The Impact Of Climate Change On Contracts And The Law

• Published date: 23 December 2021
• Subject Matter: Corporate/Commercial Law, Environment, Government, Public Sector, Corporate and Company Law, Contracts and Commercial Law, Environmental Law, Government Contracts, Procurement & PPP, Climate Change
• Law Firm: Fenwick Elliott LLP
• Author: Mr Jeremy Glover

Writing this article, as Jeremy Glover is, just before COP 26 means that it must start and end with the obvious disclaimer that everyone should look out for details of any agreements that are made at the end of the Glasgow summit. More particularly, everyone should look for the small print and finer details of any agreements made and lauded by the politicians in attendance. What do they really mean, in practice? That is not to say that that there will not be progress.

The Paris Agreement, adopted on 12 December 2015 and ratified by the UK on 17 November 2016, provided that countries should hold the increase in global average temperature to: "well below 2'C above pre-industrial levels and to pursue efforts to limit the temperature increase to 1.5'C above pre-industrial levels." The UK then went further than that. In order to reflect the change in temperature target set by the Paris Agreement, the Climate Change Act 2008 was amended in 2019 to read: "(1) It is the duty of the Secretary of State to ensure that the net UK carbon account for the year 2050 is at least 100% lower than the 1990 baseline."

It is, therefore, likely that further primary and secondary legislation will follow COP 26.

The role of the UK Government

The UK Government is, of course, a major employer or client within the construction industry and it may¹ be that the government will take the lead in making changes to construction contracts and practice. An obvious source of pressure to achieve net zero and similar environmental objectives could come from investors requiring that their capital is invested in a sustainable way. Whilst there is no UK legislation currently requiring companies to fall within certain carbon emission limits, something the forthcoming Environment Bill will not really change, the comments made by the then UK construction minister on 21 July 2020, Ann-Marie Trevelyan² suggest one way forward:

"It's likely that, going forward, government tenders will place greater emphasis on climate change. We have made it very clear that wholelife value rather than upfront cost is key, and carbon impact is a critical element in assessing broader value."

The minister listed three government actions to ensure contractors commit to reducing carbon contributions:

• A "carbon exclusion measure", or warning that companies without net-zero plans, or not committed to net-zero by 2050, will be barred from bidding for public sector work. The policy will apply to contracts above '5m.
• National Procurement Policy statement: public sector buyers must consider how their procurement can tackle climate change and reduce waste.
• A requirement for central government departments to "expressly evaluate environmental, social and economic benefits" during the procurement process.

These actions came into force at the beginning of October 2021 and all companies bidding...