ESG in the Arbitration Arena: Balancing Act or Game Changer?

As we explore the dynamic realm where Environmental, Social, and Governance (ESG) factors meet dispute resolution, Peter Smith, a seasoned Legal Director – Dispute Resolution, and Patrick Gearon, Head of Charles Russell Speechlys Middle East practice, share their expert perspectives on navigating the evolving landscape of ESG considerations in arbitration, especially in the vibrant context of the Middle East region. 

Patrick, as someone who specializes in dispute resolution, particularly in the Middle East, what unique challenges and opportunities do you see regarding ESG factors in arbitration within this region? 

Concerns about ESG are becoming more prevalent in the Middle East, particularly amongst international investors but also regulators and other authorities some of whom, for instance, require periodic ESG disclosures. This raises the prospect of claims regarding green washing and more intense scrutiny of supply chain activities. Environmental concerns are probably the biggest issue businesses and governments face, with countries like the UAE, KSA and Bahrain committed to carbon neutrality by 2050 or 2060. Failing to meet environmental standards is more likely to result in reputational harm than it ever has, and businesses need to take the utmost care that they are doing – and are being seen to be doing – their bit to minimize environmental damage and adopt sustainable business practices. ESG matters also have a bearing on the arbitral process itself. Law firms and counsel are keen, for instance, to reduce the environmental impact of arbitration and to commit to a greener future, through initiatives such as the Campaign for Greener Arbitration, of which Charles Russell Speechlys is a member.  

Peter, with your experience in a wide range of civil and commercial disputes, including arbitration, how do you perceive the intersection between ESG and arbitration in sectors such as banking, finance, and construction? 

Given the increase in ESG requirements, inevitably disputes will arise, for instance between shareholders and joint venturers in building projects. Construction will be particularly vulnerable to environmental obligations such as the mandatory use of recyclable materials and building designs that require energy efficiency. These may trigger disputes across supply chains and with professional service contractors like designers and architects. Banks and other lenders may impose ESG-related lending requirements, particularly as their own ESG obligations are increased.  

What efforts are being made within the arbitration field to leverage technology and reduce the environmental impact of proceedings? 

Patrick Gearon: The Campaign for Greener Arbitration concluded in a study that nearly 20,000 trees could be required to offset the total CO2 omissions of just one arbitration (once flights and electricity emissions are taken into account). The arbitration community has taken notice and practitioners are generally making concerted efforts to minimize travel and unnecessary printing.   The Covid pandemic also forced practitioners to use remote hearing technologies and online document management software for hearing bundles. These recent technologies are making the process cheaper and quicker, so they are practical as well as green. 

Is there a possibility of a blanket ban on in-person arbitration hearings in the future, considering the importance of ESG considerations? 

Peter Smith: No, it is highly unlikely that there will be any form of blanket ban. Remote hearing technology like Zoom and Teams generally work well, especially for submissions, but witness handling can be much slower if the internet connection is sub-par, or the witness finds the technology difficult to use. In-person cross-examination allows counsel to have a more natural conversation with the witness, and for the tribunal to better assess the witness’ demeanor. Some practitioners and institutions like the Dubai International Arbitration Centre are investigating whether arbitrations can be effectively conducted in the metaverse, potentially allowing for the immersive experience of being in a virtual hearing room.  

Do you foresee an increase in ESG provisions within arbitral rules, and if so, how might this impact the conduct of arbitration proceedings? 

Patrick Gearon: Yes, I can see more arbitration institutions introducing a presumption that all procedural hearings are conducted remotely, and the default procedure for document management, including the filing of documents and inter partes correspondence, being electronic. Some institutions already have presumptions or rules to this effect, which will make the management of arbitrations more efficient and cost effective. Institutions like the ICC have adopted online case management systems to streamline processes and reduce the need for courier and printing costs. Article 25 of the Saudi Center for Commercial Arbitration (SCCA) Rules, for example, encourages tribunals and parties to consider how technology could be used in establishing the procedures for their arbitration, and specifically how it could be used to reduce the environmental cost of the arbitration. In tandem, there is a trend towards institutions introducing strike out provisions for meritless claims and processes for expedited proceedings, which can limit the duration of an arbitration and by extension its effect on the environment. 

How are professionals within the arbitration industry demonstrating their commitment to ESG principles? 

Peter Smith: Good arbitration counsel has always been open to technologies that improve efficiencies in the arbitral process such as software for document management, technologies that enable the effective harvesting, storage and searching of data, and ways of communicating with clients, opponents, experts, witnesses, and tribunals. Many law firms and others in the arbitration industry have signed up to movements like the Campaign for Greener Arbitrations. The industry is focused on the S and G of ESG as well: many practitioners act or advise pro bono in appropriate cases, and firms display these activities in their marketing materials and link them to career development.  

How do you anticipate the future landscape of international arbitration evolving concerning ESG factors, particularly in light of global trends and regulatory changes? 

Patrick Gearon: The growth in regulatory ESG requirements will increase the number of obligations in contracts subject to arbitration. National and international environmental rules will be the biggest single evolutionary pressure in arbitration, but it is likely that the development of human rights regimes such as measures to combat human trafficking and the promotion of the ethical sourcing of raw materials will also lead to claims across supply chains. I would also add that we have recently witnessed an increase in ‘specialised’ arbitral rules, so it is realistic to expect that there will be specialised rules dealing with ESG disputes in the future. 

Reproduced with permission from Legal Community MENA. This exclusive interview with Suzan Taha was first published in Legal Community MENA - ESG in the Arbitration Arena: Balancing Act or Game Changer? For further information, please visit: Home - Legalcommunity MENA