Our low carbon future: one contract at a time
LawTalk gets the latest from New Zealand Green Investment Finance on how they are working to accelerate investment that supports Aotearoa New Zealand’s decarbonisation.
After the events of the last couple of months, nobody should have any doubt that our planet is in trouble. And, if we’re honest, everybody knows the cause – climate change.
Climate change used to feel far away. Its impacts tended to be felt in other countries. The scenes weren’t pretty, but if you switched off the TV, it could miraculously go away. However, climate change has clearly arrived on Aotearoa’s shores. Just ask someone in Hawke’s Bay. Or Tairāwhiti. Or Northland. Or Nelson, Auckland, the Coromandel, the West Coast or Marlborough. The human toll has been tragic. The clean-up will take years and cost billions.
Climate change is not a problem that one person will solve. It isn’t a problem that one country or government will solve. But if everyone – individuals, companies, governments – takes responsibility for a more inhabitable planet, it is a problem we can collectively solve.
In fact, lawyers are uniquely positioned to help in the fight against climate change. Lawyers are sought out by clients for their wise counsel, impartial views and advice. Lawyers also think about risk. And climate change is all about risk. Whether that be physical risk (for example, property damage from flooding), reputational risk (for example, customer backlash as a result of greenwashing), or legal risk (such as the risk of litigation from a business’ polluting). Lawyers are very likely to be involved in the decisions that businesses need to make regarding climate change, from the boardroom to day-to-day operations. If the industry came together to take responsibility for bringing climate change to the forefront of decision making, there is the potential for real change.
And that is where the New Zealand Climate Clause Bank comes in. The initiative, launched in February, is a suite of template clauses for contracts that, when added together across hundreds or thousands of contracts, can help drive better climate outcomes.
Spearheaded by New Zealand Green Investment Finance (NZGIF), with the collaboration of some of Aotearoa’s top law firms, the clauses in the New Zealand Climate Clause Bank can be inserted into any contract to help and encourage the parties to take actions that will reduce greenhouse gas emissions.
NZGIF was established by the Crown to accelerate investment that supports Aotearoa’s decarbonisation. We have a mandate to demonstrate to the market how decarbonisation solutions can work. Primarily, that is through our investments in businesses and technologies that will contribute to Aotearoa’s decarbonisation. However, we also believe that market demonstration extends beyond simply making investments, and we think there is real power in many contracts driving better climate outcomes across the economy. And that is why we have worked to develop and road-test these clauses.
New Zealand Green Investment
Finance was established by the Crown to accelerate investment that supports Aotearoa’s decarbonisation. We have a mandate to demonstrate to the market how decarbonisation solutions can work
The New Zealand Climate Clause Bank builds on the work of The Chancery Lane Project, a global collective of lawyers based in the UK, using contracts for better climate outcomes. Many of the New Zealand Climate Clause Bank clauses have been adapted from The Chancery Lane Project’s work and modified for use in Aotearoa.
The clauses span a spectrum from simple boilerplate to more ambitious clauses designed to ensure contract parties operate more sustainably in their interactions.
There are simple clauses, which can be used in all contracts, that require electronic signing and delivery of notices to ensure that printing is minimised. There is a clause designed to ‘green’ the dispute resolution process by ensuring that parties minimise printing and travel and take steps to offset residual emissions from the dispute resolution process.
More complex clauses include supply contract clauses that require suppliers to measure their greenhouse gas emissions (which will become increasingly important as the Climate Related Disclosures regime is implemented) and take steps to reduce them. Supply contract clauses also allow contract counterparties to terminate a supply agreement where an alternative supplier is identified who can provide the same services in a greener way. This clause alone has the ability to drive significant decarbonisation in the economy as businesses are required to prioritise sustainability in order to win and retain business.
The New Zealand Climate Clause Bank has clauses for inclusion in company constitutions and shareholder agreements designed to make sure that companies prioritise working towards Aotearoa’s net zero targets. This includes measuring and reducing greenhouse gas emissions and other actions aligned with that objective (like encouraging virtual board meetings).
There is also a clause specifically for the property sector that encourages landlords and tenants to prioritise sustainability in buildings, including by creating a framework for improving a building’s sustainability characteristics and requiring the parties to actively minimise waste.
The clauses have the potential to significantly change the way businesses think about climate change and their role in mitigating it. Instead of sustainability being something to attract conscious consumers, businesses would be contractually bound to help save our planet. Sustainability wouldn’t be a differentiating factor – it would be a common factor across the business world.
But the clauses can’t help if they sit in a drawer (or on a website), unused.
And that is where the legal profession comes in. The call to action is for all lawyers to look at the clauses, consider how they could be used in the contracts they draft, talk to their clients (whether internal or external) about them and, ultimately, include them in as many contracts as possible.
And it is possible. At NZGIF, we’ve been using these clauses for 18 months. They haven’t been a source of protracted negotiation. On the contrary, our counterparties have generally been very receptive to them.
It may not seem like much, but little actions aggregated can make a difference. A common argument against climate action, particularly in Aotearoa, is that we’re too small to affect the outcome. But that has never stopped us from taking on the world before. And every gram of greenhouse gas that doesn’t enter the atmosphere will matter. If you need any reminder about that, consider this: the impacts of climate change that we are feeling now are the result of 1.1 degrees of planetary warming.1 If we achieve our most ambitious goals, the planet will still warm by 1.5 degrees.2 If we deliver all current global government policies, the planet will warm by 2.7 degrees.3 If we don’t even do that, the outcome doesn’t bear thinking about. There has never been a more urgent time to take every little action we can to prevent the worst outcomes that are predicted.
The legal industry in Aotearoa now has the opportunity to be truly world leading in the fight against climate change, just by doing our day jobs. That’s something we should all want to be part of.
As Dr Seuss’s The Lorax has been telling us since 1971, “unless someone like you cares a whole awful lot, nothing is going to get better. It’s not”.
Now is the time to start caring.
The New Zealand Climate Clause Bank is available for use by all lawyers and other businesses, for free, at nzgif.co.nz/investing/new-zealand-climate-clause-bank/. Contact Ian MacKenzie, Head of Legal, at email@example.com for more information.