The past few years have seen an unparalleled global push toward climate reform. While many climate experts argue that, at the rate of destruction occurring, our efforts toward mitigation – and, hopefully, reform – still aren’t enough to avoid catastrophe, there is a growing sense of hope that some of the most damaging industries and practices will be curbed and replaced with better alternatives.

The most obvious area of concern is, of course, the energy sector. Infamously driven by a handful of big names in oil and gas – all the more so now that the energy crisis has passed its 1-year anniversary – it represents the key driving force behind climate change. The shared reluctance to eschew fossil fuels for renewable alternatives is clear, as is the willingness to put a price on global disaster.

In 2021, in the face of a fresh energy spike, the government’s lack of commitment to imposing a windfall tax on energy suppliers was met with significant criticism. The energy suppliers themselves have remained largely silent – particularly in the face of statistics that show, in some cases, record profits garnered amidst the cost-of-living crisis.

Now, however, new guidance unveiled by the Energy Defence Fund and Ceres makes emissions reduction a key consideration in mergers and acquisitions made between energy suppliers.

What is the new guidance?

Put simply, the Energy Defence Fund’s new guidance makes it easier for buyers to continue on the work on emissions reduction already underway within the company they are acquiring. The EDF’s guide includes sample language to be used in contracts, to ensure that work toward minimising the carbon impact is prioritised during and after the acquisition has taken place.

It places a certain amount of responsibility on the seller to look into the buyer’s willingness and capacity to take on that work, and to refrain from an ‘easy sell’ if climate reform and carbon footprint reduction are not made a priority in the proposed contract.

The proposed framework comes off the back of EDF’s latest insights, which found that, typically, mergers and acquisitions mean that work on emissions reduction is often lost somewhere between the seller and the buyer – relieving one party, without placing the onus on the other.

The guidance has been met with some scepticism. It would give rise to many hard-hitting questions about enforcement – what is enforceable, and what isn’t – and investment from both sides into the necessary due diligence. Already, mergers and acquisitions take a considerable investment of time and attention to detail from corporate solicitors. Opening up a new line of inquiry – one that will need to be pursued even after the deal has been done – would change the face of the energy sector, in some way or another.

In a sector that has historically proven itself to be almost entirely profit-driven, it is hard to imagine such a significant disruption to time and money proving popular. The energy sector is the largest piece in the puzzle when it comes to minimising the climate risk, but an optional set of guidelines may well be lost amidst a broader philosophy for financial gain.