Legal checklist for startups

Legal Checklist For Startups - A Quick Guide

Starting a business can be hectic – hopefully this legal checklist for startups will help you avoid falling into the kinds of traps that we often see businesses falling into before they come to us for advice.

Ideally you want to have all of the following in place as soon as possible:

  • Customer contracts
  • Supplier contracts
  • Staff contracts
  • Data protection compliance
  • Licence to occupy / lease
  • Shareholder agreement
  • Legal notices / policies
  • Insurance
  • Tax
  • Companies House
  • Other

Legal Checklist For Startups: Customer Contracts

If you do not have proper contracts in place with your customers then there’s a high risk that sooner or later there will be a problem. If the goods or services that you are supplying are low priced or if you take payment in advance then the risk of non-payment for those goods or services shouldn’t hurt you as long as non-payment only happens rarely. However, a contract is not just there to protect you from non-payment. If your contract isn’t clear on things like when it starts, how it ends and what the goods or services are that you are delivering then you run the risk of having time-consuming arguments with your customers about what the true position is or worse, they sue you. Other clauses can be very important as well such as clauses limiting your liability and ownership / licensing of intellectual property rights. If you don’t protect yourself properly in your contracts you are not just running the risk of being sued or losing your rights, you are running a business that investors won’t find attractive. Check out our blog here about what you should look out for in a contract.

Legal Checklist For Startups: Supplier Contracts

More often than not you will need to contract on your suppliers’ terms and conditions of business. The previous section refers to the kinds of things you need to look out for. If you can’t navigate your way around a contract then find someone who can help you if you are going to enter into a contract with a supplier that is important or high value. If you are having something crucial like software being built for you then you should get the contract checked but above all you should read what is put in front of you. Do not assume that the agreement will be fair or that because it is for a basic service it won’t contain “nasties”. It happens less so now thanks to paper being less prevalent in offices but in the past, many businesses fell foul of office photocopier contracts that tied them in to paying for support charges for 5 years or more.

Legal Checklist For Startups: Staff Contracts

You need to have appropriate contracts in place with your employees because it is a legal requirement. You should be able to source basic contracts at low cost. Basic contracts should cover you for an employee who, if they leave, is not going to hurt your business by working for a competitor or by taking confidential information such as client lists or intellectual property out of the business. However, if your business could be damaged in these scenarios, then ensure that your contracts are drafted by an employment lawyer who will include appropriate provisions to make it easier for you to take action against a departing or rouge employee. In practice, having properly drafted clauses restricting what a departing employee can and can’t do often prevents the mischief occurring in the first place.

Although there is no legal requirement to have a written contract in place with a consultant, the usual reasons for having written contracts in place with any supplier apply – clarity being one of them. Also, if your consultant is going to create anything for you, for example, software, reports, designs – i.e. things that contain intellectual property rights – then if you don’t include appropriate written clauses, the consultant will be the owner of those things that they are creating for you and your business will have limited rights to use them.

In addition to your employment contracts you should consider having a staff handbook drafted. The staff handbook contains your policies about behaviour and standards as well as disciplinary and grievance procedures. It makes things a lot easier to deal with if there is an issue with an employee down the line. If you are a high growth start up then you should put a staff handbook in place from the outset.

Finally, it’s a legal requirement to offer your employees a pension so make sure you understand what you need to do in this regard.

Legal Checklist For Startups: Data Protection Compliance

Firstly, you need to register your business with the Information Commissioner’s Office and pay their fee.

All businesses need to comply with the retained EU law version of the General Data Protection Regulation ((EU)2016/679), called the UK GDPR along with the Data Protection Act 2018 (DPA 2018), and if using such data to market to customers, then the Privacy and Electronic Communications Regulations (PECR).

To comply with data protection laws you need to understand them and how they impact your business and then put appropriate policies and notices in place. It can be expensive getting professional advice but it will save you a lot of time because data protection compliance is complex and, in our experience, it is unlikely that you are going to get things right if you don’t seek professional help. If you are processing “special category data” i.e.

  • personal data revealing racial or ethnic origin;
  • personal data revealing political opinions;
  • personal data revealing religious or philosophical beliefs;
  • personal data revealing trade union membership;
  • genetic data;
  • biometric data (where used for identification purposes);
  • data concerning health;
  • data concerning a person’s sex life; or
  • data concerning a person’s sexual orientation

then we highly recommend you obtain expert advice from the outset because the ICO is more likely to come down hard on an organisation that gets things wrong when they are processing this kind of data.

If you want to send marketing communications to your customers or potential customers then it is important to get your opt-in / opt-out messaging correct and to comply with PECR. Again, either follow online guidance or have an expert advise you.

Legal Checklist For Startups: Licence To Occupy / Lease

Most start-ups nowadays don’t take on the commitment of a lease, opting instead to use a serviced office on a 12 month licence to occupy. If you are going to sign up to a licence to occupy then make sure you have read and understood the terms. You must be clear on what payments your business will be liable for, looking out for those hidden extras. The other really important clauses are those around termination. Look out for a clause that says the licence will automatically renew for another 12 months unless appropriate notice to terminate is given by you. So many businesses miss this and then find themselves tied in for another 12 months.

If you are going to enter into a lease then get the lease checked by a lawyer who specialises in this area because leases often contain traps for the unwary. You are not going to spot the issues unless you are an expert and getting this wrong can be very costly.

Legal Checklist For Startups: Shareholders Agreement

If you have set up a company with someone else you should put a shareholders agreement in place, especially if you hold a minority of the shares. You don’t have to have one – you can rely on the articles of association of your company and company law to protect you and regulate how things are done in the company. But if you don’t have a shareholders agreement in place it makes things much harder to deal with if you fall out with the other shareholders. You probably will fall out at some point and we see this all the time – businesses coming to us for help because the shareholders can’t agree on how to do things. We have to try and resolve things often with another lawyer on the other side of the table and it ends up costing the business dearly when it wouldn’t have been the case if a shareholders agreement had been in place.

Legal Checklist For Startups: Legal Notices / Policies

Your website should be displaying a privacy notice and, if it is using cookies, a cookie notice. Other website notices such as acceptable use and website terms of use policies aren’t essential but they are very low cost to obtain, give you some protection and make you look the part.

If your business employs five or more people you must have a written health and safety policy.

Although not mandatory, you should put an equal opportunities policy in place. If you don’t then this can count against you if an employee claims discrimination.

If there is any risk at all of someone in your business or supply chain bribing another person then you should have an anti-corruption and bribery policy in place. If you don’t then it’s unlikely that you will be able to demonstrate that your company had adequate procedures in place to prevent bribery and criminal sanctions may be applied.

Legal Checklist For Startups: Insurance

If your business has staff you need to have employer’s liability cover in place – it’s a legal requirement.

Depending on the industry you are in, your regulator may require you to have other types of insurance in place such as professional indemnity insurance.

Legal Checklist For Startups: Tax

You must register your business with HMRC and pay tax. Engage an accountant for this.

Companies House

If you have set up a company in England & Wales then you must ensure that your filings are up-to-date at Companies House. Register for “Companies House Webfiling” so you or whoever you have outsourced to can make filings online.


You should consider whether anti-bribery compliance is necessary for you. You can read more about this here and we have done a blog about the Bribery Act here. If you are providing services to the public sector, in an industry where bribery is medium risk or above (e.g. the construction sector) or working in jurisdictions where the corruption perception is medium risk or above you should put a compliance programme in place from the outset – having an anti-bribery policy is not enough.

If your business activities are regulated, you will need to register with and obtain the relevant consents from those regulators.

You should also consider:

Having a non-disclosure agreement ready to send to individuals / other businesses. It’s unlikely you will find investors right at the beginning but if you have built an exciting product then you may be able to find investment rapidly and you should put an NDA in place with potential investors before you start discussions.

Protecting your trademark. If you can live with changing your brand name if someone else comes along with the same or similar name then not to worry. If you can’t then register your trademark asap.

Final Thoughts

Hopefully you will find this legal checklist for startups useful. It’s very much a guide and you should do your research or ask for help around compliance issues specific to your industry. Good luck with your business and if we can be of any help please get in touch.

Bribery Act

Bribery Act 2010 - Ten Years On

The Bribery Act 2010 came into force in July 2011. For UK businesses operating in the emerging and frontier markets its effect was seismic. Organisations were suddenly faced with having to comply with some of the toughest anti-corruption rules in the world - many simply stopped doing business in certain countries. Ten years on, how has the Bribery Act fared?

The Bribery Act - Criminal Activities

The Bribery Act 2010 repealed the existing anti-bribery legislation and abolished the common law offence of bribery. It created the following offences:

  • Active bribery, which prohibits giving, promising or offering a bribe (section 1).
  • Passive bribery, which prohibits requesting, agreeing to receive or accepting a bribe (section 2).
  • Bribing a foreign public official (section 6).
  • An offence committed by a commercial organisation where a person performing services on the organisation’s behalf pays a bribe to obtain or retain a business advantage for the organisation (section 7). This is commonly known as the offence of failing to prevent bribery.

What is a bribe?

The Bribery Act refers to a "financial or other advantage" so it doesn't just cover the payment of money. it can include things such as:

  • gifts and hospitality.
  • employing the relatives of public officials.
  • paying for travel expenses and accommodation costs.
  • making political of charitable donations.
  • engaging the services of a company which a public official has an interest in (e.g. as a shareholder).

The Bribery Act - Section 7

It was section 7 of the Bribery Act that caused businesses (and directors - see below) the most concern. Under section 7 if a person (e.g. a supplier or a subcontractor) associated (e.g. working with) with an organisation bribes another person, intending to obtain or retain business or a business advantage for that organisation then that organisation is guilty of an offence under section 7 unless it can rely on the defence outlined below. So if the subcontractor of a UK business bribed a foreign official, the UK business would, on the face of it, have committed an offence under the Bribery Act for failing to prevent that bribery.

There is a defence to section 7 though: if the UK business can demonstrate that, on the balance of probabilities, it has in place adequate procedures in place designed to prevent bribery then it would not be guilty. Putting in place “adequate procedures” can be complex, costly and time-consuming, depending on the type of work and the jurisdictions in which the UK business is operating in. We will publish a note on “adequate procedures” at a later date.

Bribery Act Penalties

An individual guilty of a section 1, 2 or 6 offence is liable to a maximum 10 year imprisonment or a fine or both. Any other person (such as a company) guilty of an offence under section 1, 2, 6 or 7 is liable to a fine. Organisations can also be barred from participating in tenders for public contracts.

Company directors can also be found individually liable if they consented to or connived in the commission of the offence. "Conniving" in an offence means that the individual knew it may occur but did nothing to prevent the offence from happening - "turning a blind eye" would be connivance.

Bribery Act - the consequences

The combination of a strict approach to corporate liability, a reverse burden corporate defence and a global jurisdictional reach resulted in the offloading onto businesses of a wide-ranging responsibility to police themselves and their supply chains to do their utmost to eradicate the risk of bribery. Compliance departments bulked up and lawyers were kept busy advising on the Act and the procedures and policies that organisations had to put in place. As we allude to in the opening section, some businesses drew a line halfway down Transparency International’s Corruption Perception Index and adopted a policy that they would not do business in jurisdictions below that line. Other countries have adopted similar tough laws to prevent corruption and, although corruption still goes on, it is harder (and more costly) to behave in this way. As to whether the Bribery Act and other modern anti-corruption laws have reduced corrupt behaviour over the last 10 years - that is difficult to say. Some commentators indicate that illicit financial flows are larger now than before.

Litigation under the Bribery Act

Freedom of information requests have revealed that, after ten years, there has been a grand total of 99 convictions under the 2010 Act ( What is particularly notable is that only two of those convictions have been made against corporates for the failure to prevent bribery offence under section 7 of the 2010 Act.

The majority of the Serious Fraud Office’s (SFO) wins in relation to bribery principally relate to the use of deferred prosecution agreements. Deferred prosecution agreements (DPAs) were introduced in the Crime and Courts Act 2013, which set out a statutory mechanism that allows investigations into fraud, corruption and other crime committed by corporate organisations to be concluded without prosecution. A DPA is made between an organisation and the prosecuting authority and is supervised by a judge.

Some commentators have noted that the use of DPAs has diverted the more substantial and complex section 7 cases away from the courts. This has denied the courts any opportunity to grapple in detail with the issue as to what procedures are considered to be “adequate” for the purposes of establishing the reverse burden defence in section 7.

House of Lords Bribery Act review

The House of Lords select committee’s ten-year review of the 2010 Act is clear in its view that the 2010 Act has been a resounding success ( Despite this, the committee did recommend that the meaning of “adequate procedures” for the purposes of establishing the section 7 defence should be further clarified. One possible suggestion was that it should be interpreted to mean “reasonable in all the circumstances”, which echoes section 45.

The committee also requested greater clarity as to where the dividing line should be between what is considered legitimate corporate hospitality and what would be considered as bribery. This was in the context of the fact that government guidance on these topics is perceived to be inadequate, which can contribute to a misinterpretation of these terms (

A Challenge for SMEs

Whether or not the government will give greater clarity at some point remains to be seen. But in the meantime, for small businesses the financial burden of having to produce sufficiently adequate compliance procedures, together with the practical burden of implementing and monitoring them is proving to be a real issue.

The committee noted that there was a particular difficulty for those organisations that export goods from the UK to countries where established practices relating to hospitality may be very different to the UK. In these instances, the committee recommended that more should be done by local experts in UK embassies to bridge this gap and reduce the burden on these businesses.

Serious Fraud Office handbook

Some of the issues raised by the House of Lord’s are referenced in the SFO’s operational handbook “Evaluating Compliance Programmes” (the handbook). The handbook is intended for internal use by the SFO and so is not intended to give any guidance to practitioners or businesses. However, it is publicly available and was updated in January 2020 ( That update provides details of the SFO’s approach to assessing an organisation’s compliance systems when it is considering whether or not to take action and, if so, what type of measures a business needs to take.

The handbook states that a business’s systems will be examined by reference to three timeframes:

  • At the time that the offending incident occurred, although this itself may span a period of time and so cover changes in systems.
  • At the time that action is being considered by the SFO.
  • At a possible date in the future; for example, in instances where systems may have yet to reach their full potential.

The need for this approach is in itself evidence of the complex and fluid landscape of anti-bribery compliance that businesses need to come to terms with. In producing and maintaining anti-bribery procedures, an organisation has to be aware that whether or not the procedures will be considered to be “adequate” can be assessed against all of those timeframes.

Changing times

While it seems that the 2010 Act will continue in its current form, nevertheless real issues still exist when it comes to the practical implementation of systems in order to satisfy the adequate procedures defence to section 7.

Risk has to be assessed and procedures and policies have to be drafted, regularly reviewed and disseminated to those affected. Staff have to be trained and effectiveness has to be monitored. All of this must potentially accommodate laws local to a business’s overseas base or customers. It all costs money. How this will play out in practice in a world grappling with the financial impact of COVID-19 remains to be seen.

The near future

With Zoom meetings replacing business lunches and business trips taking a serious dive, there are a number of factors that may provide a natural downward pressure on opportunities for corporate bribery to take place. However, within a globally savaged economy, competition for business opportunities will be fierce and, by its very nature, this competition is the principal driver for almost all bribery that occurs. So it is likely that there will be further prosecutions and DPAs obtained as a result.

A sign of the future may be the impending announcement that the government will go ahead with a £100 million investment into the funding of anti-money laundering systems. Notably, the government proposes to raise this money by way of a levy on financial institutions. In its paper setting out the economic crime plan, the government clearly stated that it believes it to be fair that those institutions whose activities are exposed to risk should pay the government costs that are associated with responding to and mitigating those risks.

If you have any questions on Bribery Act compliance or if you would like us to help you with staff training please get in touch.

resale price maintenance

Resale Price Maintenance – Korg Fined

On 9 July 2020, the Competition and Markets Authority (CMA) published the full text of its infringement decision finding that Korg (UK) Limited had breached the Chapter I prohibition of the Competition Act 1998 and Article 101 of the Treaty on the Functioning of the European Union by engaging in resale price maintenance in relation to the online retail prices of Korg's synthesizers and hi-tech equipment.


In April 2018, the CMA launched an investigation related to alleged anti-competitive agreements and/or concerted practices in relation to the distribution of musical instruments and equipment by Korg (UK) Limited (Korg UK). On 24 March 2020, the CMA issued a statement of objections alleging that Korg UK had breached Article 101 of the TFEU and the Chapter I prohibition by restricting retailer freedom to discount the online retail prices of synthesizers and hi-tech equipment supplied by Korg UK, in other words, that Korg were guilty of resale price maintenance.

Korg UK subsequently reached a settlement agreement with the CMA and, on 29 June 2020, the CMA announced that it had issued an infringement decision, fining Korg UK £1.5 million for engaging in resale price maintenance designed to restrict retailer freedom to set prices online by requiring their musical instruments to be sold at or above a minimum price. The CMA has now published the full text of the infringement decision.

The facts

Korg UK is active in the distribution of musical instruments and music-making equipment (MI) including electronic MI in the UK and Republic of Ireland. The CMA's investigation was limited to the supply of Korg synthesizers and hi-tech equipment (including DJ equipment, electronic percussion, stage pianos, and controllers) (Relevant Products).

The CMA concluded that during the relevant period (9 June 2015 to 17 April 2018), Korg UK operated and enforced a wide-ranging pricing policy, the purpose of which was to ensure that MI Resellers would not advertise or sell the Relevant Products online below a certain minimum price specified by Korg UK from time to time, for example in Korg UK’s price lists. The CMA found that the nature of the Korg Pricing Policy was such that Korg UK rarely needed to contact MI Resellers about it (in writing or otherwise), when MI Resellers were complying with it because the Minimum Price was, in general, clearly displayed on Korg’s UK’s price lists relating to the relevant products.

This generally limited the need for verbal and written communications concerning the Korg Pricing Policy, and therefore limited the amount of written records related to the Korg Pricing Policy. Despite this, the CMA obtained evidence which, in the CMA’s view, demonstrated the existence of the Korg Pricing Policy. Relevant contemporaneous documentary evidence was corroborated by certain witness evidence describing verbal and/or written communications that took place between Korg UK and its MI Resellers during the relevant period.

Resale price maintenance – Korg evidence

The commercial aims, content and communication and scope and duration

Korg UK’s commercial aims for introducing the Korg Pricing Policy were as follows:

  • It was designed to enable Korg UK’s MI Resellers to achieve attractive margins through the maintenance of high and stable pricing, so increasing the attractiveness of the Korg brand and encouraging MI Resellers to stock and sell the Relevant Products (and the Korg brand more generally).
  • In doing so, it aimed to help Korg UK secure, maintain and/or improve its UK market position in the relevant products relative to its competitors, in particular, by maintaining the brand value of the relevant products.

Resale price maintenance – Korg’s monitoring and enforcement

The evidence showed that Korg UK sought to monitor and enforce the Korg Pricing Policy by contacting MI Resellers in advance of Korg UK issuing a new price list or immediately after issue to ensure early compliance with the Korg Pricing Policy.

Korg UK’s awareness of competition law and potential illegality, and culture of concealment

The evidence shows that Korg UK staff were very familiar with competition law and appeared to know what conduct would constitute a breach of it. Korg had introduced a compliance code in 2015 and senior employees took an active role in giving competition compliance training as part of the induction for new Korg UK staff. The CMA further concluded that “Korg UK staff operated under a culture of concealment and tried to avoid generating an evidence trail of potentially incriminating written records.”

CMA’s legal assessment of resale price maintenance

The decision sets out CMA’s legal assessment of Korg UK’s agreement and/or concerted practice with Reseller 1, one of its MI Resellers, that Reseller 1 would not advertise or sell online synthesizers or hi-tech equipment supplied to it by Korg UK below a certain Minimum Price specified by Korg UK from time to time, in accordance with the Korg Pricing Policy.

The CMA had reasonable grounds for suspecting that more than 20 MI Resellers of the relevant producers were subject to the Korg Pricing Policy, and that MI Resellers generally complied with Korg UK’s requests to adhere to the Minimum Price.

The CMA, therefore, concluded that throughout the relevant period:

  • Reseller 1 generally complied with the Korg Pricing Policy, due to a credible fear of sanctions for non-compliance.
  • Korg UK monitored Reseller 1’s pricing and requested Reseller 1 on numerous occasions to follow the Korg Pricing Policy with regard to Reseller 1’s advertising and selling online of the Relevant Products (this tended to happen when Korg UK issued a new price list or when Reseller 1 had been caught matching another MI Reseller’s lower prices, at least temporarily).
  • On numerous occasions Reseller 1 increased its pricing (albeit not always immediately) to at least the Minimum Price, on Korg UK’s request.
  • On numerous occasions Reseller 1 reported to Korg UK other MI Resellers advertising or selling the Relevant Products online at prices below the Minimum Price.

Decision to impose penalties

The CMA concludes that there is strong evidence that Korg UK must have been aware, or could not have been unaware, that its conduct had the object or would have the effect of restricting competition. In particular, there was evidence that staff were aware that resale price maintenance was illegal and that there was a culture of concealment to hide evidence. The CMA therefore found that Korg UK committed resale price maintenance intentionally.

Case study

The CMA has published a case study explaining the facts of this case. It notes that there are a number of lessons that businesses can learn from this case, including an understanding that:

  • It is illegal for a supplier to interfere with a reseller’s ability to independently set their own price.
  • The CMA has sophisticated means of gathering evidence and uncovering evidence even where the companies have tried to hide their actions by deleting communications.
  • If you are ever asked not to put something down in writing, you should be suspicious as it could relate to something illegal. If so, you should seek legal advice and seriously consider whether to report the matter to the CMA.
  • Directors and senior staff have a special responsibility to be well informed on competition law and make sure their companies are behaving legally and ethically.
  • Attending compliance training alone is not sufficient to be compliant – you must actively comply with the law.
  • As a reseller you can also be investigated for breaking the law if you are found to have co-operated with a minimum pricing policy. If a supplier tries to make you comply with a minimum pricing policy, you should refuse and point them to our guidance. The CMA would also urge you to report them. Resellers may also face enforcement action such as fines if they have gone along with the supplier’s resale price policy.

EM Law help a wide range of clients with compliance and structuring around their operations. Please contact us if you have any questions on the issues raised in this article.

Climate Change Some Legal Perspective

Climate Change - Some Legal Perspective

The extent to which law will dictate the impact of climate change is yet to be seen. As regulation increases businesses need to be aware of their new obligations. Additionally,  the wider economic implications of consumer perspective, shareholder leverage and affected supply chains means that climate change has the potential to completely change the face and operations of a company. Below is a broad outline of some of the risks and regulations in the UK.

Financial stability risks

The former Governor of the Bank of England, Mark Carney, identified three key areas of risk to financial stability from climate change:

  • Physical risk: risks from the direct impacts of climate change, including impacts on insurance liabilities and the value of financial assets that arise from climate- and weather-related events, such as floods and storms that damage property or disrupt trade.
  • Liability risk: the impacts that could arise in the future if parties who have suffered loss or damage from the effects of climate change seek compensation from those they hold responsible. These types of claims are likely to impact most severely on carbon extractors and emitters, and their insurers.
  • Transition risk: the financial risks that could result from the process of adjustment towards a lower-carbon economy. Sudden or disorderly changes in policy, technology and physical risks could prompt a reassessment of the value of a large range of assets as costs and opportunities become apparent.

Increased recognition

Recognition of the severity of the risks from climate change has grown exponentially over recent years. For the first time, the World Economic Forum's Global Risk Report 2020 identified climate change risk and biodiversity loss as among the most important global risks. Price Waterhouse Cooper's 23rd Annual Global CEO Survey, ‘Navigating the rising tide of uncertainty, found that two thirds of CEOs identified climate change as a risk to their business, while many also recognised the opportunities.

Climate change impact on organisations

Climate change can impact companies and other types of business in several ways, including:

  • Physical impacts: Companies' operations may be affected by extreme weather events (such as droughts, flooding, storms or fires), particularly those with operations or supply chains in vulnerable areas of the UK or other countries. This can also lead to increased insurance premiums or difficulty in obtaining insurance, for example for businesses located in high risk flood areas.
  • Litigation risk: Climate change litigation is increasingly being used in some jurisdictions (notably, the US) to influence government action and corporate and investment decisions relating to climate change, and to seek compensation for losses already sustained and future adaptation costs.
  • Climate change legislation: may limit the ability of companies to operate, or affect their growth strategies.
  • Project and development risk: It will be harder for some types of project, developments and activities to obtain the necessary permits and consents. For example, the successful climate change judicial review challenge to the Airports National Policy Statement (NPS) for Heathrow expansion impacts on many businesses involved in the project.
  • Resource risk: It may be harder or more expensive for companies to secure resources, such as energy and water.
  • Market risk: Businesses may be at a competitive disadvantage if they fail to recognise market trends driven by climate change. Consumers' understanding of green products and services is increasing and their demands becoming more sophisticated.
  • Technology risk: Low-carbon technologies will disrupt the economy and reduce demand for some types of product.
  • Supply chains and public sector procurement: Companies are putting increasing pressure on their suppliers to reduce their carbon footprints, in order to be able to show the extent of their own commitment to reducing carbon emissions. Companies will wish to ensure that their chain is resilient to climate change risks. Public sector organisations are also subject to increasing green procurement obligations. This could put companies at a disadvantage when bidding for contracts.
  • Reputational risk: Companies are increasingly expected to report on their climate change risks, set carbon reduction targets and mitigate their climate change impacts. Failure to engage visibly with decarbonisation may impact on a company's reputation and brand.
  • The race to net zero: An increasing number of companies (including global corporations) have set net zero targets over recent years, putting pressure on their peers to do the same. For information on organisations that have made net zero commitments, see UN: Business Ambition for 1.5°C - Our Only Future (businesses that have committed to set science-based targets aligned with limiting global temperature rise to 1.5°C) and UN: Net-Zero Asset Owner Alliance (institutional investors who have committed to transition their investment portfolios to net zero by 2050).
  • Investor pressure: Insurers, lenders, shareholders and other investors are putting increasing pressure on companies to provide information about climate change so that they can assess the financial impacts on their investments.
  • Activist risk: Companies that are involved in greenhouse gas (GHG) intensive industries (like power plants and airports) are at risk of organised protests, which might result in financial loss. Increasingly companies are also seeing action by shareholder activists. For example, Climate Action 100+ is an investor initiative that calls on the world’s largest corporate greenhouse gas (GHG) emitters to take necessary action on climate change, and Follow This is a group of shareholders in oil and gas companies that organises support for oil and gas companies to commit to the goal of the Paris Climate Agreement to limit global warming to well below 2 degrees C.
  • Business opportunities: Climate change may provide new business opportunities (for example, in the clean tech and renewable energy sectors). Government financial incentives may also provide opportunities in new sectors (for example, feed-in tariffs to support renewables).
  • Employee pressure: Employees are increasingly calling on employers to recognise the importance of climate change and commit to reducing emissions. Addressing these concerns and engaging with employees is important for recruitment and retention, and can also have reputational impacts (for example, media coverage of how employers are dealing with the global climate strikes in September 2019).
  • Stranded assets: Achieving climate change targets, in particular limiting climate change to less than two degrees, will require a large proportion of existing fossil fuel reserves to remain unused. The value of these assets might not be fully reflected in the value of companies that own the assets or that extract or distribute fossil fuels, or energy intensive industries. Pricing in this risk could result in a sudden drop in value. Assets could become stranded by legislation (for example, the phase out of coal-fired power stations in the UK), an increased demand for renewable energy, or legal action.
  • Competition law: Competition issues may arise where businesses are seeking to engage with peers, suppliers or customers on climate change, or where businesses exclude certain suppliers based on their climate change performance or other sustainability criteria.

Climate change legislation: framework and government targets

Although the public debate about climate change continues, the scientific consensus is clear that man-made climate change is real.

In response, the international community has developed an evolving framework of climate change legislation, through the United Nations Framework Convention on Climate Change (UNFCCC), the Kyoto Protocol and the Paris Agreement.

The EU and UK have adopted ambitious targets and legislation to reduce GHG emissions, improve energy efficiency and increase renewable energy. In particular, the EU adopted a framework for climate change and energy policy with targets for 2030 and the UK adopted the Climate Change Act 2008, and, in 2019, set itself a statutory net zero carbon target for 2050.

Climate change legislation in England and Wales: summary of key areas

Some climate change legislation impacts only on certain, primarily high-energy businesses. However, increasingly, climate change legislation has a far wider application. The key areas are:

  • Climate Change Act 2008.The Climate Change Act 2008 provides the overall framework for the UK's climate change policy and legislation. It imposes a legally-binding duty on the government to reduce the UK's GHG emissions by 100% by 2050, through a series of "carbon budgets", thus giving businesses (including investors) a strong signal of the government's overall trajectory.
  • Carbon reporting.Medium-sized and large quoted companies have been required to report on their GHG emissions in their annual company reports for some years. The streamlined energy and carbon reporting(SECR) regime imposes new and additional reporting requirements on GHG emissions, energy consumption and energy efficiency action by quoted companies, large unquoted companies and large limited liability partnerships (LLPs) in respect of financial years beginning on or after 1 April 2019. SECR extends carbon reporting requirements to many companies that were not required to report before.
  • EU Emissions Trading System (EU ETS).The EU ETS is a mandatory emissions trading scheme for installations in certain energy-intensive industries across the EU, including manufacturing facilities, oil refineries and power stations. The government allocates allowances to installations within the EU ETS, allowing them to emit a certain amount of carbon dioxide each year. Since 2012, a significant level of allowances has been auctioned instead of allocated for free. At the end of each year, the amount of carbon dioxide emitted by an installation must be less than or equal to the amount of allowances that it holds. Companies can trade allowances with each other to achieve compliance. The UK government is considering various carbon pricing options to replace the UK's participation in the EU ETS at the end of the transition period.
  • Carbon emissions tax.Following the UK's departure from the EU on 31 January 2020, the government is considering introducing a carbon emissions tax as part of the UK's future carbon pricing policy after the end of the transition period, depending on the terms of the future relationship between the UK and EU. A carbon emissions tax is a possible option in the event that the government cannot agree its preferred option of a UK ETS linked to the EU ETS. (The alternative is a stand-alone UK ETS).
  • Climate change levy (CCL).The CCL is a carbon tax that adds around 15% to the energy bills of businesses and public sector organisations. It is levied on non-domestic consumers of certain energy supplies (for example electricity, gas, solid fuel and liquefied gas). The rate of CCL was increased from April 2019 to reflect the abolition of the CRC Energy Efficiency scheme. Energy-intensive business users can enter into voluntary climate change agreements (CCAs) to receive a discount from the main CCL rate. CCAs commit energy-intensive installations and facilities to targets for improving their energy efficiency or reducing carbon emissions, in return for receiving the reduced CCL rate.
  • Energy Savings Opportunity Scheme (ESOS). ESOS requires larger companies and non-public sector organisations in the UK to carry out mandatory energy saving assessments. It requires participants to calculate their total energy consumption, carry out energy audits and identify where energy savings can be made.
  • Energy efficiency.The government is also seeking to improve the energy efficiency of buildings and products and appliances, including requirements for eco-design and energy labelling, and voluntary initiatives by manufacturers and retailers.

Climate change in contracts

In February 2020, The Chancery Lane Project (TCLP) published the first edition of its Climate Contract Playbook and Green Papers of Model Laws, based on pro bono drafting by more than 120 legal professionals at its November 2019 climate change hackathon. The Project aimed to bring legal professionals together to collaborate and rewrite contracts and laws in order to support communities and businesses in fighting climate change and achieving net zero carbon emissions.

New standards

An increasing number of companies (including global corporations) have set net zero targets over recent years, putting pressure on their peers to do the same. The World Economic Forum (WEF) called for all companies attending the 2020 Davos meeting to set a target of net zero carbon emissions by 2050. The WEF also provided guidance on setting a net zero target and recommended that companies also set an interim 2030 goal and disclose the climate risks facing their business.

Regardless of the size of the business or organisation concerned, some form of planning or awareness of the impact of climate change is crucial to help regulation run smoothly and in preparation for the consequences of an increasingly volatile situation.

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