termination for a greener supplier (Agatha’s clause) is another useful tool – especially in the context of longer-term contracts. The clause embeds assessment of green credentials into the procurement process incentivises and supports suppliers to benefit from continuously improving their green performance with the corresponding increase in competitiveness. It avoids parties being locked into supply contracts where the customer has identified that an alternative supplier offers more environmentally friendly goods or services and permits the customer to exit the agreement without incurring exit-related liability (such as cancellation fees) unless the existing supplier is able to at least match the green improvements represented by the alternative supplier’s offer. The clause therefore hardwires an absolute incentive on the supply chain to actively manage and innovate in its product design and delivery. Since innovation is so soften a hallmark of the giga-project, Agatha’s clause really does enshrine the principle in a meaningful and consequence-bearing way.
Raphael’s, Owen’s and Agatha’s clauses are a sample of the kind of creative thinking that TCLP has brought to bear on the climate crisis. However, these are not the only measures available and there is huge scope for projects to innovate in terms of their approach to embedding, incentivising and policing net zero.
The climate imperative is clear. There is also a financial reporting imperative which will be increasingly felt across business (for more on than, listen to our podcasts with Gihan Hyde[5] and Dr Julian Roche[6]). The stocktake happening at COP28 will certainly not be the last. There is an old, and sometimes controversial, business adage that “what’s measured is what matters.” These clauses fundamentally shift the traditional focus of measurement in a net zero direction.
ESG targets, and in particular climate targets, are already under intense scrutiny and the direction of travel in terms of reporting is clear. It’s therefore essential that any business or project with long term contracts and sustainability selling points look at their Scope 3 (indirect) emissions and assesses what action they can take with urgency and ambition.
[1] “Giga Projects are Infrastructure or Capital Project investments of such scale and ambition that they can be considered ‘once in a generation’ in terms of what they deliver to the world, and the way that they deliver it. They have a guiding vision which, if successfully delivered, will have a fundamental and transformative impact on entire societies and the ways we live and work.” deloitte-uk-architecting-giga-projects.pdf
[2] COP Talks EP 3: The Chancery Lane Project Hardwiring Net Zero by Tamimi Talks (spotify.com)
[3] https://chancerylaneproject.org/case-studies/
[4] Each of the TCLP Clauses is named for a child in the life of the person originating the drafting – a recognition of inter-generational equity and the fact that the impacts of the climate crisis will certainly manifest more severely within the lifetime of this successor generation.
[5] COP Talks EP 2: Decoding ESG Reporting & Sustainability: An Expert's Perspective by Tamimi Talks (spotify.com)
[6] COP Talks EP 7: Regional Survay of Net Zero Initiatives
For further information,please contact Francis Patalong.
Published in November 2023
