New law: Businesses supplying large companies prepare to negotiate new green contract obligations

The changes are likely following UK (and EU) proposals that such large companies should include, in their statutory reports for financial years ending after 6 April 2022, a statement of how they have assessed and mitigated their climate-related risks and opportunities.

This is likely to encourage them to introduce decarbonisation/net zero plans aimed at mitigating 'Scope 3 emissions' - emissions occurring in their value chain – which include a requirement that suppliers must demonstrate their green credentials. For example, suppliers might be required to agree to climate-related obligations in their supply contracts aimed at reducing such emissions, and to align themselves with the customer's decarbonisation and net zero roadmaps.

These obligations could include:

• Agreeing to introduce their own net zero targets and roadmaps setting out how they will achieve them.
• Reporting progress to the customer and giving the customer the right to monitor and audit the supplier's progress in achieving its targets.
• Agreeing not to take environmentally unfriendly steps when disposing of goods – for example, agreeing not to simply dump goods that cannot be delivered due to unforeseen circumstances.
• Agreeing that the customer can terminate the contract if green targets are not achieved – or if a rival makes a 'greener' offer to carry out the contract.

More than 100 legally drafted precedents of the sort of clauses which large companies could present to suppliers to help achieve net zero and other green targets – for example, a clause to ensure food produce is not wasted throughout a supply chain - have been drafted by the Chancery Lane Project, and can be viewed free, with explanatory notes, on their website.

Operative date

• Now

Recommendation

• Suppliers and potential suppliers to large businesses should assess and investigate whether their customers are likely to require them to demonstrate their green credentials in future, and may want to view the sort of supply chain clauses they may be presented with on the Chancery Lane Project website.