BONUS: The Net Zero Toolkit

Anna-Marie:

Hello, and welcome to another special episode of ESG Matters @ Ashurst. I'm Anna-Marie Slot, global sustainability and ESG partner at Ashurst. And today, I am joined by Rebecca, Becky, Annison, director of engagement at The Chancery Lane Project. Now, if you are working in a company that's signed up for the race to net zero, or you are a lawyer anywhere in the structure, trying to figure out what net zero and circular economy look like on a day-to-day level, this is the podcast for you.

Anna-Marie:

Becky and the rest of the team at Chancery Lane, working in collaboration with private practice practitioners, as well as in-house lawyers, have been working to tackle the climate crisis one contract clause at a time. I'm also pleased to be joined by Elnaz Amiri, a solicitor in our own corporate transactions team here at Ashurst, who before joining us, worked with TCLP helping to set up their first virtual hackathon. Thank you both for joining me today, I really appreciate it. Perhaps we could start with just a few minutes of description on your background and how you're you've come to be here today.

Becky:

That sounds amazing and thank you. So, I am a former practicing solicitor. I trained in a City law firm before moving in-house, and I spent 12 glorious years as an outsourcing commercial contract solicitor, which I enjoyed very much. Then I had a brief couple of years at Practical Law, which was also a wonderful experience as a senior editor in their in-house team. So, I very much come from the in-house side of things. Then while I was there, I was volunteering already with The Chancery Lane Project and the opportunity came up to move and as they were expanding and I jumped upon it because it's a project which has been so dear to my heart and being able to put all my time and energy into it was an opportunity I could not pass up.

Anna-Marie:

Super, sounds like an exciting background that gets you to a place where you are deep in the weeds on figuring out the actual clauses that work. Chancery Lane, again, I've said this before, it's an amazing collaborative effort of lawyers from everywhere, from in-house, from private practice law firms. Elnaz, who has started her career in private practice, was with you. Elnaz, maybe you can give us a little background about your time at TCLP?

Elnaz:

Yeah, so I started working with TCLP as a trainee in my second seat, where I was getting a bit more familiar with the corporate world. I think as a junior lawyer, it's such a great initiative to get involved in because not only are you doing something great for the environment, you're getting involved at that base level of creating clauses and learning how all of this works together and fits in together in the grand scheme of things, while working towards a personal passion project of mine, which is tackling climate change.

Elnaz:

So, that's how I started with, with The Chancery Lane project. Now as I've qualified and I'm moving through my career, I'm hoping to continue working with them and actually implementing some of these clauses going forwards.

Anna-Marie:

Super. You've done the TCLP together, you and Becky, but the whole collective have produced an enormous amount of material to help people transform their contracts and reflects climate considerations in those contracts and how parties contract around what they're doing. But you have a new, exciting project that I think everyone would be really interested in, called your net zero toolkit. Maybe you could walk us through how that works, who needs to use it, or who can use it, what it's good for?

Becky:

No, fantastic and you're absolutely right. We've recently in the last few days, just published our 100th clause. I think that's what we are best known for is producing clauses that you can put into contracts. With the net zero toolkit, we wanted to go one step further and say, "You know what? Net zero is a really complicated concept." Part of the reason it's complicated is because there isn't a single definition for it, but it is becoming increasingly importance that lawyers across the spectrum, not just environmental lawyers, but everybody from employment through finance, through corporate deals and transactions, every bit of the law and the law that we practice as solicitors is touched by climate crisis. So, everybody really needs to have an understanding of it and net zero, whilst it is a concept which has its flaws and it has its detractors, net zero is a concept which is really taken off.

Becky:

It is a global language that we're using to talk about climate change. So as lawyers, it's something that we really need to get to grips with and understand and understand it as deeply as we would, if there was a new finance act or a new company's act coming out. Why we wanted to start with our net zero toolkit, obviously launching that in the same year as COP26, because the race to zero is a big part of COP26, so marrying up with that, is this idea that plenty of your clients are going to be signing up to race for zero. Speaking to the lawyers out there.

Becky:

One third of FTSE 100 companies have already signed up, that number's going to grow. So, if we want to fully mobilize and give effect to the wishes of those clients that have made those net zero targets, then we need to understand what it is as lawyers. So, the first part of our tool is educating lawyers.

Becky:

So we start with a really short, it's only 10 minutes, a short 10 minute video, which is a primer that tells you as a solicitor or as a lawyer what is net zero? What does it mean? What do you need to know about it to be a legal practitioner? And what's wonderful about this starting point is that because it's a 10 minute video, I always say to people, play it at a team meeting, play it at a supplier kickoff meeting, play it at a deal kickoff meeting, so that everybody in the room has a baseline level of knowledge and understanding before you even start talking contract clauses. Because actually what a lot of this is, is positioning and educating and helping people to go on a journey, so that by the time they see a climate contract clause, it's not a surprise, it's not scary, it's not unusual and everybody understands why it's there.

Becky:

So, then we have something called the net zero explainer, which takes the building blocks of what we did in that 10 minute video and it expands it. It gives people the resources they need to go and direct their own learning because every industry, every practice area, is going to have a particular needs to understand net zero in a particular way. We're lawyers, we understand very much the idea that everything has to be bespoke to a practice area, an industry, a client, the net zero explainer gives you that overview, but also shows you where you can direct your learning.

Becky:

Then we went through a process internally, of taking a number of our existing contract clauses and saying, "Okay, if this contract clause was going to be fully aligned with the Paris Agreement, if this contract clause was going to be fully aligned with science-based initiatives to get us to that 1.5 world, what would it look like? How would it look different to the way in which it was originally drafted?"

Becky:

So, in order to go through that process of taking a subset of our clauses and saying, "What would we need to do to make these fully Paris aligned?" We created to what we call the Net Zero Dashboard, and we broke net zero, race to zero, the criteria, down into seven key areas. We made Dashboard for ourselves initially saying, "There are seven key areas that you have to hit to make yourself net zero aligned." These are the seven key areas, I can rattle through them very quickly. They are scope, so that is the scope 1, 2, or 3 emissions. It's warming, are you on a trajectory for a 1.5 degree world in 2050, or on a four degree world, given the emissions that your organization is putting in out there? What are your targets and timing around that? Are you hitting 1.5 degrees, but in 2070, are you hitting four degrees in 2030? Are you offsetting? And if you are offsetting, have you really scrutinized that? Are you applying the Oxford Principles for Offsetting? Are you looking at mitigation? Have you got a quality control system on your offsetting?

Becky:

Then we looked at governance, very familiar to a lot of us on this call, I'm sure. Do you have people on the board who are responsible for climate crisis? Do they have enough educational resources or knowledge to help them make good decisions? Do you have a good decision-making process? Do you have internal targets? How are those being tracked and measured, all that good stuff. Then the last two, which I think are particularly thorny, the last two metrics on that seven in stages, but I think are also particularly important, is just transition.

Becky:

In your race to decarbonize, are you making decisions which are having a disproportionately negative effect on vulnerable populations and peoples? I think the last one, which I think that we haven't really explored much in legal profession, but which is really critical is lobbying. Are you paying millions of dollars as an organization into a trade association, which is aggressively lobbying against the Paris Agreement and where do you sit with that? There's obviously reputational damage there.

Becky:

We took those seven areas and we've created this dashboard, and then we started applying that to, I think it's around 20 to 30 of our contract clauses, to create these best in class. So, then we thought, "Well, hang on a minute, we've done this work. This would be so valuable to people who are working for clients who signed up to race for zero to this dashboard, which shows you where you are, but then shows you what you need to do to move across, to make sure you're Paris aligned and beyond."

Becky:

So, that dashboard is a really central part of the toolkit and you can use that to review where your client is sitting or where your organization is sitting and what you need to do to improve, to get to the Paris Agreement. Then we have those best in class contract clauses that I mentioned, which are the ... I think these are really interesting actually, because if you were operating your business in a way which was Paris aligned, this is the contract clauses that you would be using. These are the contract clause, this is what it would look like.

Becky:

That's really interesting to me because when people look at that and say, "Oh, that doesn't look very practical. I don't think I'd get that over the line in negotiation. It's not very pragmatic." I say, "Well, that's interesting, isn't it? Isn't that interesting? Because this is what Paris alignment looks like and if that's not practical, if that's not pragmatic, how far away are we as a business, as an organization, as a client from truly being Paris aligned. And if we're not Paris, does everybody sitting around this negotiating table realize what that means?"

Becky:

I don't mean in terms of necessarily that a four degree rise might mean that the island of Tuvalu no longer exists, although obviously in terms of just transition, that's a really important thing that we need to be considering, but taking it all the way down, just at a level of a business, in a four degree world, what does your business look like? What do your supply chains look like? What do your employment needs look like?

Anna-Marie:

Yeah, yeah, no, really, hopefully we don't have a conversation about a four degree world. Hopefully everybody's stays on a 1.5. It's going to change enough just at that level. I guess, one of the things we're going to come to in a little bit is maybe some key takeaways that you've got from some case studies, but before we get there Elnaz, I think, people look at and say, "Oh, okay, so some NGO group got together and came up with these clauses." Could you walk us through the inside of how these clauses come to fruition? Just to really highlight how much work goes into what the outcome is?

Elnaz:

Yeah, of course. I mean, I think one of the main things to take away from this is, it's some of the best lawyers I have ever seen in their particular specialisms have come together to draft these clauses, to peer review them and to sign them off as, either this is, as Becky was saying, best in clause, and this is our ambitious clause, or this is practical and it will actually, if not the standard now, will certainly be the expectation from governments, from regulators, from the industry in the next five to 10 years. So, I think, you've got your best in clause that obviously TCLP have made Paris aligned, but there's also a whole range within that, that can be implemented at any stage of an organization's path to net zero.

Elnaz:

In terms of how it's actually developed, it's a great collaborative process. The drafting that I've been involved in certainly has involved some great partners, senior lawyers, and in-house lawyers who've come together and looked at this from a, "Okay, this is a problem. We know this is a practical climate problem. How do we tackle this from a legal perspective? And how do we think our clients ... " or for the in-house lawyers, "How do we think us as an organization can actually take this on and deal with it in a practical or in an ambitious way, depending on the clause that we're looking at?" It's been a case of sitting down and spending a couple of weeks or a few hours within that week, going through it, going away, doing the research that's necessary.

Elnaz:

In some instances we've spoken to clients and asked them what they think works. I know previously I've spoken to insurance clients for example, and gone, "We're going for something really ambitious here, but do you see this being implemented?" You'd be surprised by what you hear back to be honest. We've had instances where people have gone away and spoken to regulators, they've had contacts at and gone, "Is this something that's similar to what you are thinking of doing, or is this too out of the realms of possibility at the moment?" It's over several hours, over the week, over the two week period, these conversations have happened, we've come back together, we've collaborated on Zoom, on Teams, on whatever, because this has been happening during COVID as well. This has all been virtual, on phone calls, on emails, drafting between various individuals until it's gotten to a good enough stage that we're able to then pass it onto the peer reviewers.

Elnaz:

What I understand happens then is the peer reviewers will be some of, again, the best lawyers in their fields, looking at their areas of specialism and going, "Okay, how does this clause actually fit in with the rest of the legislation, with the regulation in place, with the normal practices of this industry? Let's tidy it up, let's make sure that we've got something that actually can be used and adapted into a contract in a very practical way."

Elnaz:

It's a very collaborative effort, but it's also inputted at every single stage, at least on the clause I've worked on, with regulator input, client input, in-house input and then very, very good lawyers looking at it and saying, "Does this work?"

Anna-Marie:

Yeah, so I mean, real on the ground expertise, going through each of these, so that you have a usable end product that that is commercially viable. I think that is the outcome of all of that effort. Becky, are you seeing people use it, maybe you could give us a few examples to round out our conversation?

Becky:

Yeah, we are absolutely seeing people use it. It's been particularly interesting to me to see which areas or which industries have taken it up first and quickly. For me, supply chains has been an obvious area and most of our clauses that are in use are from the supply chain bucket, or practice area, or a topic, if you like. I think it's because it's just such an easy win. Supply chains are already so primed to having to deal with changes in service specifications, or changes in product specifications, or bending to the needs of clients. So, when you start to add in some climate specifications on top of those, yes, there may be some negotiation around price or solution, but it's not perhaps quite as unfamiliar as other areas that you could bring climate clauses into, I think. So that's been a really, really good starting point, has been supply chains.

Becky:

We have two fantastic case studies about supply chains on our website, firstly, from Salesforce, who I think in April this year, I think it was April, announced that they were launching their Sustainability Exhibit. So, as their supply chain contracts came up for renewal, the renewals were required to have the Sustainability Exhibit signed up to, that was influenced by a number of our supply chain clauses. I say influenced because I'm an ex-lawyer, or I suppose I'm a current lawyer, but I'm a non-practicing one, and very rarely would I take a precedent without tweaking it. Very rarely would I take a precedent and just pop it straight to an agreement. I'd always be amending and tweaking to make sure it's perfect for my industry and my client.

Becky:

That's exactly what we are expecting lawyers to do with our clauses. They're a starting point in the same way that Practical Law or a Lexis Nexis precedent is a starting point. So, they've taken a number of our clauses, they've been in effect since April, it's been hugely are received and well supported by Salesforce. They've been very supportive of their supply chain in adopting it. I've heard from Salesforce that they've had some of their suppliers ask to renew early, so they can be put on the Sustainability Exhibit terms so they can go and say, "Look, we are on the Sustainability Exhibit," and using that as a really important selling point almost to other clients to prove their green credentials because it's very hard to do greenwashing, I think, at the point at which you are on the hook for damages for breach, if you fail to meet these climate targets.

Becky:

The other case study is the Environment Agency and they've been using a amended version of a number of our clauses, but particularly I think interesting, circular economy clauses. They've been in use since September, 2020, so well over a year now in their supply chain. They took on our circular economy clauses as a way as saying, where is the possibility of using something which has been refurbished or recycled in, for example, flood defense work, then let's use it. I think the circular economy one's a particularly interesting situation because some of our clauses are dark green, high ambition, Paris aligned. If you don't meet this carbon footprint target for a product, then maybe there'll be a penalty, really hard stuff. But then when you take a circular economy clause, actually, it's very easy to say, "If you have got materials that you could refurbish that would get you up to this health and safety specification, or this product specification that's just been used previously, or were bought for a previous job and never used, and the packaging is still in place, then let's use them." You can actually save money on that. So it seems to me that the circular economy ones, which have also been very well received are such an easy win in that industry. So, that's been really heartening to see that taken up.

Anna-Marie:

No great points, great points. I think the circular economy conversation is a new one for people. People are getting their heads around net zero circular economy is equally as big an opportunity for companies and as big a challenge to get the drafting right on. That has been excellent, an excellent overview. If I could ask you, three takeaways that someone listening in would want to take away from this, what would your three be, Becky?

Becky:

I think the first one goes back to that education point. Not everybody is at the same stage of understanding about what net zero is, why it might be important to a client, or important to deliver. So, I think that one of the ways that we've seen the most successful implementation of our clauses is when the companies trying to implement them, took the time to make sure all their stakeholders properly understood what was going on.

Becky:

Whether that's showing them our 10 minute video or doing something more bespoke. As lawyers it's very simple, when you are very busy under a deadline to say, "That clause looks unfamiliar. That looks a bit weird, let's just strike that out." But having everybody educated means that we're not saying that clause looks a bit weird and unfamiliar, we're saying, "Oh, I recognize that, that's a net zero clause. I understand what that's trying to do. Let's negotiate it and discuss it." So, I think getting that education piece is really key first off.

Becky:

Secondly, and this is similar takeaway, but which is, this stuff is coming whether we like it or not. The world is moving on, the climate is moving on. There is risk out there, which is not being properly dealt with and not being properly dealt with by lawyers. For example, it horrified me the other day when I realized that it is not a standard check in a property transaction to look at a map of where sea level rises are going to be in 20 years and check that your property is not going to be underwater. That's not a standard check, but a mortgage can be 25 years long. If we don't hit 1.5 degrees, if we end up at two degrees, is your house going to be underwater in 20 years? Surely your mortgage company would like to know that. So actually, I think as lawyers, we haven't really grappled with the risk, the physical risks of this yet.

Becky:

Lastly, use the clauses. You don't have to reinvent the wheel, we've looked at some of these risk points and our amazing volunteers have drafted solutions for them, as Elnaz has said, they've been peer reviewed by some of the best legal minds in the industry. Don't reinvent the wheel, there is work out there that has already been done, that you can go to your clients and say, "Hey, I've got a solution for you. I can help you hit to your net zero goals, massive FTSE 100 client, and I can do it through contracting."

Anna-Marie:

Elnaz, anything you'd want to add on those three?

Elnaz:

The only thing I think I would add on is just don't be afraid of having a look around the TCLP website. I've had instances where clients have gone, "Oh, can you look at this four page contract," not that long, " ... and tell us how we can make it more net zero aligned?" I think as lawyers, we're so used to dealing with precedent, so what have we done for this client before? What is standard of the industry? We don't necessarily grapple with completely changing or completely analyzing a contract in an area where that there are very few of us who are just climate change lawyers.

Elnaz:

Things like the net zero drafting checklist, for example, on the TCLP website is fantastic. It will tell you exactly what you to be looking out for and it gives you the levels of it, how ambitious are you being? And these are the things that fit in with that ambition. Or things like the net zero drafting definitions and sampling wording, or the glossary that they have. It's all starting points and it gives you something to work from, and it gives you some guidance, which isn't necessarily as widely available at the moment. So, don't be afraid, have a look around the website. There's some really, really useful stuff on there.

Anna-Marie:

Thanks Elnaz, and thank you very much, Becky, for joining us today. I think, a fantastic tool and available for free to everyone who accesses your website. So, go to TCLP, The Chancery Lane Project, and you will find a wealth of well thought out and highly negotiated contract clauses that you can start from to reflect net zero and the circular economy in your own transition. Thank you both.

Becky:

Thank you so much.

Elnaz:

Thank you.

Anna-Marie:

Thank you for listening to this podcast. We hope you found it worthwhile. To learn more about the issues we've just covered, please visit ashurst.com/podcasts. This 30 for Net Zero 30 episode is just one small part of our continuing podcast series, ESG Matters at Ashurst. Make sure you don't miss any of our future episodes by subscribing via Apple Podcasts, Spotify, or wherever you listen to your podcasts. While you're there, you can also listen to our other episodes and leave a rating or review. In the meantime, thanks again for listening and goodbye for now.