29 March 2021

How insurance contracts can help the transition to net-zero

The Chancery Lane Project is launching an initiative to redesign insurance contracts so they can help combat climate change – and you can get involved. Christopher Cundy reports

Next month, The Chancery Lane Project (TCLP) and InsuranceERM will co-host an event bringing together lawyers and stakeholders from re/insurers, with the goal of finding practical legal solutions to accelerate the transition to net-zero emissions.

Legal contracts are incredibly powerful tools for instigating change. With just a few additional clauses, a contract between a client, broker or reinsurer can be altered to encourage “greener” behaviours.

For the growing number of re/insurers that have declared a goal of net-zero greenhouse gas emissions, contracts that promote consideration of climate issues are likely to be a crucial element in achieving their ambitions.

Lawyers collaborate

For the last two years, TCLP has been working to create the legal conditions to fight climate change.

The organisation has brought together hundreds of lawyers, working pro bono, to drive its vision: a world in which every contract enables solutions to climate change and where a climate-conscious approach to writing contracts becomes the new market norm for businesses and the operation of supply chains sector-wide, worldwide.

TCLP has already created dozens of model laws and clauses that can be incorporated into legal agreements for various industries.

These are collated in its Climate Contract Playbook, now in its third edition and containing 50 climate-conscious clauses applicable to multiple sectors and a range of legal transactions.

Contract clauses

One of the most downloaded clauses is its Agatha’s Clause, a supply contract clause that allows customers to exit for a greener supplier without incurring costly exit fees. 

(Like all TCLP clauses, Agatha’s Clause is named after one of the drafting team’s children - to reflect on the significance of the clause on the lives of the next generation.)

The clause is a simple yet elegant solution to a common problem faced by customers in supply chains worldwide: namely the challenge of being locked into contracts without the unilateral ability to push suppliers to improve their green credentials, nor the ability to avoid costly exit fees upon early termination for a greener supplier. The clause also encourages competition on grounds of sustainability within the supplier community.

The Playbook includes two clauses related to the insurance sector:

  • Connor’s clause, which excludes the insured from cover for climate liability, costs and losses occasioned by greenhouse gas emissions where the insured has failed to meet its own emissions targets; and
  • Archie’s clause, which incorporates premium reductions for an insured who meets agreed D&O (directors’ and officers’) climate-related financial disclosure standards. 

But there are plenty more situations where clauses are needed – and this is where lawyers and the re/insurance industry can collaborate.

The event

On 26 April, TCLP and InsuranceERM will co-host an event at which sector specialist lawyers and key stakeholders from the re/insurance industry will come together to collaborate on ideas for high-impact contract clauses that will accelerate the insurance sector’s transition to net-zero emissions. 

Nigel Brook, partner and global head of reinsurance at Clyde & Co, will be senior facilitator at the event, which will produce contract clauses relating to:

  • management of risk associated with the transition to a green economy, for example:
    • via questions on proposal forms, ascertaining if risk is compatible with the insurer’s appetite for proactively contributing to the transition; or
    • where insurance is key to “green” projects going ahead, and how the insurers can share the long-term benefits of such projects should also be considered. 
  • enhanced resilience to physical climate risks posed by climate change, for example:
    • questions on proposal forms to identify steps taken to make insured assets more resilient to climate-driven risks, such as storm surge, intense rain, etc.; or
    • where policies are written on a conventional 12-month basis, a multi-year framework agreement under which insurers undertake to adjust the premium, deductibles, or other policy terms if the insured implements certain climate-related measures.
  • building innovative models for future loss experience; and
  • transparency and disclosure, such as the role of boardroom awareness and climate change training in the context of D&O insurance.

Anyone can participate in TCLP’s events. Participants do not need to be an expert in the practice area or industry being discussed. All participants need is the enthusiasm to engage with fellow participants and contribute their skills in developing the legal frameworks to fight climate change.

Please note, InsuranceERM will not be reporting from the events so participants can speak freely, off the record.

The schedule for the event series is: 

  • Monday 26 April at 2pm-3pm (UK time): Session 1: Generating ideas for clauses (1 hour)
  • Tuesday 4 May at 2-3:30pm (UK time): Session 2: Developing the ideas for clauses (1.5 hours)
  • Tuesday 25 May - Clause submission deadline

To register your interest in joining the event series:

Sign up here