Environmental, social and corporate governance (ESG) has been one of the most dominant issues in recent years, including in international arbitration.
Today, governments and investors expect companies to be focused on protecting the environment and human rights as they rebuild because of COVID-19 pandemic. Consequently, ESG clauses are making their way into commercial contracts. As an example, specifically in international commercial arbitration, companies, due to political and commercial pressure, require to guarantee the protection of the rights of their workers in a greater scope. Therefore, when reviewing their policies, internal practices, and contractual relationships, they have been incorporating ESG clauses.
However, since, to some extent, ESG factors can be considered new for many companies, controversies have arisen regarding their interpretation and application. Unfortunately, there were many companies that did not deal with these issues on their agenda, and doing so has presented a challenge, giving rise to conflicts or disputes that, especially when it comes to cross-border or international issues, they have chosen to resolve through alternative means of dispute resolution, such as arbitration.
By resolving these conflicts through arbitration, the parties can choose specialist arbitrators in the related issues. For example, in supply chain business cases, they may be lawyers who are experts in human rights issues. In addition, arbitration also allows for a neutral seat and more flexible procedures that suit the needs and nature of the dispute. And, finally, the parties can be certain of the enforceability of the award.
However, the fact that arbitration is an alternative means of private dispute resolution can generate several challenges when issues of public interest are dealt with, an issue that is not surprising with ESG factors, which involve environmental protection and human rights. However, these concerns can be addressed by incorporating features into arbitration, such as the publication of awards and third-party intervention, thereby ensuring that arbitration remains an effective way to resolve commercial disputes in the context of ESG factors.
