Travers Smith is working with The Chancery Lane Project (CLP), a collaborative group of lawyers working pro bono to develop standard contract precedents and model laws to enable communities and businesses to fight climate change. These innovative legal solutions are contained in CLP's Climate Contract Playbook and Green Paper of Model Laws. The CLP has just launched the 2nd Edition of its Climate Contract Playbook and Travers Smith is proud to have contributed a new standard clause to be used in private equity investment documents (referred to as "Bella's Clause").
Management teams in private equity-backed businesses are typically incentivised to achieve the business' growth objectives using incentive schemes (often in the form of bonus arrangements or share-based schemes). The value of such schemes is typically dependent on financial performance, growth in value and/or the returns achieved by the sponsor.
Our template clause is designed to incentivise management teams to meet targets which are linked to climate change and environmental issues. The clause is designed as an "equity ratchet" which could increase the size of the management team's stake in the company at exit if the business has achieved its climate change related targets during the life of the investment.
This incentive provision is strongly aligned with the responsible investment principles which have become firmly embedded in the private equity investment agenda. Private equity sponsors are increasingly focused on ESG metrics in their investment appraisal processes, and proactive in the promotion of sustainable business principles during the life of the investment.
"We are delighted to have produced this precedent, aimed at incentivising management teams of investee companies to hit not only financial targets but also targets which are linked to climate change and environmental issues. This reflects a trend in business towards more socially and environmentally responsible conduct and we are very pleased to be assisting CLP with their efforts to embed these concepts within the business community."
Travers Smith's work with CLP, along with a number of other organisations operating in this area, is part of its expanding pro bono programme which includes "Climate, Environment and Sustainability" as one of its core pillars.
Sam Cottman, Director of Pro Bono, said:
"Climate Change poses a global threat on an unprecedented scale. We have been hugely impressed with how The Chancery Lane Project has mobilised lawyers to address this challenge. When the opportunity to be part of that work arose, we jumped at it.
This contribution to the 2nd Edition of the Climate Contract Playbook is just the start of our journey with CLP. We look forward to contributing on additional projects as our relationship grows."
For more information on the Climate Contract Playbook or our contribution to it, please do get in touch with Sam Cottman, George Weavil, Katie McGarry or Raphaella Gabrasadig, and to discuss our Pro Bono programme, please contact Sam Cottman.