Climate change and sustainability

Introduction

Prior to COVID-19, few people would have found an obvious practical connection between a pandemic and climate change. But with hindsight, the connections are manifold. As discussed below, some are obvious, some more subtle, while others are still playing out. What is however becoming clear is that climate change related disputes are unlikely to abate in the wake of the pandemic. Indeed all signs point to a possible surge in cases as political and economic positions harden and all sides seek to take advantage of the compounding pressures on companies, individuals and governments in the wake of the pandemic. International arbitration and ADR have important roles to play in resolving such disputes.

COVID-19 and climate change

The most obvious impact of COVID-19 has been the reduction of greenhouse gas emissions (and other pollutants) globally as the restrictions imposed by public bodies severely curtailed industry and transport. In the face of this disruption to businesses and supply chains globally, the pandemic has served to shine a spotlight on the resilience and sustainability of business practices and supply chains across many sectors. While other sectors – technology and innovation notably – have consolidated their position as drivers of the future for many industries. Science too, is having its moment (albeit, not without some challengers). The pandemic has also given tangible shape to the potential wide scale commercial, economic and societal disruption (global and domestic) that scientists and economists have been warning will follow if global warming is not limited to manageable levels. This may result in added impetus for climate change and sustainability measures. In a similar vein, the combined impact on the oil and gas sector of the oil price crash, COVID-19 and other pre-pandemic pressures including the energy transition and digitalisation has, for some, increased the attractiveness of investment in green or sustainable energy assets.

Conversely, however, the pandemic is having a negative impact on the energy transition (at least in the short term) – for example, renewable energy projects have faced supply chain issues, and with economic pressures there is likely to be less ambitious investment in green or sustainable projects and research and development at least from some quarters. (Few may be aware that the currently beleaguered oil and gas industry is one of the larger investors in this area.) Meanwhile, governments and societies faced with serious economic downturn are grappling with questions such as how to fund a post-pandemic recovery, including whether to tie bail-out or stimulus measures to green or sustainable targets, or whether in fact short term economic recovery should be prioritised over climate change commitments and ambitions.

Extensive lobbying from both camps is ongoing. These complicate already difficult questions as to when and how to finance a global wide scale transition to a more sustainable future.

The net result has been that climate change and sustainability policy, regulation and law – areas already in significant flux globally prior to the pandemic – are likely to see significant change in coming months and years. In the face of this, climate change related disputes are not likely to abate. Indeed, the post-pandemic melting pot of economic and political pressures is likely to result in greater levels of disagreement and disputes.

Resolving climate change disputes by arbitration and ADR

The range of climate-related disputes is vast. It is now a global phenomenon, where legal issues traverse multiple fields of law and various causes of action, and involve a wide range of claimants and defendants from multiple sectors. New disputes – against corporates, individuals (such as directors and officers), and governments – are reported nearly daily. The risk profile is not only complex but as mentioned above it is in a state of flux. This is partly due to innovative claims being brought by claimants as they seek to get around the legal hurdles frequently faced by such claims (standing, justiciability, causation, to name a few). It is also due to the ongoing evolution of climate related regulation and policy, on the national and international stage, as states grapple with how to address climate change and who should shoulder the fiscal burden – questions that are now even more complex in a financially challenged post-pandemic world.

Whilst most climate change disputes to date have been argued before national courts, there is a role for international arbitration and ADR in the resolution of climate change related disputes. We have written extensively on the potential we see for arbitration and ADR to resolve climate change related disputes. See for example, our article on Climate-related disputes: adaptation and innovation. The factors in favour of a greater role for arbitration and ADR as discussed in that article are even more prominent in a post-pandemic world. There is little doubt that – if sensitively addressed – this area will grow in importance for the arbitration community.

Reflecting that realization, major arbitral institutions have in recent years been turning their focus to how to best facilitate efficient and effective resolution of climate change related disputes. The recent report by the ICC Task Force on Arbitration of Climate Change Related Disputes has been particularly ground breaking in its detailed attention to this important area as summarised below.

The ICC Task Force’s Report

The ICC Arbitration and ADR Commission, with the support of the ICC Commission on Environment and Energy, created a task force on Arbitration of Climate Change Related Disputes (the Task Force). Kevin O’Gorman, one of the authors hereto, was a member of the Task Force, along with business representatives, lawyers, arbitrators, arbitral institutions, in-house counsel, NGO representatives, business and industry groups and academics. Kevin O’Gorman and Mark Baker both also participated at the ICC Commission debate when Task Force’s draft report was presented for approval. The remit of the Task Force. The remit of the Task Force was to examine the current use of international arbitration and alternative dispute resolution (ADR) in resolving international disputes related to climate change as well as what features would be required for a dispute resolution mechanism to be effective to resolve such disputes. In addition it looked at the ICC’s Arbitration Rules, Mediation Rules, Expert Rules and Disputes Board Rules to consider their fitness for resolving such disputes and whether additional guidance or materials (such as sample procedures or dispute resolution clauses) might be needed.

The Task Force’s Report on Resolving Climate Change Disputes through Arbitration and ADR (the Report) was launched in November 2019 both in Paris and at Norton Rose Fulbright’s offices in New York.

The Report identified six areas in which the existing procedures may be enhanced when arbitrating such disputes, as well as providing additional guidance and language parties may use when drafting arbitration agreements in respect of capture climate change disputes.

The need for appropriate expertise

Given the breadth and complexity of the area, securing relevant scientific and technical expertise is essential to arbitrating climate change related disputes.

In arbitration, this essential expertise can be obtained via the parties’ choice of arbitrator plus any party or tribunal appointed experts. When choosing the arbitrator, parties may of course expressly provide for specific requirements but (as always) care should be taken over being too prescriptive as it may lessen the pool of potential arbitrators to the detriment of both parties. The Report provides sample wording which parties may consider when drafting arbitration agreements as well as guidance on the procedure for the parties or the tribunal to appoint experts. In addition, the ICC itself may assist either in selecting arbitrators or experts with the relevant expertise or in offering guidance as to the relevant expertise required.

Measures to expedite dispute resolution

The Report acknowledges that the meaningful resolution of climate change related disputes is often urgent. Not only is climate change science and technology constantly developing at pace but, in some situations, delay may have a detrimental impact on the environment or populations, which may even ultimately result in further proceedings being brought. The Report offers guidance on expediting dispute resolution by:

• Effective use of case management techniques to increase efficiency, including bifurcating proceedings, limiting the length of hearings and submissions at the CMC, and identifying issues which may be decided by experts.
• Proceeding on the new “ICC Expedited Procedure” whereby the parties accept this procedure if:

i. the amount in dispute does not exceed US$2 million, or

ii. the parties otherwise agree pursuant to Article 30 of, and Appendix VI to, the ICC Arbitration Rules.

• Reminding parties of the additional features of ICC arbitration already available including emergency arbitration, interim and conservatory measures, and the use of escalating dispute resolution clauses.

Climate change commitments and frameworks

The Report also recommends that consideration be given to national legal and regulatory frameworks that action commitments under international agreements such as the Paris Agreement, and to commercial agreements which increasingly adopt industry standards such as the Equator Principles (for further information see our prior articles on the Equator Principles and navigating ESG issues). Although the arbitral tribunal will be confined to the governing law to which the parties have agreed, such frameworks and industry standards may become increasingly relevant to climate change related disputes in the future. The Task Force anticipated that, increasingly, parties may seek to argue termination, force majeure, frustration, change of circumstances or illegality as a result of states’ and business’ commitments to those frameworks and industry standards. The ICC is currently considering whether to propose specific guidance in this respect of these beyond the sample wording provided in the Report.

Transparency

A major concern of the Task Force was that a perception of a lack of transparency in traditional arbitral proceedings may deter parties from choosing to arbitrate climate change related disputes. This concern over transparency is often traced back to public policy implications that can be associated with climate change disputes, and lead to questions over the legitimacy of private proceedings. The Report suggests that in order to ensure that arbitration remains a trusted dispute resolution tool for climate change related disputes, more information should be made available to states, businesses and interested parties.

There already has been significant progress towards transparency in the context of investor-state disputes, with the UNCITRAL Rules on Transparency in Treaty-based Investor-State Arbitration providing rules for transparency and accessibility to the public. Similarly, the ICC Rules provide for publication of awards of certain commercial arbitrations. However, the Report reminds parties that there is nothing in the ICC Arbitration Rules to prevent parties from agreeing to the disclosure to the public of information as to pending arbitral proceedings or final awards. This should, however, be read in the context of the parties’ original reasons for choosing arbitration, which in some instances may stem from the privacy that arbitration can offer over other forms of dispute resolution, notably litigation.

Third party participation

As with transparency, there is some concern that disputes that stray into issues of wider public concern, such as climate change related disputes, should allow for participation of interested third parties.

With the increase in climate change projects or policies, it is expected that there will be a corresponding increase in impact on citizens and industry, which may result in disputes. The Report suggests that parties may therefore consider incorporating appropriate dispute resolution mechanisms in their bespoke arbitration agreements to ensure that third parties do not bring parallel proceedings in other fora as well as to allow for appropriate levels of third party participation in the arbitral proceedings. The Report suggests that there are two main ways in which this can occur in ICC arbitral proceedings: (i) by joinder of additional parties, or (ii) allowing for amicus curiae submissions.

Costs

The Report highlights concerns over costs – an increasingly important consideration for all in the current economic situation. The Report proposes revisions to the existing ICC rules so as to remind the parties and any legal representatives of the costs provisions applicable to ICC proceedings, and in order to ensure that appropriate stakeholders are able to participate in the dispute resolution process.

With thanks to Scott Hobbs, trainee, for his assistance with this article.