FIDIC Climate Change Charter: Much Ado About Nothing?
As an industry that accounts for approximately 38% of all emissions globally,1 the construction community will continue to focus its efforts on reducing emissions, such as by building with less waste, reusing materials, improving general practices and maximising utilization of buildings. On November 11th, 2021, the International Federation of Consulting Engineers (“FIDIC”) highlighted its commitment to this issue by publishing its Climate Change Charter (the “Charter”), as part of its “FIDIC for Global Goals” initiative. The key goals of the initiative are threefold.
First, it seeks to align the construction industry with the United Nations’ Agenda for 2030 Sustainable Development, which included 17 Sustainable Development Goals (“2030 SDGs”). The 2030 SDGs comprise of, amongst others, clean water and sanitation; affordable and clean energy; industry, innovation and infrastructure; and sustainable cities and communities.
Second, following the 6th assessment report of the Intergovernmental Panel on Climate Change (“IPCC”), which found that “unless there are immediate, rapid and large-scale reductions in greenhouse gas emissions, limiting warming to close to 1.5°C or even 2°C will be beyond reach”, the initiative also emphasizes the importance of going further than the 2030 SDGs, and to commit to net-zero CO2 emissions (i.e., carbon neutrality) by 2045.
Third, FIDIC calls for the further consideration of a net resource target by 2060, to encourage and further the development of a circular economy that eliminates waste and doesn’t excessively consume new resources.
FIDIC taking the step of formalizing its goals and guidance in the Charter highlights the importance of these issues to the organization, and to the construction industry as a whole. The Charter itself acknowledges the importance of the outcome of the 2015 United Nations Climate Change Conference (“COP 21”) and the need for FIDIC and its members to align with the Paris Agreement. It is of note that the Charter was released at the closure of the 2021 United Nations Climate Change Conference (“COP 26”), and is a clear indication of FIDIC’s efforts to anticipate and comply with its outcomes (find out more about the outcomes of COP 26, and what comes next in V&E’s insight article by Maggie Peloso, Lindsay Hall, Austin Pierce, and Kelly Rondinelli).
What does the Charter address?
The FIDIC Charter states three purposes:
- “reducing emissions related to operations across the industry”;
- “reducing embedded and operational carbon emissions in the building and infrastructure projects on which [members] consult, design and deliver”;
- “supporting climate change adaptation through mitigation and design of disaster or event resilient infrastructure”.
These goals are in turn articulated in a series of actions set out for FIDIC itself, its member associations, project teams and schemes, companies and individual professional engineers.
- Actions for FIDIC
The actions outlined for FIDIC itself are divided in three parts.
First, FIDIC is to continue its advocacy efforts to align the industry with its Global Goals initiative through its platform and that of its stakeholders. This notably includes developing programmes and initiatives to help the construction industry reach net-zero emissions.
Second, FIDIC aims to focus on helping those constructing, operating and maintaining “Buildings, Infrastructure and Industrial Facilities” reduce their emissions and become more sustainable – this is the more substantive part of FIDIC’s actions. It notably calls for the development of “dedicated climate action and carbon reduction guidance and resources for professional engineers” including through sharing best practices, solutions and templates. These could in turn become essential tools for projects teams, and should be monitored carefully as and when they are released. As this guidance and resources are further developed and refined by this collaborative approach, we may see efforts to codify these resources initially into guidance notes and possibly into optional contractual mechanisms or industry requirements.
Third, “Operations, Facilities and Activities” concentrates on reducing FIDIC’s own emissions, including by producing an annual report on its emissions from 2023 onwards, which would cover the following: direct emissions from owned or controlled sources (Scope 1); indirect emissions from the generation of purchased electricity, steam, heating and cooling consumed by the reporting company (in this case, FIDIC) (Scope 2); and all other indirect emissions that occur in a company’s value chain (Scope 3).
- Actions for member associations
Overall, the actions to be taken by member associations focus on furthering, at the national level, FIDIC’s advocacy work on sustainable development and climate action in the infrastructure sector.
There is also a call for the development of country-specific guidance on sustainable infrastructures, taking into account a variety of local factors (energy mix and clean energy policy, climate vulnerabilities, socio-economic circumstances, and infrastructure demand).
This country-specific focus reflects one of the key difficulties with action on climate change, namely the widely varying legal requirements in relation to environmental issues and limits on emissions. Guidance for each jurisdiction would assist contractors and construction companies with ensuring they can, at a minimum, comply with the aims and laws of the countries they are working in and consider these issues from tender stage onwards. This will save time and money during the process by ensuring that environmental issues are considered from the outset and that any requirements are met in a tender or project proposal, rather than being addressed when significant work has already been carried out prior to commencing work.
Issuing country-specific guidance will also allow further sharing of information and goals between different jurisdictions and provide some accountability for the efforts being made and aims of each country. This will allow the construction industry as a whole to monitor the development of steps taken to battle climate change on a global scale, and may assist with creating some eventual unity and parity on the levels required to help reach net-zero.
- Actions for companies
Companies are asked, first and foremost, to promote a culture amenable to the goals of the Charter. This can be done by: enacting appropriate climate change and sustainable policies; training their personnel on these issues; encouraging research and development and investing in the monitoring of emissions; and, engaging and supporting the work of dedicated employees to focus on net-zero solutions. In sum, the aim is to incorporate climate change and sustainability issues – and the goal of net-zero emissions – into all projects.
The Charter asks that companies look specifically into their operations, both existing and planned. The goal of reviewing operations is to quantify and reduce companies’ emissions so as to track progress towards net-zero. First, the Charter suggests that companies set out their own “net zero and climate adaptation strategy”, switch to renewable or clean sources of energy, and use electric fleet vehicles where appropriate. This suggestion appears to target a reduction in emissions and other direct action on climate change to reach net-zero. Second, the Charter suggests the adoption of reporting systems in line with the Greenhouse Gas Protocol or ISO 14064-1. Third, companies are recommended to publicly report on their climate change actions through standards such as the Task-Force on Climate-Related Financial Disclosure. Reporting on progress and strategies will allow the commercial construction industry to monitor the development of steps taken by private entities to battle climate change on a global scale, and may assist with creating some consensus on the efforts required to be taken to help reduce emissions and reach net-zero. The focus on private sector compliance reflects the approach taken at COP 26, which has led to an emphasis on better monitoring and reporting of emissions with efforts to reduce emissions made by those companies. As a result, new standards are emerging, such as IFRS’s International Sustainability Standards Board, whose launch was announced during COP 26, or the Science-Based Targets’.
While the agreement on a draft rulebook for the global carbon trading mechanism created under article 6 of the COP 21 Paris Agreement remains a voluntary mechanism, and the mechanism is still far from being implemented, it represents an important step towards a globalised and homogenous carbon trading market. The Charter asks companies to offset any remaining emissions and makes provision for carbon offsetting of the industry’s emissions. It is evident that firms that have not yet started to consider these issues may be wise to consider the mechanisms for voluntarily doing so, and the financial impact on their organisations, before individual countries adopt and enforce the Paris Agreement framework.
Next steps for FIDIC, and the construction industry at large:
Much like the COP26, the Charter will doubtlessly prompt glass-half-full or empty debates, with critics deriding it for not containing enough in the way of tangible demands, and proponents lauding it for going further than simply meeting the 2030 SDGs as well as for the action points set out across all levels of the construction industry on a global scale.
The real terms impact of the Charter will be dependent on FIDIC’s ability to issue further, pertinent guidance to implement the Charter and to help the industry to develop best practices that truly advance sustainability and boost the fight against climate change. However, notice must be paid to the important change in culture implied by the Charter, which demands that all stakeholders now strive for the goal of reaching net-zero emissions by 2045 (or before) – this will require profound changes from the infrastructure sector, in particular for companies asked to formally set out a net-zero emission strategy.
The next steps for FIDIC may involve starting to codify environmental provisions more significantly into the draft suite of contracts that FIDIC users will already be familiar with. As it stands, sub clause 4.18 of the 2017 FIDIC Suite sets out that “[t]he Contractor shall take all necessary steps to protect the environment (both on and off the Site)…”. It is unclear, at this stage, if the Charter will lead to amendments to this, currently rather vague, requirement. As ever, the issue with drafting environmental provisions is that they are very much dependent on the project, the parties’ aspirations and national and local laws and regulations. This means that preparing a “one size fits all” template may not necessarily reflect the complexities of the projects themselves or the players in the projects.
Perhaps a more viable, albeit time consuming to produce, option is a set of sample obligations that could be adapted for use depending on the project specifics. This would allow parties the opportunity to further engrain their environmental obligations in the suite of contracts but with the flexibility to tailor these obligations to the jurisdiction, party position and technical aspects of each project. These drafts will need to consider elements such as the obligations of each party, the ways to measure these obligations, any penalties for failure to comply and methods to solve disputes over whether obligations have been complied with. Cooperation with environmental experts, alongside construction specialists, will be essential to considering as many of the technical issues as possible if these draft schedules, annexes or provisions are to be prepared.
Whilst the Charter is non-binding, companies ought to take note of the more concrete steps they are called to take, particularly those that regard their operations and the quantifying and reporting systems for greenhouse gas emissions and disclosure of all sustainability efforts. Taking early action will likely save costs in the long run, as these goals and aims become more codified globally and will allow companies to stay ahead of the curve. It may also provide companies with more attractive bids as requests for tenders move towards a focus on the importance of low emissions and climate consciousness in construction projects.
Although there are no timelines set out in the Charter itself, this will require significant work from all actors. Companies may wish to start taking stock of their efforts on sustainability and climate change, and how they measure against the goals of the Charter, to avoid being caught flat-footed down the road.
Simon Michau is a trainee in our London Office*
This information is provided by Vinson & Elkins LLP for educational and informational purposes only and is not intended, nor should it be construed, as legal advice.