From Ambition to Action: How Climate Contracting is Rewiring Finance

A recap of our recent session with Guillermo Miranda Garcia from The Chancery Lane Project

The gap between corporate climate ambitions and meaningful action has never been more apparent. While boardrooms worldwide craft glossy transition plans and net-zero pledges, the question remains: how do we transform these aspirations into legally enforceable reality?

In our recent OSFSS session, Guillermo Miranda Garcia, a lawyer and legal tech entrepreneur working with The Chancery Lane Project (TCLP), presented a compelling solution: climate contracting. His message was clear—lawyers and finance professionals don't need new statutes or stakeholders to drive decarbonization. They simply need to harness the tools they already have: contracts.

Guillermo Miranda Garcia led an informative and inspirational virtual session.

The Legal-Financial Risk Nexus

Guillermo opened with a sobering reality check. Climate impacts, nature loss, flood risk, and carbon pricing are no longer distant concerns—they are immediate business and financial risks. Markets are already repricing assets accordingly, with major banks rewiring their due diligence processes to factor in these realities.

"The plumbing matters," Guillermo emphasized, using a vivid metaphor. "If the plumbing leaks, all the sustainability talk goes straight down the drain." The "plumbing" he refers to encompasses investment mandates, loan covenants, board charters—all the contractual infrastructure that underpins financial transactions.

This creates what Guillermo calls a "triple overlap of risk": legal (director duties, disclosure accuracy, regulatory investigations), commercial (supply chain disruption, stranded assets, resource scarcity), and financial (valuation swings, cost of capital changes). At the intersection lies litigation risk, with greenwashing claims becoming increasingly common.

The Greenwashing Reality Check

Guillermo shared a telling hypothetical: a European consumer goods giant faces a class action after making a "net zero by 2040" pledge that relied on unverified offsets with no credible roadmap. The plaintiffs used the company's own transition plan to claim misrepresentation.

"If their board had paid attention to how this was linked to actual cuts and impacts, the defense would have been much stronger," Guillermo noted. The lesson? Without enforceable mechanisms in contracts, transition plans become legal vulnerabilities rather than strategic assets.

Climate Contracting: The Three-Step Ladder

The Chancery Lane Project's approach to climate contracting follows what Guillermo calls a "three-step ladder":

1. Reporting and Data

"If information isn't flowing, nothing else matters." This involves supplier emission questionnaires with third-party audit rights. You cannot manage what you cannot measure—and you cannot measure what you do not contractually require.

2. Targets and Operations

Once data flows, contracts can embed measurable milestones: a 10% emission intensity cut by 2027, biodiversity-positive site management, or specific renewable energy targets tied to contract duration.

3. Incentives and Enforcement

The final step aligns consequences with performance through margin ratchets, performance fees, or termination rights. As Guillermo put it: "Data, duty, and then the money."

Matteo's Clause: A Swiss Army Knife for Finance

One of TCLP's latest innovations is "Matteo's Clause"—named after the nephew of the colleague who developed it, following TCLP's tradition of naming clauses after the most important children in drafters' lives. This comprehensive clause serves as a Swiss Army knife for finance professionals, translating Paris Agreement targets and UN Sustainable Development Goals into contractual language.

The clause accomplishes three things simultaneously:

• Forces data collection: No more "we'll figure it out post-close"

• Flags red lines: If climate risk cannot be quantified, the deal pauses

• Ensures adaptability: Usable across term sheets, side letters, and M&A processes

  
  

During our session, participants raised intriguing questions about board oversight structures and the emerging market for climate-related warranties and indemnity insurance—highlighting how these innovations are creating new professional considerations across the legal and finance ecosystem.

The Supply Chain Imperative

Guillermo emphasized that for most companies, the bulk of emissions lie in Scope 3—their supply chains. He cited one technology company's discovery that 90% of their emissions were in Scope 3, leading them to work collaboratively with suppliers rather than using purely coercive approaches.

This creates a cascade effect. As European disclosure requirements drive companies to demand emission data from suppliers, even small and medium enterprises in developing countries find themselves needing to measure and report their environmental impact. "We've seen companies in Colombia scaling up around EUDR compliance just to maintain their European coffee export clients," Guillermo observed.

From Political Uncertainty to Contractual Certainty

One of Guillermo's most astute observations concerned political volatility. While regulatory landscapes shift—from Trump's election in the US to uncertainty around the EU's omnibus package—contracts provide stability.

"Contracts will outlive political changes," he argued. "Even if CSRD disappears or you have a non-ESG-friendly government in your biggest market, you can still walk down the line if you have these provisions in place."

This insight resonates particularly strongly in our current moment of regulatory uncertainty. Rather than waiting for policy clarity, finance professionals can build climate resilience into their deal structures today.

The Transition Plan Revolution

Guillermo's most compelling argument centered on transition plans. While these documents often read like "letters to Santa Claus," climate contracting transforms them into binding roadmaps with transparent data, clear milestones, and real consequences for missing targets.

Examples include:

• Linking executive compensation to emission reduction targets

• Tying interest margins to biodiversity metrics

• Embedding third-party verification requirements in loan covenants

• Creating fund manager carry structures around climate performance

  
  

Building the Community

The Chancery Lane Project operates as an open-source community of volunteering lawyers from over 100 firms. Their motto—"rewrite contracts so you can rewire the economy"—reflects a fundamental insight: since economic transactions are governed by contracts, changing contract precedents can change economic outcomes.

All TCLP resources are free, from clause libraries to their recently launched "Climate Contracting in Action" course, which provides 30 hours of CPD-certified training. The organization has also created working groups that meet biweekly, allowing professionals to share progress and challenges in implementing climate contracting approaches.

Practical Next Steps

For OSFSS members interested in exploring climate contracting, Guillermo suggested three immediate actions:

1. Scan a contract template for where climate and nature considerations might be relevant

2. Pilot one clause—Matteo's Clause offers an excellent starting point for finance professionals

3. Join the TCLP community to share learnings and connect with peers tackling similar challenges

Looking Forward

Guillermo's presentation illuminated a path forward that doesn't require waiting for regulatory clarity or technological breakthroughs. The tools for driving decarbonization through finance already exist—they simply need to be deployed more systematically and creatively.

As market expectations continue evolving and investors increasingly demand proof of climate commitments in legal documents, climate contracting offers a practical bridge between aspiration and accountability. For finance professionals, the question is no longer whether to integrate climate considerations into contracts, but how quickly and effectively they can do so.

The session reinforced a key theme in sustainable finance: the most powerful changes often come not from revolutionary new approaches, but from the systematic application of existing tools in service of new objectives. In climate contracting, lawyers and finance professionals have found a way to make every deal a climate deal—one contract at a time.

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The OSFSS regularly hosts sessions exploring the intersection of law, finance, and sustainability. For information about upcoming events and resources, visit our website or contact us directly.