Climate change driving shift in corporate contracts

Climate change has driven a total shift in corporate contracts, with the practice of climate contracting increasing in popularity globally.

• Impact report by legal non-profit The Chancery Lane Project (TCLP) reveals businesses are increasingly using climate contracting globally 
• 58% of respondents use some form of climate provision in their contracts or legal documentation
• Of those using climate clauses, nearly half (48%) are actively monitoring compliance and 70% have a breach mechanism in place
• Report finds climate change significantly impacts how companies do business and legal industry guidance has changed as a result

The report, which surveys 62 legal professionals, finds that businesses are increasingly adopting the practice of climate contracting, which uses legal clauses to reduce greenhouse gas emissions. 

Over half (58%) of respondents noted they have used some form of climate provision in their contracts or legal documentation.

Moreover, of those using the clauses, nearly half (48%) are actively monitoring compliance and 70% have some form of breach mechanism in place, highlighting that lawyers and their clients are seeing climate as a serious risk that warrants non-compliance penalties.

The report also finds that climate contracting has gained significant legitimacy in sectors such as the built environment, legal, hospitality, and telecommunications. This is evident in the publication of several pieces of industry guidance that now include climate contracting guidelines as a market norm, something the report notes was considered ‘ambitious’ ten years ago.  

It goes on to find that this shift is extending beyond the UK, noting that the non-profit has 37 active working groups globally, including in Germany, the USA, the Middle East, Hong Kong, New Zealand, and the Global South. 

Matt Gingell, co-founder of TCLP, said:“It is imperative that businesses, investors, and the lawyers that advise them are determined to deliver a ‘Paris Aligned’ future. Climate contracting provides a fast, bespoke, and legally enforceable way for everyone to follow that trajectory. That's what we set out to achieve with TCLP - fair and fast decarbonisation through climate contracting.”

Ben Metz, TCLP’s Executive Director, said: "In its infancy, many companies were unsure of the impact TCLP could have and how it would be received by stakeholders. 4 years later, as the world embraced a 1.5 degree pathway, companies have found that climate contracting provides an effective means to legally enable, and by extension, rapidly achieve a decarbonised and equitable economy. We are incredibly proud of these growing climate ambitions reflected in the changes in business behaviour, but just like climate change mitigation, we still have a long way to go."

TCLP released the 2023 Impact Report on October 27.