Navigating ESG arbitrability challenges in energy and climate: an in-depth analysis and future perspectives

Abstract

Over the past few years, there has been a notable surge in the inclusion of Environmental, Social, and Governance (ESG) clauses within both domestic and international agreements and contracts. This trend places a distinct focus on aspects related to climate change and energy. Implementation and enforcement challenges have emerged, prompting the exploration of remedies and procedural channels, wherein commercial and investment arbitration has gained recognition as a suitable dispute resolution mechanism. Against this backdrop, this article examines ESG clauses from both substantive and procedural perspectives, emphasizing their relevance to climate change and energy issues in light of the Paris Agreement. The study presents a thorough analysis of conceptual frameworks, content, scope, and implementation of ESG clauses. Additionally, it explores procedural pathways for enforcement, encompassing commercial and investment arbitration, highlighting their advantages and downsides. A critical analysis of recent arbitration cases involving ESG clauses provides insights into future implications. The study contributes to a deeper understanding of the challenges and significance surrounding the implementation of ESG clauses, particularly in the context of climate change and energy considerations, within contemporary international investment agreements and in the evolving landscape of commercial arbitration.