At present, COP26 hopes to obtain commitments that secure global net-zero carbon emission targets by the middle of the century, through emissions reductions targets (NDCs) set for 2030 that align with that objective. Current global emission trends do not meet the 1.5°C rise in temperatures envisioned by the Paris Agreement’s policymakers. The world needs to halve emissions over the next decade, and reach net zero carbon emissions by the middle of the century, if we are to limit global temperature rises to 1.5°C.
The UK government has sought to promote itself as being a leader among the developed nations in terms of establishing a greener economy; the COP President-Designate, Alok Sharma, states in the ‘COP26 Explained’ that “the UK…is leading the way – over the last 30 years British governments have grown our economy by 78% while cutting emissions by 44%. That shows green growth is real”.
Whether the UK is indeed “leading the way” is not what this article seeks to address. Instead, this article seeks to look at employers’ responsibilities and obligations towards addressing and combatting their greenhouse gas emissions.
Why should employers consider the impact of climate change in their decision making?
It is important that employers acknowledge the potential liabilities that they may incur as a consequence of climate change. Price Waterhouse Cooper’s 23rd Annual Global CEO Survey, the results of which were published on 11 March 2021 in ‘Navigating the rising tide of uncertainty’, found that two thirds of CEOs identified climate change as a risk to their business. Climate change can impact businesses in several ways, and not just by the physical impacts that arise from extreme weather events. Climate change litigation, for instance, is increasingly being used in some jurisdictions (notably, the US) to influence government action and corporate decisions relating to climate change, and to seek compensation for losses already sustained, and future adaptation costs.
Employers should be mindful of market risks if they fail to recognise consumer trends driven by climate change. Consumers’ understanding of green products and services are increasing, and their demands are becoming ever more sophisticated. If employers show a clear disregard to reporting on their climate change risks, setting carbon reduction targets or mitigating their climate change impacts, eco-conscious consumers may decide to take their custom elsewhere, and the business may also suffer reputational harm.
What are employers’ legal obligations with respect to climate change?
Climate change legislation generally only impacts specific, high-energy industries and businesses. However, as is becoming increasingly common, climate change legislation is having a far wider application. The key areas include, but are not limited to the following:
Climate Change Act 2008
The Climate Change Act 2008 provides the framework for the UK’s current climate change policy and legislation. It imposes a legally-binding duty on the government to reduce the UK’s greenhouse gas emissions by 100% by 2050, through a series of “carbon budgets”, thus giving businesses (including investors) a strong signal of the government’s future ambitions.
Carbon Reporting
Medium-sized and large quoted companies have been required to report on their greenhouse gas emissions in their annual company reports for some years. The Streamlined Energy and Carbon Reporting (SECR) regime imposes additional reporting requirements on greenhouse gas emissions, energy consumption and energy efficiency action by quoted companies, large unquoted companies and large LLPs in respect of financial years beginning on or after 1 April 2019. SECR extends carbon reporting requirements to many companies that were not required to report before.
UK Emissions Trading Scheme (the UK ETS)
Since 1 January 2021, the UK has implemented the ETS, a mandatory emissions trading scheme for installations in energy-intensive industries, such as manufacturing facilities, oil refineries and power stations. By the end of each year, the amount of carbon dioxide emitted by an installation must be less than or equal to the amount of ‘allowances’ that it holds.
What can employers do, from a legal standpoint, to be more ‘greener’?
With employers increasingly likely to consider climate change as part of their corporate governance, relevant legal documentation can be drafted (or re-drafted) to assist in reducing greenhouse gas emissions.
The Chancery Lane Project (CLP) is a collaborative effort between lawyers and legal professionals, premised on sharing, and assisting in the preparation of, contractual clauses that are ‘climate conscious’. A free to access database, the CLP is a useful tool in drafting eco-conscious commercial agreements and clauses that incentivise the reduction of carbon emissions.
On 26 February 2020, the CLP published the first edition of its ‘Climate Contract Playbook’, based on pro bono drafting by more than 120 legal professionals at its November 2019 ‘hackathon’. The Playbook includes sixteen precedent clauses that help lawyers, businesses and communities have a positive impact on the climate crisis through environmentally conscious drafting.
Some of the precedent clauses in the Playbook, which may provide inspiration for employers include, but are not limited to:
- Green investment obligations in investment documentation, to allow investors to assess climate risks;
- Clauses that facilitate the termination of supply contracts where the supplier cannot match a greener supplier’s offering;
- Climate gardening leave and sabbaticals for employees in employment contracts or staff handbooks;
- Paris Agreement compliant company objects;
- A climate-purposed non-disclosure agreement (NDA), which ensures that climate change and environmental issues are discussed and agreed upon at the outset of a new commercial relationship;
- A green shareholders’ agreement, which aligns shareholder rights and the company’s future value to environmental outcomes.
- A net-zero employment handbook, which ensures that climate change and sustainability issues (in areas such as commuting, business travel, office air conditioning and heating systems, dress codes, flexible working and procurement) become a key part of the employment relationship and encourage the development of a net-zero culture within the company.
How can our employment team help you?
For employers who are concerned as to how they can reconcile climate governance with their commercial agendas, the preparation of legal documentation, which can provide specific ‘climate conscious’ obligations and targets, could be an appropriate place to start.
If you require employment advice or assistance, please do not hesitate to contact Hanne & Co’s Employment Law Department on 020 7228 0017.
