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    ESG Brief Updated

    Uploaded by

    Yash Bhatnagar

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    ESG Brief Updated

    Uploaded by

    Yash Bhatnagar
    6 views3 pages

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    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    6 views3 pages

    ESG Brief Updated

    Uploaded by

    Yash Bhatnagar

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 3

    Introduction:

    Arbitration has long been a preferred method for resolving commercial disputes, offering parties flexibility,
    confidentiality, and the ability to choose neutral experts. However, as global concerns about environmental
    sustainability, social responsibility, and good governance have gained momentum, the incorporation of
    Environmental, Social, and Governance (ESG) factors into the arbitration process has become increasingly
    important. This essay aims to explore the significance of ESG considerations in arbitration and argues for
    their integration to achieve a balanced and responsible approach to dispute resolution.

    I. Environmental Considerations:

    The environmental impact of business activities cannot be ignored. ESG in arbitration demands that parties
    assess and address the environmental implications of their actions, such as carbon emissions, resource
    consumption, and waste management. Arbitral tribunals should be empowered to consider the ecological
    consequences of a dispute when determining damages, equitable remedies, or injunctive relief.
    Incorporating ESG factors into arbitration can promote sustainable practices, incentivize compliance with
    environmental regulations, and contribute to the global fight against climate change.

    II. Social Considerations:

    Social responsibility encompasses a wide range of issues, including labor rights, human rights, community
    engagement, and diversity and inclusion. ESG considerations in arbitration require parties to evaluate the
    social impact of their actions and decisions. Arbitral tribunals should consider factors such as labor
    practices, supply chain ethics, and the potential effects of a dispute on local communities. By incorporating
    ESG considerations, arbitration can contribute to the promotion of fair and ethical business practices,
    fostering a more inclusive and just society.

    III. Governance Considerations: Good governance is vital for maintaining trust and integrity in business
    transactions.

    ESG in arbitration calls for the evaluation of corporate governance practices, including transparency,
    accountability, and anti-corruption measures. Parties involved in arbitration should be encouraged to
    provide evidence of their commitment to ethical conduct, compliance with relevant regulations, and
    adherence to internationally recognized governance standards. By considering governance factors,
    arbitration can deter misconduct, foster ethical behavior, and enhance confidence in the process and
    outcomes.

    IV. Balancing ESG and Traditional Arbitration Principles:

    While the integration of ESG considerations in arbitration is crucial, it must be done in a manner that
    strikes a balance with traditional arbitration principles. The primary objective of arbitration is the fair and
    efficient resolution of disputes, and the incorporation of ESG factors should not unduly delay or complicate
    the process. However, by incorporating ESG considerations at the appropriate stages of arbitration, such
    as during the assessment of damages or in the formulation of remedies, the process can be enhanced
    without compromising its fundamental principles.

    THE INCIDENCE OF ESG DISPUTES IN ARBITRATION

    Arbitration, as has been established, is the preferred mode of resolving international disputes. The 2020
    Annual Report of Statistics on Dispute Resolution of the International Chamber of Commerce (ICC) (ICC
    Dispute Resolution 2020 Statistics), which was published in 2021, reported that Construction, Engineering,
    and Energy disputes represented the highest proportion of ICC disputes, reaching 38% of all the new cases
    which were registered in 2021. A cursory look at these areas would inform the looker that these areas are
    in themselves crucial to national policies meant to fight climate change and guarantee environmental
    protection and human rights. This, therefore, confirms the convergent point between arbitration and ESG
    components.

    A glance at the features of International Arbitration informs of its suitability for the resolution of ESG-
    related disputes. Apart from the flexible and neutral nature of arbitration, the principle of party autonomy
    affords the parties the opportunity to appoint arbitrators that have specialist expertise (e.g Labour Law,
    Human Rights, Climate change, or other ESG-related matters). Under the New York Convention, and also
    in line with the trends in recent times, the possibility that arbitral awards will be enforced is high, and this
    makes International arbitration an effective method for the resolution of ESG-related conflicts. In using
    International Arbitration as a means of resolving ESG disputes, there is the possibility of getting interim
    measures before the arbitral tribunal is set up, or during the arbitration.

    This is very important in instances like irreversible environmental damage or gross violation of human
    rights. Injunctive relief can be obtained in an expedited manner, and since ESG disputes usually require
    initial adjudication that cannot be delayed, injunctive reliefs from Arbitration proceedings are best suited
    for these purposes. For instance, in the event that a business practice could cause irreparable environmental
    damage, the parties concerned could take advantage of emergency arbitration procedures before the
    constitution of the arbitral tribunal.

    The ICC Arbitration Rules in Article 29 of the Rules and Appendix V (“Emergency Arbitrator Provisions”)
    offer a procedure for parties to seek urgent relief. Its a mechanism to address urgent issues and proffer
    short-term solution for parties that cannot wait for the constitution of an Arbitral Tribunal.

    Questions regarding ESG Issues in Arbitration

    Climate change disagreements: The Paris Agreement's goals were advanced by both public and private
    sector actors at the most recent UN Climate Change Conference (COP26), which was held in November
    2021. These actors proposed to implement plans to reduce CO2 emissions in order to limit the increase in
    global temperature to pre-industrial levels. Although the climate-change issue has long been on the business
    agenda, it has gained significant momentum in recent years.

    It is hardly unexpected that climate change is one of the primary causes of ESG issues. In these cases,
    plaintiffs have identified a variety of sources as potential sources of responsibilities relating to climate
    change, including international treaties as well as national or local constitutions, laws, or regulations.

    Supply chain ESG disputes. ESG disputes have also arisen in connection with supply chain issues, which
    may implicate concerns regarding forced labour, human rights and greenhouse gas emissions. While it was
    already common for international corporations to adopt voluntary international reporting and due diligence
    standards, this issue has now gained prominence on the legislative agenda. Several jurisdictions have enacted
    legislation requiring, to a greater or lesser extent, that companies conduct due diligence with respect to the
    human rights and environmental impacts of their business activities, as well as those of their business
    partners within their supply chain.

    An example of this new regulatory trend is Germany, whose parliament on 11 June 2021 passed the German
    Supply Chain Due Diligence Act (GSCA). The law, which comes into force in 2023, imposes an obligation
    on German companies to identify, document and report potential human rights and environmental
    violations committed by their direct and indirect suppliers.

    Some Pointed Questions that we’ll be focusing on during the course of the Podcast

    • How does ESG impact arbitration proceedings and decisions?

    • What role can ESG play in the selection of arbitrators?

    • Can ESG factors be considered when assessing damages in arbitration cases?

    • Are there any specific ESG-related rules or guidelines for arbitrators to follow?

    • What is the relationship between ESG disclosures and the transparency of arbitration
    proceedings?

    • Can ESG-related disputes be resolved through arbitration?

    • How can ESG considerations be integrated into the choice of applicable law in arbitration cases?

    • Are there any specific ESG-related enforcement mechanisms in international arbitration?

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