ESG in Action: Turning clauses into climate action with The Chancery Lane Project

Alex Holsgrove Jones (00:21)

Welcome to ESG in Action. Today I'm joined by Clarissa Lambourne from The Chancery Lane Project, an organisation focused on using the power of contracts to support climate action. At TLT, we've collaborated with The Chancery Lane Project, or TCLP, for a number of years across several projects, including the creation of a built environment climate contracts tool, to draw together resources for the whole life cycle of a built environment project.

Clarissa, thank you so much for joining me. It's so great to have you on the show.

Clarissa Lambourne (00:53)

Thank you so much for having me.

Alex Holsgrove Jones (00:55)

So Clarissa, to get us started, could you tell us a little bit about your background and what you do at the Chancery Lane project?

Clarissa Lambourne (01:03)

Sure. So I am a lawyer, I'm dual qualified in the Philippines and in England and Wales. Most of my experience is in the Philippines. And I started off in dispute resolution, then moved to corporate and M&A projects, project finance, that kind of thing. I took my masters in global environment and climate change law from the University of Edinburgh. And then I joined The Chancery Lane Project, as you say TCLP in 2021.

I work mainly in engagement, speaking to companies and law firms like yours, presenting climate-aligned contracting to them. But currently I am now a principal legal engineer at TCLP. I develop digital and AI tools that make it easier for lawyers to implement climate clauses in contracts.

Alex Holsgrove Jones (01:49)

So for listeners who may be new to TCLP, how do you describe what the organisation does and why climate-aligned contracting is so important?

Clarissa Lambourne (02:01)

So TCLP is a UK charity. We started off developing climate clauses for contracts and other legal documentation like due diligence, questionnaires, board minutes, that sort of thing. We have guides and toolkits that businesses can use to help them decarbonize. And all of our content is open access and free on our website. We are currently expanding to include general sustainability topics like adaptation, nature, 'just transition'.

And also developing digital and AI tools that will make it easier for businesses to take our content and then use them in contracts. So why climate-aligned contracting matters? That's such a good question. I think contracts are an underused but really valuable tool to help lawyers and their clients manage sustainability risks, and also to meet their sustainability targets.

You know, climate risk is a business risk. That's like a common saying at the moment. But it's not really enough to identify those risks. So, lawyers have to advise and give solutions to mitigate it. And, you know, they have like a secret superpower because they understand and they write contracts, the underlying mechanisms that make businesses work. And I think climate-aligned contracting gives lawyers this unique tool to mitigate sustainability risks or manage sustainability risks. Climate-aligned contracting also helps businesses meet their sustainability targets. Basically, a contract locks in the carbon emissions that the transaction will produce. So it has a silent and assumed level of carbon emissions.  

So, for instance, like the number of paper clips that you buy, the delivery period, all of this have like a carbon cost that's locked in a contract and it'll be so difficult to change. And lawyers have an opportunity to bring to their clients the chance to meet their sustainability targets through their contracts by ensuring that there's no blockers in the contracts or having positive obligations like requiring suppliers to measure report or reduce their emissions or they could create a policy to repair first their machines or anything like that, before replacing so that they can meet any circular economy targets. Contracts are such an underused tool and I think lawyers should make use of it a little bit more.

Alex Holsgrove Jones (04:34)

Yeah. And one of the messages that really comes through in TCLP's work is that every lawyer has a role to play on climate. So you've mentioned a couple of things there, Clarissa, about how contracts can lock in the emissions and you know how it really is, it's not relevant to just one practice area of law, it's relevant to everything and the way we see things. So it's almost like the lens you look at your client and the contracts through. But if you were to bring it into practical everyday terms for lawyers who maybe haven't started thinking about this, what would it look like?

Clarissa Lambourne (05:11)

We are all sustainability or climate lawyers now. And I think the simplest thing that any lawyer in any practice area can do is to ask themselves, like, is there a climate or sustainability angle in whatever matter that they have on their desk? Because sustainability, as you said, it runs through every transaction now, either as a risk to mitigate or an opportunity to propose that lawyers can create value for their clients. And, you know, I think clients are increasingly expecting lawyers to spot the sustainability issues, especially with the rise in sustainability regulations and even, you know, despite the rollbacks of some of these regulations. So, lawyers need to be really alive to climate related risks like litigation risks, you know, greenwashing risks, physical risks, from extreme climate events, reputation risks, 'just transition' risks.  

These are all risks that exist in any practice area. So for example, if a lawyer is advising on the, let's say the construction and operation or even the financing of a building, like a hotel near the coast, they need to be aware of the potential sea level rise and how that might affect the building, even the company that's building it.  

Another example is like if their client is claiming in their public reports to say that it's on track to meet its target, to have net zero emissions by 2030. I think lawyers need to flag the potential greenwashing risk if they can't substantiate this claim. So for example, they see that the company is actually mainly relying on low quality offsets, that sort of thing. Regardless of practice area, these risks already exist. And risk is like the lawyer's language. So they can easily advise on these sorts of things as long as they upskill themselves on what these sustainability risks are.

Alex Holsgrove Jones (07:10)

And across those different areas of legal practice, where do you see the biggest challenges when it comes to climate-aligned contracting? And also where are the biggest opportunities?

Clarissa Lambourne (07:21)

Yeah, so that's a really good question. I think one challenge that I see is standard form inertia is what I what I would call it. So it's easy, so easy, to use standard forms rather than, you know, question or change any of the terms. I think lawyers worry that any change will involve risk, and it will be difficult or even impossible to negotiate because it's the industry standard. And, you know, that's one thing that we are working on at TCLP is trying to change some of these industry standards to include climate-aligned contracting. But I think that that's one thing that's a really big challenge, I think.

Alex Holsgrove Jones (08:01)

Your clauses and your guidance are created collaboratively, aren't they? So they're not created by you at TCLP. They're created by a collaboration between law firms. Could you just talk our listeners through that just in case they're not aware of how, you know, what happens behind the scenes.

Clarissa Lambourne (08:20)

Yeah, of course. So in the beginning when TCLP was born, we had these legal hackathons where we had lots of lawyers from various law firms and in-house counsel and even barristers. We got together and decided, okay guys, like blue skies thinking, what kind of climate losses can we create to put into our contract? So we have that and then once that's drafted, we send it off to different groups of lawyers to then peer review and make sure that these model clauses that we've created are of high quality in legal terms. But also recent in the last couple of years, we've also asked environmental scientists to take a look and like are we aligned with the the latest science? So, I think that's been that's just a really cool addition like a quality assurance layer on our clauses.

And we can have maybe procurement professionals or other professionals that use and apply the contracts to give their input as well. Another challenge that I see when I have conversations with folks is a mismatch in expectations between legal and sustainability or business teams. So I've been in rooms where sustainability and legal professionals would be there and then the lawyers would ask “Is that a legal requirement?”, and then the sustainability professionals would ask, “well, what legal mechanism can we add or change in our contract so we can reduce our scope three emissions?”. I'm finding actually that legal teams are a little bit behind on sustainability knowledge. I think they really need to upskill on that beyond what the regulations require. I think they're very focused on legal requirements, which is completely fair, it's their jobs. But I think that causes a kind of blocker or a missed opportunity for lawyers to contribute to the businesses and improve their legal skills.

Alex Holsgrove Jones (10:09)

Not just doing what's basically the the legal requirement, going beyond it, which is all what TCLP is all about, isn't it? It's you know, aiming high and being more climate ambitious.

Clarissa Lambourne (10:21)

Yes, exactly that, and this kind of is where opportunities come in. And I kind of see two opportunities for lawyers here. It's future proofing their clients' businesses and then also future proofing their own legal careers. So future proofing clients, at the moment there's a trend that I'm seeing, on integrated transition plans and what lawyers can then do is to implement those transition plans through contracts. So companies have or are creating transition plans. I think that's pretty common now, and mostly they refer to the transition to net zero.  

But we know that the different parts of ESG are so interrelated and one affects the other to a degree that it would make more sense for a company to just tackle the social and governance pieces together with the environment. This means then, you know, taking all of those aspects into account when you're developing an integrated transition plan.  

So, what lawyers can then do is then implement those transition plans by ensuring that their current and upcoming contracts are aligned with those plans. We actually have a guide on how to do this, though it's mostly related to decarbonization, but you can apply it across different contexts and it's on our website. There is future-proofing lawyers' legal careers. So, there's a growing body of literature now, that says that lawyers have a professional obligation to advise on climate risks. So I think by upscaling now on sustainability risks in general, whether it's climate mitigation and adaptation, nature, ecosystems in general, 'just transition', it's a great opportunity for lawyers to stay ahead, and create a career path that would see that their skills remain relevant and useful.

Alex Holsgrove Jones (12:13)

Great. And and you've mentioned there how interlinked everything under ESG is. And that's something that obviously, you know, that I'm very passionate about, ensuring that people understand that, you know, you can't look at one without the other. The environment affects people, society, and governance is needed to make anything work properly.  

But you also mentioned 'just transition' and that's making sure that the move toward a low carb carbon economy is done in a way that's fair and inclusive and that workers, communities and supply chains aren't left behind as we tackle climate change. So how can contracts be used to support a 'just transition'?

Clarissa Lambourne (12:59)

Wonderful question, I love this. TCLP doesn't have resources yet on this, but 'just transition' is a topic I've been thinking about deeply. It's something near and dear to my heart. I'm Filipino and from the Philippines, so I'm very aware of what it's like to come from a country in the global south or a global majority. I'm also contributing a chapter on it, on a forthcoming book on sustainability for risk professionals to be published by Routledge.

Now to backtrack a little bit, 'just transition' essentially marries social risks and human rights with sustainability action. For example, sustainability actions can potentially risk sidelining smaller or local suppliers because they don't have the resources to comply with sustainability requirements. We know as well, especially in the UK, that sustainability actions, like the closure of the mines here, can and has resulted in the loss of a lot of jobs and community degradation.  

And really, this is where 'just transition' comes in. The solution isn't to lower your environmental standards, but to build in contract flexibility and mechanisms to bring everyone into this transition. So you really need to think about and involve your suppliers, your customers, your employees, and even the communities that you operate in or serve. So I have some ideas in this in this realm, you could have like a phased or tiered approach for suppliers. This means giving the less capable suppliers more time to produce something, or you treat them as partners by providing training or resources, especially if they're companies that you trust and you've already worked with.  

In other words, what we want is to avoid like a blanket sustainability clause that's common across every supplier. You want to tailor your requirements based on supplier capability; you provide upskilling tools and resources. Then you can also have a ratchet mechanism in the contract to allow you to increase requirements or improve sustainability ambition over time, just so that your you can also meet your sustainability targets while bringing your suppliers along with you.  

Think another way to include 'just transition' and contracts is to provide capacity building tools, rather than actually terminating your contracts with suppliers who are less capable. So that you can provide like low-cost loans, loan guarantees, blended finance on an industry level, particularly for suppliers further down your supply chain who actually really need the resources.

And then also apart from your suppliers, you also have your employees and even the communities in which you work with. You can provide training and upskilling on new technologies that you intend to employ. And lastly, I think and I think this isn't really 'just transition' specific, but you can focus your enforcement mechanisms on incentives rather than penalties. So you can provide favourable payment terms, sustainable costing that supports wage increases, or a living wage at least, and you can have collaborative production and planning. And then you can also reward your suppliers that meet your own social targets. So you can have social targets in addition to your sustainability targets. And then reward those that meet those targets as well.

Alex Holsgrove Jones (16:24)

Yeah, so it's about helping people on their journey rather than penalizing them for not being at the stage you want them to be at, at a given point, isn't it? Because you know, obviously smaller suppliers will need more collaboration and engagement. But actually, you're having a greater impact if you help them move along rather than you just discount them from dealing with them. So, if all what you're saying encourages listeners to explore TCLP's open access resources, where would you suggest somebody who hasn't delved into the TCLP world yet, where would you suggest they start?

Clarissa Lambourne (17:02)

Kind of start with what's on your desk. Is there, ask yourself, like, is there a climate or sustainability angle here? And then from there you can see more or less what sort of TCLP resources you might want to start with. We have a new website called Labs, so labs.chancerylaneproject.org. And this is where we showcase our prototypes and experiments of digital tools that can help lawyers with climate-aligned contracting.

For example, we have a tool that can show you whether your contract is aligned with SBTI frameworks, a tool that can benchmark your contracts against the Global Reporting Initiative, and a few others. And if you do use our tools, please do provide us feedback as we are looking to constantly improve them. We also have guides, which I mentioned earlier. If there's something in particular that you're looking for, like a menu of penalties or incentives, how to implement transition plans - I find this is a good place to get general ideas. As mentioned earlier as well, we have clauses and also glossary terms. So, clauses are there to give you legal wording that you can amend or adapt to your specific matter. There's a search function and filters that will help you figure out which clause you might be interested in. And then our glossary terms are definitions you can paste into contracts.  

We also have case studies. So these are a sampling of real-life examples of how companies have been climate contracting, which I think is, I find what convinces most people to start thinking about it because they can see, oh this company had done this, they had done this this way. So yeah, those are I think really good places to start.

Alex Holsgrove Jones (18:41)

Yeah, I was going to ask you actually, Clarissa, what you know, obviously not everyone's going to be immediately convinced that climate contracting is a good idea. So, what are the most common concerns you hear and how do you respond? I mean, you've mentioned already case studies. Is there anything else that you would you would suggest to people?

Clarissa Lambourne (19:00)

Well, it depends on their concern, right? So, the most common concern that I find is cost, which is completely understandable, you know, people worry that adding sustainability provisions to contracts will cost more to the company. And the way that I would respond to that usually is to say really it will, it will cost, especially in the immediate future. Sustainability action and transitioning to a low carbon nature positive way of working will entail additional cost, especially in the short term. And this is a really hard, this is a really hard fact for industries with small margins.  

But you know, whatever views you have on climate change and the environment or future generations, that sort of thing, this is not about it's not about that. It's about managing business risks and making sure that businesses remain resilient. And the simple fact is that it comes at a cost, as with many other business risks like insurance or employee satisfaction.  

The question you should be asking isn't ‘who's going to pay for all of this?’, the question is ‘how much is this going to cost you in the future if this isn't done?’. Then I kind of share stories around how other companies have done this, and one of my favourite ones is that of a major automotive manufacturer, their sustainability and finance teams realized that getting carbon data is associated with understanding the cost of their product. So, by gathering this data, by doing this exercise, they could tell whether a supplier was overcharging them or not. So they found a few suppliers were actually overcharging them and they changed that, and they used those savings to finance greener alternative materials. And then in the end, they were able to reduce their carbon emissions without additional costs. And this is why case studies are really useful. We're having a bit of trouble actually getting case studies published on the website because, understandably contracts are confidential, nobody really wants to talk about them.  

But we have a climate clauses working group that meet every month and we have sustainability professionals, procurement and legal professionals, go there and kind of share their best practices. And this is where you can hear a lot of the stories that we're not allowed to publish. So, folks may want to join that as well.

Alex Holsgrove Jones (21:21)

Just a final question before we move to your top tip. When climate clauses are used well, what does good actually look like beyond simply just including them in the contract? Because you can put whatever you like in a contract, but actually, is it driving that positive change?

Clarissa Lambourne (21:41)

That's a really good question. The first thing is they still need to live in the contract. So that's the basic thing that they're agreed by the parties. But more importantly, of course, they're complied with or enforced, you have kind of these checks and balances within the contract.  

And then ideally, in my view, there's a ratchet mechanism allowing for review, an increase in sustainability requirements or targets. Like this is all really challenging. And I think beyond the contract, beyond simply looking at the contract, and especially for lawyers, I think it's a mindset shift. We are all sustainability lawyers now, we said earlier, and it's not a subspecialty anymore. It's not about meeting legal requirements or really related to sustainability or the environment or health and safety like, this is not just for those sorts of lawyers anymore - It's everybody. There are real legal business and professional risks associated with sustainability. And this I think this is a really good time for lawyers to really take the reins, upskill, and kind of future-proof their, and their clients', businesses.

Alex Holsgrove Jones (22:46)

Thanks, Clarissa. Now we always like to leave listeners with something they can actually go away and do. So, if there's one practical step that our listeners could take in the next month, what would you recommend?

Clarissa Lambourne (23:00)

First of all you look on your desk and ask yourself ‘what is the sustainability angle here?’. Now, if you use Claude, you can try our climate-aligned contracting skill, which is in our Labs website and on a contract that you're already drafting and then kind of see what it suggests. If you don't use Claude or you don't like AI, you don't use AI - try having a conversation with a colleague or your boss, a friend, and think about the advice that you currently give normally and think about ‘what are the sustainability risks and how might you use contracts to manage them?’. So TCLP's resources are there just to serve as an inspiration. What I really want lawyers to think about is how any and all of their contracts can block or enable sustainability action.

Alex Holsgrove Jones (23:48)

Thanks, Clarissa. What a great point to end on. Thank you so much for joining me today. It's been great to dive deeper into the positive changes that the Chancery Lane project is driving with its climate conscious clauses. So, thank you.

Clarissa Lambourne (24:02)

Thanks so much for having me, Alex.

Alex Holsgrove Jones (24:04)

And thank you to our listeners for tuning in. If you enjoyed this episode, don't forget to subscribe and share. Until next time, keep driving positive change and putting ESG into action.