26th UN Climate Change Conference of the Parties (COP26)
Insurance 2022 - the year ahead
In response to new regulatory requirements, companies will be required to account for the green credentials of contractors and suppliers.
The UK and the European Commission have both adopted proposals obliging large or listed companies to report in their financial statements their assessment and mitigation of climate-related risks and opportunities. In the UK, this will likely apply for financial years ending after 6 April 2022.
In response to this, and pressure from investors and consumers, companies are publishing decarbonisation and net zero plans, which generally include “Scope 3 emissions”, i.e. indirect emissions occurring in a company’s value chain, including both upstream and downstream emissions. That requires a company to try to get contractors and suppliers to align with its stated net zero pathway.
This will give rise to the increasing adoption of climate-conscious clauses in supply chain contracts. These could involve some or all of the following types of clause:
How quickly such clauses are adopted will depend upon relative negotiating power and how quickly large companies become aware of the need to take concrete actions to tackle Scope 3 emissions (and the risks of not doing so). But they are on their way.