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Investment Sustainability Between the Rights of the Investor and the State

Investment Sustainability Between the Rights of the Investor and the State (An Analytical View of Climate Change)

Arbitration and climate change

This essay aims to focus on linking the rules of international arbitration to the extent to which the responsibility of industrial and commercial investment institutions implements ESG performance, environmental, social and governance, while industrial and commercial investment institutions of an environmental nature are responsible for implementing sustainability standards related to the environment and society. Therefore, violating these standards must constitute a responsibility in the face of these institutions, if two companies concluded an investment agreement to establish an industrial city near a river and one of the parties to the agreements violated the provisions of environmental sustainability. It is an integral part of the agreement itself, so what happens in this case? What role does arbitration play in the context of environmental, social and governance (ESG) issues, in particular climate change?

Climate change protection must be linked to the responsibility of countries and investment institutions for direct and indirect damage to the climate, by adding previous sustainability provisions in the content of industrial investment agreements, especially those related to environmental regulations and climate protection, including in ( conditions) in facilitating agreements Industrial investment until it becomes possible for the arbitration court to consider environmental investment disputes that constitute a violation by one of the parties, not only against the other, but also against the environment.             

Climate Change (ESG)

Main Essay Focus

This essay raises an important question under the heading “What role does arbitration play in the context of Environmental, Social and Governance (ESG) In particular climate change?

Introduction

This essay discusses the relationship between investment sustainability criteria and climate change issues in investment and industrial environments, such as coal, carbon and environmentally harmful substances, more specifically the impact of investment sustainability (ESG) factors on climate protection under industrial and industrial arbitration agreements Clarify investment partnership agreements between government and private institutions.

It is impossible to ignore that issues of climate change and sustainability are hot and emerging topics on a daily basis. These issues have become part of the legal landscape and are being discussed before courts and tribunals with a wide range of legal disputes and breach of economic and investment responsibilities of the parties The corporate conflict risk profile is not only complex but also extends to linking sustainability and compliance rules related to industrial and environmental investment facilitation decisions and who should bear significant legal and financial burdens.

In this legal article, we seek to provide a simple introduction to the types of climate change and sustainability arbitration that exist internationally and explore relevant trends. This article also explores relevant climate change and sustainability arbitration issues arising from investment and industry contracts and agreements related to sustainability compliance rules (ESG).

The relationship between climate change and investment sustainability

According to the latest statistics of many international organizations and the World Trade Organization, the number of commercial investment institutions is increasing dramatically with an estimated 77% of the volume of industries worldwide in relation to industrial institutions of all kinds, for example, carbon-production enterprises, which results in emissions Carbon that severely harms the environment, as well as petroleum violations and unclean energy violations. To facilitate the investment of these major investment projects, it is a classic ESG performance standard that measures the environmental, social and governance sustainability of these private and government institutions.

There are many reasons to focus lasers on ESG performance

A – The pressures of the international community organizations, especially the United Nations: The activity of shareholders and the public on issues such as environmental performance has become more widespread, which puts companies under pressure to address any external strategies or any policies that industrial companies may implement that would harm the climate.

B – The growing recognition of environmental issues means that companies increasingly feel the need to issue a corporate response to these issues, above all climate change issues.

C – Environmental governance reporting is becoming the norm: public disclosures about ESG performance measures are required in some regions and sectors, and increasingly expected in many others, as seen with TFCD disclosures on environmental performance and the European Union’s Sustainable Finance Disclosure Regulation.

D – There is a broader movement towards socially conscious companies: whether they are holding badges under Corporate Social Responsibility (CSR), (ESG) or general corporate ethics, there is a growing sense that companies should adopt a ‘triple bottom line’ approach that puts people and the planet side by side with Profit is growing in momentum.

Industrial Investment Corporation Disclosures (ESG)

Enhanced focus by industry investment firms and investors on climate-related disclosures as part of national governments’ comprehensive sustainability approach to addressing climate change, for example the US Securities and Exchange Commission (“SEC”) has prioritized issues related to ESG123. SEC President Gary Gensler recently noted that investors increasingly want to understand the climate and workforce risks of the companies they invest in. Gensler asked SEC employees to propose new disclosure rules related to climate risk and human capital, including workforce and corporate board diversity, by the end of 2023 that the guiding disclosure framework would likely lead to increased litigation and enforcement.

In the United States, the Securities and Exchange Commission has also provided the following specific examples of climate change-related topics that a registrant should consider disclosing:

  • The impact of climate change legislation and regulations.
  • The impact of international treaties or agreements relating to climate change on its work.
  • Significant physical effects of climate change that may have the potential to impact investment
  • The indirect consequences of regulation or business trends, including legal, technological, political and scientific developments related to climate change that may create new opportunities or risks for registrants.

The Securities and Exchange Commission is clearly determined to develop a comprehensive climate disclosure framework, although it remains unclear exactly what that framework will look like.

Climate and ESG-related disputes

ESG considerations have never been more important. Whether in the UK, major industrialized nations or even developing nations, the regulatory and regulatory environment is changing rapidly, with investors, stakeholders, current and potential employees, rating agencies and regulators focusing more on ESG strategy than ever , ESG now on most industrial investment firms’ agendas ‘environment’ in ESG has been the main focus for some time, primarily in the context of the EU’s Sustainable Finance Disclosure Regulation (SFDR) and Classification Framework Regulations, but the focus is expanding from the environmental aspects of ESG And to “social” in the ESG. Companies are more focused than ever on the purpose of the company and what to do with ESG. What are they really trying to achieve?

Public awareness and discussions about climate and environmental, social and institutional governance have increased in recent years. For example, in the Netherlands, in May 2019, the Judicial Section of Administrative Law at the Council of State found that the government’s policy regarding nitrogen deposition is not in line with the European Union’s directives on habitats. And in December 2019, the Supreme Court ordered the state to take action against climate change in the Urgenda case. This decision was based on the United Nations Climate Agreement and the European Convention on Human Rights. In terms of the ESG’s “social” field, human rights issues such as anti-discrimination and modern slavery are topical issues, and the issues addressed are broad. Last year, for example, big companies like Gillette, Bavaria and Zesbury pulled their commercials from a Dutch TV show because a presenter made hateful jokes about the Dutch equivalent of the Black Lives Matter (BLM) movement. We also saw earlier this year that Dutch importers of solar panels came under fire for mining their raw materials in areas of China where the Uyghur people were subject to labor by the Chinese government. So, we’re really talking about a wide range of issues.

There has been a growing awareness of climate, environmental, social, and institutional issues in France. Since 2017, under French law, companies must, by publishing a due diligence plan – referred to as a vigilance plan – identify risks to human rights and fundamental freedoms, personal health, safety and the environment, take appropriate measures to mitigate the risks or prevent serious harm and implement A system to ensure that alerts are raised to risks that appear. There has been an increase in cases before the French courts regarding violations of this law and especially regarding the lack of Information in vigilance plans. Moreover, since 2019, companies can specify the mission of the company in their articles of association. By embracing the corporate mission, companies bring the ESG to the heart of corporate strategy and publicly identify the commitments and values ​​that guide their strategy, and the internal resources that should be applied. Thus, ESG issues are a key component of the company’s strategy, and the number of board committees for CAC 40 index companies focusing on ESG has doubled since 2019.

In response to the changing global attitude toward the ESG, including as a result of global initiatives such as the climate emergency, the (BLM and MeToo) movements. As such, we are witnessing a significant reset of stakeholders – regulators, shareholders, investors, consumers and employees – the expectations of companies across industries regarding the impacts of the ESG, its corporate purposes, and its ability to identify and manage ESG risks. Although climate change remains the dominant focus, with a particular focus on reaching “net zero,” other environmental factors such as biodiversity loss, as well as social and governance issues, come to the fore. This is reflected in the increasing amount of legislation and regulations introduced or proposed on Matters E, S and G, as well as soft law and industry guidance at both the national and international levels.

German Federal Court ruling -Reducing Emissions

There has recently been an interesting judgment by the First Senate of the German Federal Constitutional Court that held that certain provisions of the German Federal Climate Change Act (Bundes-Klimaschutzgesetz – KSG), governing national climate targets and the annual emission amounts allowed until 2030, are incompatible with constitutional rights (Grundrechte) insofar as they lack sufficient specifications for further emission reductions from 2031 onwards. The KSG stipulates that GHG emissions shall be reduced by at least 55 percent by 2030, relative to 1990 levels. Further, the KSG sets out the reduction pathways applicable during this period by means of sectoral annual emission amounts. The Federal Constitutional Court is of the view that this mechanism violates the constitutional freedom rights (Freiheitsrechten) of the young complainants as it irreversibly offloads major emission reduction burdens onto periods after 2030. To meet the constitutional climate goal stemming from the German Constitution (Grundgesetz), and the Paris target, the reductions are still necessary after 2030 and will have to be achieved with ever greater speed and urgency. The Federal Constitutional Court is of the view that these future obligations to reduce GHG emissions have an impact on practically every type of freedom because so many aspects of human life still involve the emission of GHG and are therefore potentially threatened by drastic restrictions after 2030. Therefore, the German legislator should have taken precautionary steps to mitigate these major burdens in order to safeguard the freedom guaranteed by fundamental rights as the statutory provisions on adjusting the reduction pathway for GHG emissions from 2031 onwards are not sufficient to ensure that the necessary transition to net zero is achieved in time. In accordance with the order of the Federal Constitutional Court, the German legislator must now enact provisions by the end of 2022 that specify in greater detail how the reduction targets for GHG emissions

The Shell oil spill case in the Court of Appeal in The Hague

The Court of Appeal had to apply Nigerian laws, where strict liability was codified. From this perspective, the verdict should be considered as case-specific. In the case against the dredging company, a different court ruled that the NGO’s claim was inadmissible because of a lack of connection to the Dutch legal system. The court found that the claim did not meet jurisdiction requirements that were recently sharpened.

Arbitration examples

The SCC Report cited a number of cases involving renewable energy facilities (from wind farm to biogas installations) noting that over 60% of its green technology disputes involved renewables. It stated that typical issues raised involved whether the facility satisfied the contractual standards, for example production of the agreed amount of power, or preventing environmental risks. (Read also our article in this issue on Renewable Energy Project disputes).

The Construction issues always prove fertile ground for disputes, with usual disputes relating to quality, liability for additional costs, work and delay (including liquidated damages claims).

A high-profile example is that of the disputes brought in the wake of a disaster during the construction of the multibillion hydroelectric dam in Colombia which collapsed causing a major flood. A Colombian public utility is seeking USD $1.6 billion from a Spanish insurer following the collapse, and another billion-dollar dispute with the consortiums behind the project has also been referred to arbitration.

There will also be disputes related to financing, whether that be financing of climate change or sustainability related projects, failure to meet technical specifications to achieve green or sustainability-linked financing, or the appropriate use of sustainable finance or climate-related funding. Similarly, ” disputes “, will arise under carbon credits or emissions trading schemes. As an example, a Danish engineering company won a USD $150 million SCC award against two Russian state-owned entities in an arbitration arising from a contract to undertake works to reduce carbon emissions at gas pipelines under that agreement, the engineering company was to receive carbon credits for its work which it could trade on international markets under the Kyoto Protocol. However, the Russian entities failed to get the project registered by a certain time. In response, the claimant sought to enforce a contractual mechanism to claw back its investment and an agreed rate of return. In turn, the defendants (unsuccessfully) alleged in the arbitration that the contract was procured by corruption and related criminal complaints in Russia were also instigated. Supply and delivery disputes related to climate change or sustainability-related contacts are also commonplace, involving performance, delivery, quality and quantity issues. Commodities are an important areato watch – on the one hand fluctuations in commodity prices will impact climate change and sustainability-related contracts, and on the other hand, commodity prices and contracts (whether related to or unrelated to climate change and transition activities) will be impacted by the effects of climate change and the transitions. For example, commodities may be harder to source or transport due to more extreme weather conditions, and there will be fluctuations in demand and prices, for example, due to technological advances, or changes in policy, law or consumer sentiment, and in some instances certain commodities may no longer commercially viable as a result. Given the fluctuations to commodity prices that have been seen in recent years, and the further anticipated fluctuations in global markets, price review disputes, as well as disputes over performance and termination, with some connection to climate change and sustainability.

Conclusion:

Climate change leads to new economies (anti-green economy) These are the facts and legal frameworks that all state entities and companies must adapt together Climate change conflicts and sustainability are the new corporate reality. There is no cause for concern – no transaction is without risk. However, the parties are well advised to consider mitigating dispute resolution and resolution strategies at the beginning every transaction. Well-Written Arbitration The agreement is one of the main contractual risks of the allocation mechanism. As a neutral forum, providing access to expert arbitrators, arbitration is arguably well positioned to play a leadership role as an arena for resolving many climates change and sustainability disputes arising from contracts.

Other important mechanisms include conducting climate change and sustainability disputes, audit risk audits of the company’s global and regional operations, and developing dealing protocols with conflicts as they arise. If done well, this can significantly save time, costs, reputation and maintain relationships with counterparties. The latter is a critical point in climate change and sustainability contractual disputes, many of these contracts will be long-term

Arrangements that involve significant levels of investment initially and continuing Considering the risks of disputes at the outset such transactions are the best way to avoid a climate change disputes disaster.

On the other hand, arbitration plays its legal role in enforcing the national and international legal responsibility of companies and institutions that violate the obligations contained in carbon emissions agreements and manufacturing contracts of various types of environmental nature, thus achieving legal balance in setting up a regulatory system. The legal framework for arbitral tribunals in multiple climate issues. Therefore, the matter is far from being an arbitration. It plays its primary role in resolving disputes on climate change issues, but its role extends to monitoring processes of national or international legal responsibility in the face of the perpetrators of these climate-damaging actions. Finally, if arbitration is an effective new avenue in climate change issues, we must all protect this legal framework within society. National and international legal.

Recommendations:

After completing the distinguished discussion in this essay , I would like as a researcher in the branches of public and private international law and international arbitration to present several legal recommendations that can be realistically implemented in the near future. These recommendations include:

1 – Adopting environmental sustainability standards in all types of agreements and investment contracts related to industries, carbon emissions and unclean energy between the parties to the agreements, in addition to placing them in the (ADR) alternative dispute solutions clause, which includes international arbitration.

2 – Concluding a new international agreement that includes the international parties’ members of the United Nations Organization to regulate issues related to national and international climate change disputes in matters of national and international investment, at the latest during the year 2023.

3 – Establishment of an international arbitration court with sole jurisdiction over climate-environmental disputes that occur from states party to international agreements related to climate.

4 – Countries make internal rules and individual climate laws (a subsidiary law of environmental law) that establish bylaws and social responsibility as well as the legal responsibility of their citizens for damages caused by climate change.

5 – Gradually introduce green economy rules and regulations in industrial and environmental investment to try to protect the future of clean energy and plants that maintain the stability of the continental and global climate.

6 – The continuous attempt by all parties to disclose any industrial projects that may cause climate damage in multiple countries in return for the commitment and pledge of the governments of the countries to help investors find clean solutions that do not harm investors or the environment.

References:

1 – Uncovering the Relationship by Aggregating Evidence from 1,000 Plus Studies Published between 2015 – 2020 By Tensie Whelan, Ulrich Atz, Tracy Van Holt and Casey Clark, CFA

2 – International arbitration report — Issue 16 What are climate change and sustainability disputes?

3 – López-Arceiz, F. J., Bellostas, A. J., & Rivera, P. (2018). Twenty Years of Research on the Relationship Between Economic and Social Performance: A Meta-analysis Approach. Social Indicators Research, 140(2), 453–484.

4 – Bill 294, Securities Amendment Act (Climate Risk Financial Disclosure, 2021

5 – the ICC Commission on Arbitration and ADR and the ICC Commission on Environment and Energy

-Ismail Attia

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