gain-share-incentive-for-reducing-ghg-emissions.md

title: Gain-Share Incentive for Reducing GHG Emissions excerpt: date: 2024-03-27T14:16:42Z modified: 2025-10-09T11:08:59Z file_type: md permalink: clauses/gain-share-incentive-for-reducing-ghg-emissions.html wpid: 2115 status: publish type: clause jurisdiction:

• England & Wales maintenance-status:
• Maintained practice-area:
• Commercial
• Supply chain eleventyComputed: clause_child_name: "Jess and Rory's Clause" clause_summary: This clause incentivises a counterparty to reduce greenhouse gas emissions in exchange for a gain-share payment calculated by reference to the value of the goods or services it provides. clause_last_updated_date: 2025-02-17 layout: layouts/clause.njk

Gain-Share Incentive for Reducing GHG Emissions

Child’s name

Jess and Rory's Clause

Summary

This clause incentivises a counterparty to reduce greenhouse gas emissions in exchange for a gain-share payment calculated by reference to the value of the goods or services it provides.

What this clause does

This clause introduces a gain-share payment into a contract. Receiving a gain-share payment in exchange for reducing greenhouse gas emissions during the contract term is a powerful incentive for a party to decarbonise – especially in sectors that operate on narrow margins (like construction) or commercial environments undergoing aggressive cost savings.

Clause Content

[Drafting note: capitalised terms relate to a defined term in this clause or a defined term in the main agreement that this clause is designed to be inserted into.]

1. Measure, manage and report GHG Emissions

1.1 From [insert date OR the date of this Agreement] and for the duration of the Term, Party B shall measure, manage and report its GHG Emissions in accordance with the provisions of [this clause [ ] OR these clauses [ ] to [ ] ].

1.2 [From the date of this Agreement OR Within [number] days of the date of this Agreement] Party B shall formally adopt and implement the Carbon Footprint Standards.

1.3 Party B’s board shall nominate 1 (one) of its directors to be responsible for ensuring that Party B complies with the Carbon Footprint Standards and requirements of this clause [1] during the Term.

1.4 Within 3 (three) months after each anniversary of the date of this Agreement, Party B shall submit a GHG Report to Party A.

2. Contents of GHG Report

2.1 This clause [2] sets out the minimum requirements for the contents of the GHG Report.

2.2 The GHG Report shall report and [where appropriate] explain for the GHG Reporting Period:

2.2.1 the industry best practices on managing and reducing GHG Emissions that Party B has applied, and how Party B has applied them;

2.2.2 Party B’s measured Scope 1, 2 and 3 Emissions;

2.2.3 the measured Services Carbon Footprint;

2.2.4 the measured Supply Chain Carbon Footprint; [and]

2.2.5 the reduction in GHG Emissions achieved by Party B measured against the Scope 1, 2 and 3 Emissions stated in the GHG Report for each preceding GHG Reporting Period [; and

2.2.6 [insert additional requirements]].

3. Verification

3.1 In order to ensure the accuracy and reliability of the GHG Report, Party B shall cooperate and collaborate with Party A as reasonably required on:

3.1.1 how Party B measures, manages and reports on its GHG Emissions;

3.1.2 Party B’s preparation of each GHG Report; and

3.1.3 the other obligations on Party B under this clause.

3.2 If Party A reasonably requires it and notifies Party B within [number] days] of the date of a GHG Report (and not more than once in relation to any GHG Reporting Period), Party B shall appoint an independent external auditor or verification authority (as agreed between the parties) to certify its GHG Report.

3.3 Party B shall meet all costs associated with the external auditing and verification of the GHG Reports commissioned in accordance with clause [3.2].

4. Reduction of GHG Emissions

4.1 Party B will reduce its GHG Emissions by no less than the percentage shown in clause 4.2 in each GHG Reporting Period to which a GHG Report relates.

4.2 Party B will reduce the Services Carbon Footprint by [●] percent each GHG Reporting Period (when compared to the previous GHG Reporting Period) for the duration of the Term.

5. Gain-Share Mechanism

5.1 Where Party B reduces the Services Carbon Footprint by more than the percentage stated in clause [4.2] in a GHG Reporting Period then the following gain-share mechanism shall apply (the Gain-Share Mechanism):

Total Reduction = the absolute reduction in Carbon Footprint between [year] and [the following year] [as stated in the GHG Report]

Additional Reduction = Total Reduction less the Agreed Reduction (as set out in clause 4.2)

Gain-Share Payment = Additional Reduction x [insert agreed rate*] to offset 1 (one) tonne of Carbon Dioxide Equivalent x 50 (fifty) percent.

[*Drafting note: the rate should be in line with those for a high quality, verified project in accordance with the Oxford Principles for Net Zero Aligned Carbon Offsetting (as amended)]

6. The Gain-Share Payment

6.1 The gain-share payment(s) shall be calculated in accordance with the Gain Share Mechanism described under clause [5] (the Gain-Share Payment).

6.2 Subject to clauses [6.3 and 6.4] the Gain Share Payment shall be paid by Party A to Party B in accordance with clause [6.5].

6.3 The total Gain-Share Payment(s) due from Party A to Party B in a GHG Reporting Period shall not exceed [●] percent of the annual value of the Services provided by Party B to Party A during the same Contract Year to which the GHG Reporting Period relates.

6.4 If Party A requests certification of the relevant GHG Report by an external auditor or verification authority in accordance with clause [3.2], the Gain-Share Payment shall only become due for payment after any verification process pursuant to clause [3.2] is complete.

6.5 Party B shall invoice Party A for any Gain-Share Payment after it has become due for payment in accordance with this clause [6] and it shall be paid by Party A as if it were part of the payment for the Services [in accordance with the terms of the [Agreement OR insert reference to relevant payment terms].

6.6 Party B shall invest at least [●] percent of any Gain-Share Payment(s) received by Party A into green or sustainability initiatives (such initiatives to be agreed between the parties). Party A reserves the right to ask Party B for evidence that it is complying with this requirement and Party B shall provide such documentary evidence upon reasonable request without delay.

6.7 Any dispute arising out of or in connection with the Gain-Share Payment (including without limitation disputes relating to its calculation, payment, and application) shall be resolved in accordance with the [Agreement OR insert reference to Alternative Dispute Resolution Clause].

Updates

February 2025

This clause has been updated following a routine quality assurance review. Some wording was amended and some definitions were added to improve clarity. A drafting note was added about offset rates.