Panel Discussion during CIArb Kenya @40 International ADR Conference
Moderator: David Onsare FCIArb
Panellists: Prof Kariuki Muigua Ph.D., FCIArb, C. Arb, OGW
Dr Adenike Esan, FCIArb
Irene Kashindi, FCIArb
Mike McClure, KC
Foundational Underpinnings of ESGs
Prof. Kariuki Muigua, asserted the critical role of arbitrators in addressing Environmental, Social, and Governance (ESG) issues. He highlighted that these issues are no longer peripheral concerns but central to the arbitration process, reflecting the growing societal demand for ethical and sustainable practices in all aspects of business and governance.
In his exploration of the link between ESG and Alternative Dispute Resolution (ADR), Prof. Muigua emphasized the symbiotic relationship between the two. He argued that ADR, with its inherent flexibility and adaptability, provides an ideal platform for addressing ESG disputes. This is because it allows for customized solutions that can balance the often-competing interests of various stakeholders, including businesses, governments, communities, and the environment.
Moreover, Prof. Muigua stressed the need for integrating ESG tenets into corporate decision-making. He pointed out that this integration is not just about risk management or regulatory compliance. Instead, it’s about embedding sustainability into the very DNA of a corporation, shaping its strategy, operations, and culture. This approach, he argued, leads to better financial performance in the long run, as it aligns the corporation with the broader societal shift towards sustainability.
Prof. Kariuki Muigua argued that sustainability, encompassing environmental conservation, social progress, and good corporate governance, should be a central consideration for Alternative Dispute Resolution (ADR) practitioners. He emphasized that environmental conservation involves the preservation and restoration of natural resources and ecosystems. In the context of ADR, this could mean resolving disputes in a way that minimizes environmental harm or promotes environmentally friendly practices. He also highlighted the social dimension of sustainability, which involves promoting social equity, community development, and improved quality of life. In ADR, this could involve ensuring that dispute resolution processes are fair, inclusive, and considerate of the social impact of their outcomes.
Prof. Muigua further stressed the importance of good corporate governance as a part of sustainability. This involves transparency, accountability, and ethical behaviour in all business practices. In the context of ADR, this could mean ensuring that dispute resolution processes uphold these principles. His discussion underscores the need for ADR practitioners to adopt a holistic understanding of sustainability, contributing to the broader goal of sustainable development. This approach not only aligns with global sustainability efforts but also enhances the effectiveness and credibility of the ADR process. It ensures that dispute resolution not only resolves conflicts but also contributes to a more sustainable and equitable world.
Prof. Kariuki Muigua argued that sustainability, encompassing environmental conservation, social progress, and good corporate governance, should be a central consideration for ADR practitioners. He emphasized that environmental conservation involves the preservation and restoration of natural resources and ecosystems. In the context of ADR, this could mean resolving disputes in a way that minimizes environmental harm or promotes environmentally friendly practices. He also highlighted the social dimension of sustainability, which involves promoting social equity, community development, and improved quality of life. In ADR, this could involve ensuring that dispute resolution processes are fair, inclusive, and considerate of the social impact of their outcomes.
Prof. Kariuki Muigua highlighted the integral role of ESG tenets in achieving the United Nations 2030 Agenda for Sustainable Development. This agenda is a global blueprint for dignity, peace, and prosperity for people and the planet, now and in the future. It consists of 17 SDGs, which range from eradicating poverty to promoting peace and justice. The realization of ESG tenets is crucial for achieving these goals as they promote sustainable business practices that consider the long-term health and stability of both the community and the environment.
Prof. Muigua emphasized that the discourse on rights in the current era has evolved to encompass both human and environmental rights. This shift reflects the growing recognition that human rights and environmental sustainability are deeply interconnected. For instance, the right to life and health can be directly impacted by environmental factors such as air and water quality. Similarly, the right to a healthy environment acknowledges the intrinsic value of the environment and our dependence on it for survival and well-being.
In the context of ESG, this expanded understanding of rights means that corporations have a responsibility to respect and uphold these rights. This includes not only the rights of their employees and customers but also the rights of the communities affected by their operations and, indeed, the rights of the environment itself. This could involve taking steps to minimize environmental harm, promote social equity, and ensure good governance.
Prof. Kariuki Muigua pointed out that the World Bank and International Monetary Fund (IMF) were pioneers in incorporating Environmental, Social, and Governance (ESG) tenets into government grants and contracts. This significant development marked a shift in how international financial institutions approach sustainability, recognizing the need for a more holistic and integrated approach to economic development.
The incorporation of ESG tenets into government grants and contracts means that these principles are now a prerequisite for funding. Governments and organizations seeking financial support from these institutions must demonstrate their commitment to environmental stewardship, social equity, and good governance. This could involve showing how they plan to minimize environmental harm, promote social inclusion, and uphold high standards of transparency and accountability.
This development has also opened the door for ESG litigation. Prof. Muigua highlighted that companies can now be held legally accountable for failing to adhere to ESG tenets. This could involve litigation around environmental issues such as pollution and carbon emissions, as well as human rights abuses. The threat of litigation serves as a powerful incentive for companies to uphold ESG tenets, further driving the integration of these principles into business practices.
The incorporation of ESG tenets into government grants and contracts by institutions like the World Bank and IMF represents a significant step forward in promoting sustainable development. It not only ensures that funding is used in a manner that respects the environment and promotes social equity, but it also holds companies accountable for their actions. This development underscores the growing importance of ESG in today’s business and legal landscape.
Prof. Kariuki Muigua stressed the growing prevalence of ESG tenets within contracts handled in ADR. This trend reflects the increasing recognition of the importance of sustainable and ethical practices in business and governance. In the context of ADR, the incorporation of ESG tenets into contracts means that these principles are now a fundamental part of the dispute resolution process. Arbitrators are increasingly finding themselves needing to interpret and apply these tenets in their decision-making. This could involve assessing whether parties have complied with environmental regulations, upheld their social responsibilities, or adhered to good governance practices.
Prof. Muigua’s emphasis on this trend underscores the need for arbitrators to be well-versed in ESG principles. They must understand what these tenets entail and how they apply in different contexts. This could involve keeping abreast of the latest developments in environmental law, understanding the social impacts of business decisions, and being familiar with best practices in corporate governance.
Moreover, arbitrators must be prepared to deal with disputes arising from ESG-related issues. This could involve disputes over environmental damage, social injustices, or governance failures. The ability to handle such disputes effectively requires not only a deep understanding of ESG principles but also the ability to apply these principles in a fair and impartial manner.
Emphatically, the increasing incorporation of ESG tenets into contracts handled in ADR represents a significant shift in the field of dispute resolution. It underscores the growing importance of sustainability and ethics in business and governance. For arbitrators, this means that they must equip themselves with the knowledge and skills necessary to handle ESG-related disputes effectively.
Prof. Kariuki Muigua cited the example of a company taken to court for ecocide, an act that is being discussed globally for classification as a crime equivalent to genocide. This example serves as a stark reminder of the potential for ESG litigation. Ecocide, as a term, refers to extensive damage to, destruction of, or loss of ecosystems of a given territory by human activity to the extent that peaceful enjoyment by the inhabitants has been severely diminished. The push to recognize ecocide as an international crime reflects the growing recognition of the devastating impact of environmental destruction on people and the planet.
In the context of ESG, ecocide represents the extreme end of environmental harm that a company can cause. It underscores the importance of environmental stewardship as a key component of ESG principles. Companies that fail to take adequate measures to protect the environment could potentially face severe legal consequences, including being charged with ecocide.
This development also illustrates the potential for ESG litigation. As ESG principles become more embedded in law and corporate governance, companies may face increasing legal risks related to their environmental and social impacts. This could involve litigation over environmental damage, human rights abuses, or failure to uphold good governance practices. Prof. Kariuki Muigua explained that effective management of ESG disputes is key to fostering sustainability and preserving the reputation and profitability of businesses. This statement underscores the importance of addressing ESG disputes promptly and effectively to prevent them from escalating and causing significant harm to the business and its stakeholders.
Effective management of ESG disputes involves several key elements. First, it requires a deep understanding of ESG principles and how they apply in different contexts. This includes understanding the legal and regulatory landscape, the expectations of different stakeholders, and the potential impacts of business decisions on the environment and society.
Second, it requires the ability to navigate complex and often contentious issues in a fair and impartial manner. This involves balancing the interests of different stakeholders, making tough decisions, and ensuring that the dispute resolution process is transparent and accountable.
Third, it requires the use of appropriate dispute resolution mechanisms. Prof. Muigua emphasized that ADR and arbitration are sustainable mechanisms for resolving ESG disputes. These mechanisms offer several advantages over traditional litigation, including flexibility, confidentiality, and the ability to preserve relationships between parties. They also allow for more creative and tailored solutions that can better address the unique challenges posed by ESG disputes.
Prof. Kariuki Muigua, in his parting shot, encouraged the ADR practitioners and arbitrators to embrace the ESG tenets in their practice1. He emphasized the importance of understanding and integrating these principles into their work, given their growing prevalence in contracts and their critical role in fostering sustainability.
He urged practitioners to equip themselves with the knowledge and skills necessary to handle ESG-related disputes effectively. This includes staying abreast of the latest developments in environmental law, understanding the social impacts of business decisions, and being familiar with best practices in corporate governance. Prof. Muigua also highlighted the need for effective management of ESG disputes to preserve the reputation and profitability of businesses. He pointed out that ADR and arbitration are sustainable mechanisms for resolving ESG disputes, offering several advantages over traditional litigation, including flexibility, confidentiality, and the ability to preserve relationships between parties.
Institutional Policies and High Profile Cases | Dr Adenike Esan, FCIArb
Dr Adenike Esan, in her insightful discussion, delved into the intersection of ESG issues and arbitration. She acknowledged that the concept of ESG in arbitration might initially seem vague due to its roots in statutory, administrative, and constitutional law. However, she emphasized that this perception is changing as ESG issues have increasingly found relevance in arbitration spaces over the years.
She noted that this shift is driven by the growing recognition of the importance of sustainable and ethical practices in business and governance. As companies strive to align their operations with ESG principles, disputes related to these issues are inevitably arising, and arbitration provides a flexible and efficient mechanism for resolving such disputes.
Dr Esan also highlighted the evolution of litigation to encompass not only traditional legal proceedings but also arbitration and legal advisories. This trend reflects the growing complexity of legal disputes in the modern world, which often involve multiple jurisdictions, complex technical issues, and a diverse range of stakeholders.
To illustrate the global trend towards addressing climate change through legal means, Dr Esan referred to a database by the Graham Centre of Climate Change Law. This database reports over 2,300 cases of climate litigation worldwide, indicating a significant shift in the legal landscape. These cases represent a broad range of issues, from disputes over carbon emissions and deforestation to legal challenges against government policies on climate change.
Despite the prevalence of environmental cases in arbitration, Dr Esan observed that there have been relatively few contractual-based ESG cases in this field. However, she noted that ESG-related disputes are more common in other sectors, such as investments. This observation suggests that while ESG principles are increasingly being incorporated into contracts, their application in arbitration is still in its early stages.
Dr Esan went on to discuss three specific cases that illustrate the intersection of ESG issues and arbitration. These cases, highlight the diverse ways in which ESG issues can arise in arbitration and the unique challenges they present. The first case that Dr Adenike Esan discussed was Lone Pine v. Canada, a landmark case that highlights the intersection of investment, environmental concerns, and arbitration.
In this case, an American company, Lone Pine, had invested in Canada and obtained five licenses for oil and gas activities. However, one of these licenses was revoked when a law was enacted restricting oil and gas activities in the St. Lawrence River due to environmental concerns. Feeling that their investment had been expropriated and that the minimum standard of treatment guaranteed by the North American Free Trade Agreement (NAFTA) had not been met, Lone Pine initiated an investment arbitration against Canada.
In its defence, Canada argued that Lone Pine was not entitled to the possession of the license. It cited various interests, presumably related to environmental protection and sustainable development, to justify its actions. This case illustrates the potential for conflict between investors’ rights and environmental regulations, and the role of arbitration in resolving such disputes.
The Lone Pine v. Canada case serves as a precedent for how ESG issues can be addressed in investment arbitration. It underscores the importance of balancing investors’ rights with environmental protection and highlights the challenges that arbitrators face in adjudicating such complex and multifaceted disputes. user’ Apart from this case, there are other cases. This case was a climate-justifying arbitration that clearly sought to protect the public interest and the environment.
Beyond the Lone Pine v. Canada case, Dr Adenike Esan discussed other instances where ESG issues have come to the fore in arbitration. She highlighted the Burlington v. Ecuador case as an example of a host state putting forth counterclaims in response to an investor’s claim.
In the Burlington case, the host state, Ecuador, not only defended the substantive case filed by the investor, Burlington, but also filed a counterclaim. Ecuador claimed that Burlington’s activities resulted in significant environmental harm. This counterclaim represents an attempt by the host state to hold the investor accountable for its environmental impact, reflecting the growing recognition of the importance of environmental protection in investment arbitration.
Ecuador’s counterclaim was successful, and the state received compensation of over 41.7 million dollars. This outcome underscores the potential for host states to use arbitration as a tool to enforce environmental regulations and hold investors accountable for their environmental impact. The Burlington v. Ecuador case serves as a precedent for how host states can use counterclaims to address environmental harm caused by investors. It highlights the growing role of ESG issues in investment arbitration and underscores the need for arbitrators to consider these issues in their decision-making process.
The third case that Dr Adenike Esan discussed was the case of David Aven v. Costa Rica. In this case, the host state, Costa Rica, filed a counterclaim against the investors, led by David Aven. The counterclaim was based on allegations of environmental damage caused by the investors’ activities. Costa Rica claimed that the investor had caused significant environmental harm, which they believed was in violation of their national laws and regulations.
However, the arbitral tribunal did not rule in favour of Costa Rica. The tribunal found that Costa Rica’s actions were neither arbitrary nor in breach of the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA), under which the case was brought. This meant that the tribunal did not find the investor to be at fault for the alleged environmental damage.
This case is significant because it highlights the challenges that host states can face when attempting to hold foreign investors accountable for environmental harm. Despite the unsuccessful counterclaim, the case underscores the potential for using arbitration as a tool to enforce environmental regulations. It also emphasizes the importance of presenting strong and compelling evidence to support such claims.
In concluding this segment, the David Aven v. Costa Rica case, along with the other cases discussed by Dr Esan, provide valuable insights into the evolving role of ESG issues in arbitration. They underscore the growing importance of these issues in dispute resolution and highlight the challenges and opportunities that arbitrators face in adjudicating ESG-related disputes. These cases collectively signal a shift in arbitral practices, moving away from a state of affairs where only host states were on the receiving end of obligations. Now, investors too have obligations, particularly in relation to ensuring that their activities in the host state are in line with ESG principles.
Further, Dr Esan drew a parallel between the rise of ESG issues in arbitration and the rise of data protection regulations globally. She compared the increasing prevalence of ESG-related disputes to the widespread adoption of data protection regulations following the introduction of the European Union’s General Data Protection Regulation (GDPR). Just as the GDPR has had a significant impact on data protection laws worldwide, ESG issues are becoming an increasingly prominent feature of the arbitration landscape.
Dr Adenike Esan, in her discussion, also touched upon the evolving nature of litigation to encompass not only law but also arbitration and legal advisories. She highlighted the increasing number of ESG-related cases in sectors such as investments, indicating a shift in the landscape of dispute resolution.
She discussed the significance of these cases in arbitral practices, noting how they have changed the asymmetric state of affairs where it was only the host states that were on the receiving end of obligations. Now, investors also have obligations, particularly in relation to ensuring that their activities in the host state are in line with ESG principles. In her parting shot, Dr Esan emphasized the growing importance of ESG in arbitration. She noted that while there are still relatively few contractual-based ESG-related arbitrations, it is happening and will continue to happen1. She stressed the opportunity for investors to be held liable for not honouring international obligations and the need for states and investors to align their practices with international obligations.
Emerging Trends on ESG
In her insightful discussion, Irene Kashindi explored the emerging trends in ESG considerations, with a specific focus on their role in arbitration. She underscored the urgency of addressing ESG issues, given the multitude of challenges we are currently facing as a result of rapid climate change. Kashindi emphasized that the current global climate crisis makes it more crucial than ever to incorporate ESG considerations into all aspects of decision-making, including arbitration proceedings. This underlines the growing importance of ESG in shaping the future of arbitration and dispute resolution. In her insightful discussion, Irene Kashindi FCIArb cast a spotlight on the future of the global workforce. She projected that by 2035, we will see a shift towards a younger demographic, resulting in the largest and youngest workforce in history. This shift, she noted, will have profound implications from an ESG perspective.
As this youthful and dynamic workforce steps onto the global economic stage, Kashindi anticipates a surge in complexity across various domains. She predicts an increase in the frequency and complexity of disputes, which could range from labour issues to resource allocation disagreements. Kashindi also discussed the expected acceleration in the pace of technological advancements. Driven by this tech-savvy workforce, the rapid evolution of technology will reshape the employment landscape, creating new roles and rendering others obsolete.
The nature of employment relationships is also set to evolve. Kashindi highlighted the rise of the platform economy, which is already in motion. This shift will blur the traditional lines between employers and employees, ushering in a new set of challenges and opportunities. Kashindi also drew attention to the growing importance of health and policy concerns within the ESG context. As we navigate these changes, she emphasized the need for policies and practices that promote health, equity, and sustainability in the workplace.
Irene Kashindi FCIArb then proceeded to provide an overview of the various types of ESG-related evidence that could be presented to arbitrators. She began with Environmental Impact Assessments (EIAs), which are crucial in the ‘E’ of the ESG spectrum. These assessments evaluate the potential environmental effects of proposed actions or projects, providing a scientific basis for understanding the environmental implications and aiding in informed decision-making.
She stated that the main body of the EIA involves an impact analysis to predict and evaluate the potential environmental effects of the proposed action or project. This includes direct, indirect, and cumulative impacts on the physical environment, as well as socio-economic and cultural impacts. Mitigation measures are then proposed to avoid, reduce, or offset the predicted adverse environmental effects. These measures form an integral part of the project design and implementation. She pointed out that the EIA process also involves public participation and consultation with stakeholders, providing them with an opportunity to voice their concerns and influence the decision-making process. The findings of the EIA are documented in an Environmental Impact Statement (EIS), which informs decision-makers and the public about the potential environmental implications of the proposed action or project.
Therefore; in the context of arbitration proceedings, EIAs can serve as crucial evidence. They can demonstrate whether due diligence was exercised in predicting and mitigating environmental impacts, and whether the principles of sustainable development were adhered to. In disputes related to environmental damage or non-compliance with environmental regulations, EIAs can provide valuable insights into the causes and extent of the damage, and the measures needed to restore the environment.
Transitioning to the topic of Social and Human Rights Studies, Kashindi emphasized their crucial role in cases involving human rights violations, including instances of sexual harassment. She pointed out that these studies are not just academic exercises but serve as vital pieces of evidence in ADR panels, whether they are arbitration, mediation, or conciliation proceedings.
These studies, Kashindi noted, offer valuable insights into the nature and extent of violations. They delve into the specifics of each case, shedding light on the circumstances, the individuals involved, and the impact of the violations. This detailed understanding aids in the resolution of disputes, ensuring that justice is served and preventive measures are put in place for the future. In essence, Kashindi underscored that Social and Human Rights Studies play a pivotal role in the ‘S’ of the ESG spectrum, contributing significantly to the fair and effective resolution of disputes. Their importance, she stressed, cannot be overstated in the context of ESG-related arbitration proceedings.
On the topic of ESG performance data, Kashindi emphasized its critical role in guiding decisions in disputes related to environmental sustainability. She pointed out that such data, which includes metrics measuring carbon emissions, provides a quantitative measure of an entity’s environmental impact. This data can serve as compelling evidence in arbitration proceedings, helping to establish whether an entity has complied with environmental standards and regulations. It can also inform the development of remedies and measures to mitigate environmental harm and promote sustainability.
Moving on to Stakeholder Engagement, Kashindi underscored its importance in the ESG context. She highlighted the need for evidence of public participation, particularly in issues that require their involvement. This could include consultations, surveys, or public hearings. Such evidence can demonstrate whether an entity has fulfilled its obligations to engage with stakeholders and consider their interests and concerns. In disputes related to stakeholder engagement, this evidence can help establish whether there has been a breach of these obligations and inform the development of appropriate remedies.
When discussing the ‘G’ in ESG, which stands for Governance, Kashindi turned the spotlight on the relevance of government and policy issues. She emphasized that governance is not just about the internal policies and practices of an organization, but also about how it navigates the broader regulatory environment.
Kashindi stressed the importance of ESG disclosures, which can be either voluntary or mandated by regulatory bodies. These disclosures provide transparency about an organization’s ESG performance and are a key aspect of corporate accountability. They can include information about the organization’s environmental impact, its social responsibilities, and its governance practices. In the context of Kenya, Kashindi highlighted the role of the Nairobi Securities Exchange (NSE) in mandating ESG disclosures. The NSE requires listed companies to disclose certain ESG information, thereby promoting transparency and accountability.
In arbitration proceedings, ESG disclosures can serve as crucial evidence. They can help establish whether an organization has complied with its ESG responsibilities and whether it has been transparent in its reporting. In disputes related to ESG performance or compliance, these disclosures can provide valuable insights into the organization’s actions and their impact.
Kashindi further highlighted the importance of Forensic or Audit Reports in the context of ESG-related disputes. These reports, she noted, are particularly relevant in instances where contracts have elements of corruption and contain an arbitration clause. Forensic or Audit Reports provide a detailed examination of an organization’s financial information, with the aim of uncovering any irregularities or fraudulent activities. In the context of arbitration proceedings, these reports can serve as crucial evidence, providing insights into the integrity of the contracting parties and the validity of their claims.
Furthermore, Kashindi discussed the role of Due Diligence Reports. These reports often form the backbone of disclosure issues, especially when ADR clauses are involved. Due Diligence Reports involve a comprehensive appraisal of a business by a prospective buyer or investor to establish its assets and liabilities and evaluate its commercial potential. In the context of ESG-related disputes, these reports can provide valuable insights into an organization’s ESG performance and compliance with ESG standards and regulations. They can help establish whether there has been a breach of these standards and inform the development of appropriate remedies.
In the final part of her discussion, Kashindi turned her attention to Public Procurement Contracts. She emphasized that these contracts often have significant implications for labour standards. Contractors’ compliance with these standards, she noted, is not just a matter of legal obligation, but also a crucial aspect of their social responsibility under the ‘S’ in ESG. Kashindi pointed out that non-compliance with labour standards can lead to serious consequences, including the termination of contracts. This underscores the importance of adhering to these standards, not just for the sake of compliance, but also for the sustainability and reputation of the contractors’ operations.
In the context of arbitration proceedings, evidence of compliance or non-compliance with labour standards can play a pivotal role. It can help establish whether there has been a breach of contract and inform the development of appropriate remedies. From Environmental Impact Assessments to Public Procurement Contracts, each type of evidence has its unique role and significance.
As a parting shot, Kashindi emphasized the importance of preparedness and adaptability in the face of the evolving ESG landscape. She stressed the need for arbitrators, legal practitioners, and parties involved in disputes to stay abreast of the latest developments in ESG standards and regulations. This, she noted, is key to ensuring fair and effective resolution of ESG-related disputes.
Evolution of ESG in Litigation v Arbitration Context
Mike McClure provided an analysis of the evolving landscape of ESG considerations in both litigation and arbitration contexts. He highlighted that a majority of the claims are predominantly related to the ‘E’ in ESG, which includes issues such as climate change and environmental disputes. Importantly, he emphasized that the components of ESG – Environmental, Social, and Governance – are not isolated silos. Instead, they are interconnected, and claims can often straddle these elements, sometimes even leading to conflicts.
McClure underscored the fundamental requirement of a contract that directs the dispute to arbitration, or a treaty in instances of state-to-state claims. He drew a contrast with litigation, which presents a wider spectrum of potential claims against companies, encompassing aspects like judicial review and tortious claims. This, according to McClure, partially accounts for the higher number of claims observed in litigation. However, he also noted an upward trend in the number of claims appearing in the arbitration context, indicating a growing recognition of arbitration as a viable avenue for resolving ESG disputes.
McClure addressed the issue of arbitrability in the ESG context. He noted that not all disputes may be suitable for arbitration, particularly those involving public interest or requiring public review. These disputes often involve broader societal interests and may require the scrutiny and transparency of a public court process.
In such cases, the question of whether these disputes can or should be resolved through private arbitration processes becomes pertinent. This is especially true when the outcomes of these disputes have implications beyond the immediate parties involved, affecting wider communities or the environment.
McClure also discussed the implications of states withdrawing from the Energy Charter Treaty (ECT). The ECT provides a multilateral framework for energy cooperation that is unique under international law. It is designed to promote energy security through the operation of more open and competitive energy markets, while respecting the principles of sustainable development and sovereignty over energy resources. However, the withdrawal of states from the ECT could limit the availability of this forum for arbitrating potential ESG disputes. This could potentially lead to a gap in the resolution of international energy disputes, including those related to ESG issues.
In his discussion of recent court proceedings in the ESG context, McClure drew attention to a significant judgment from the English High Court. This ruling found the government’s carbon budget delivery plan to be unlawful. McClure underscored the importance of this ruling, marking it as a key area in ESG-related claims.
He highlighted that even though government policies are often driven by environmental responsibility, they can still be challenged by industry and sector participants. This case serves as a prime example of such a scenario. It underscores the dynamic tension that can exist between governmental environmental initiatives and the interests of various industry sectors.
This ruling, McClure noted, has broader implications for ESG-related claims. It demonstrates that courts are willing to hold governments accountable for their environmental commitments. It also signals to industry participants that environmental responsibility is not just a matter of compliance, but also a legal obligation that can be enforced by the courts. This case thus stands as a significant precedent in the evolving landscape of ESG-related litigation.
McClure brought in a discussion of how companies can bring claims directly against states for damages. He cited the recent case of IWE v. Netherlands as an example, illustrating the potential for corporate entities to seek legal redress against states in the realm of ESG disputes.
Furthermore, McClure touched upon the concept of state-to-state arbitration in relation to ESG concerns. He brought up the case initiated by Costa Rica against Nicaragua as a case in point. This dispute revolved around environmental impacts associated with river dredging and canal construction activities undertaken by Nicaragua. The case underscores how environmental concerns, a key component of ESG, can become the focal point of disputes not just between corporations and states, but also between states themselves.
McClure delved into the unique challenges and opportunities that arise in the arbitration setting for ESG disputes. He highlighted the inherent advantages of arbitration in the ESG context, particularly when compared to other commercial disputes. One of the key advantages he noted is the suitability of arbitration for disputes with an international or cross-border element, given its neutrality and the enforceability of arbitral awards across jurisdictions.
He also touched upon the confidentiality that arbitration offers. While this can be a double-edged sword – providing privacy for the parties involved, yet potentially limiting transparency in matters of public interest – it is nonetheless a defining feature of arbitration.
Another strength of arbitration that McClure discussed is its suitability for disputes requiring specialist technical knowledge. The ability to appoint arbitrators with specific expertise in ESG matters can lead to a more informed and nuanced understanding of the issues at stake.
Furthermore, McClure emphasized the flexibility of arbitration procedures. The ability to tailor the process to suit the parties’ needs or the nature of the dispute can be particularly beneficial in ESG disputes, which often involve complex and multifaceted issues.
In his parting shot, McClure underscored the evolving nature of ESG disputes and the need for the arbitration community to adapt and respond to these changes. He highlighted the importance of developing and promoting best practices in ESG arbitration, to ensure that it remains an effective and credible mechanism for resolving these increasingly important disputes.
