Introduction:
In an effort to reduce the environmental footprint of international arbitrations, international arbitrator Lucy Greenwood founded The Campaign for Greener Arbitrations in 2019. The initiative aims to reduce the carbon footprint of international arbitrations through behavioural change. The Green Pledge caught the attention of the wider arbitration community and soon hundreds of individuals had signed up to the pledge. Ms Greenwood realised that while the Green Pledge worked for those who practised as arbitrators, the arbitration community was keen to get behind a broader campaign to address the waste and unnecessary travel that often occurred in international arbitrations. As a result, she brought together representatives of key stakeholders in international arbitrations to spearhead the Campaign for Greener Arbitrations.
Individuals from arbitration institutions, arbitrators, law firms, hearing venues, third party funders, conference organisers, legal journalists, legal technology providers and corporate clients have come together to reinforce the message that everyone shares responsibility for reducing the carbon footprint of our industry. As of August 2023, the initiative reached 1459 total signatories. [1]
In 2022, Reed Smith LLP, an international law firm, joined the Greener Arbitrations initiative and started raising awareness both internally and externally for the initiative to explore the legal and technical issues involved in reducing the environmental footprint of arbitration.
Lawyers of Reed Smith draw attention to procedural measures to reduce the environmental footprint of arbitrations and state that the primary issue that needs to be discussed is whether arbitration agreements be amended to include sustainability measures or not. [2]
How did Greener Arbitration’s Green Protocol evolve?
A Steering Committee, consisting of diverse members from the Arbitration Community, spearheaded the Campaign, which resulted in a set of Guiding Principles detailing recommended actions for the purpose.
Although the Guiding Principles lay out general steps to consider, the Steering Committee quickly recognised that providing a list of specific action items, complete with straightforward guidelines, would be helpful for those keen on minimising the environmental footprint of their arbitration practices.
In early 2020, a task force was established to devise actionable measures in alignment with the Campaign’s Guiding Principles. This group, consisting of law firm representatives, institutions, hearing centres, and arbitrators, collaborated to craft the Green Protocols. These are a succinct set of guidelines designed to assist the community in minimising the environmental footprint of international arbitrations.
The Green Protocols emphasise three pivotal sectors where alterations in the habits of arbitration practitioners can significantly curb carbon emissions. The community is encouraged to: (1) transition to renewable energy sources, (2) cut down or entirely avoid long-distance travel, and (3) decrease waste, such as by forgoing hard copy filings.
Stakeholders in arbitration eager to drive change should initiate by examining the Protocol(s) that align closely with their practices. [3]
Why parties to international arbitration would want to consider amending arbitration clauses to include sustainability measures?
Initially, facts about the environmental impact of international arbitrations should be discussed.
The World Bank Group estimated that 80% of its carbon emissions pre-Covid came from business travel. A case study prepared by the Campaign for Greener Arbitrations found that approximately 20,000 trees would need to be planted to offset a 30 to 50 million dollar international arbitration disputes carbon emissions, with three quarters of those emissions arising from the long-haul flights typically involved. Another 2022 study calculated the carbon footprint of an international arbitration based on the assumption that 31 return long-haul flights would be taken. The 2022 calculations found that the international arbitration generated approximately 293 million kilograms of CO2 emissions annually. [1]
On the other hand, implementing change to
reverse the environmental impact of international arbitrations could be straightforward.
As shown during the COVID-19 pandemic, with the necessary technological
implementations carrying out international arbitrations remotely is possible.
The legal industry responded quickly to the pandemic. Hence, it should be able
to respond equally as fast to climate change needs. If the parties and the
legal community are serious about committing to greener arbitrations, changing
the way we think and conduct arbitrations, then instead of the very positive
but somewhat ad hoc hopeful steps being taken already, the parties need to
consider being proactive, adopting a more formal approach immediately. This can
be done by including sustainability measures when entering into arbitration
agreements or ad hoc arbitration agreements once a dispute arises. Although amending
arbitration clauses to include sustainability measures is not difficult, parties
are more concerned with commercial relationships and objectives during the
drafting of arbitration agreements. Furthermore, the focus is on strategy and
outcomes when a dispute arises. The Chancery Lane project is a good example
which has produced dispute-related model clauses encouraging sustainable
practices in arbitration and reducing greenhouse gas emitting behaviours in the
proceedings. Sustainability measures can be straightforward, requiring only the
specification of essential elements necessary to ensure the validity and
successful implementation of the clause. When drafting arbitration clauses, the
specific details of potential future disputes are unclear. Therefore, parties
should adhere to a primary principle. Firstly, they should acknowledge their
awareness of the environmental implications of the arbitration process.
Secondly, they should strive to minimise this impact. Lastly, they must
communicate their efforts to the arbitral tribunal.
Beyond the environmental advantages, there are several motivations for parties to adopt more eco-friendly arbitration practices. Firstly, these practices can lead to significant reductions in arbitration expenses. The Campaign for Greener Arbitrations incentive found that by implementing changes like forgoing paper bundles, reducing the use of motorbike couriers, and minimising travel costs can be slashed by up to 40%. Moreover, updating arbitration clauses assists companies in addressing the rising demands of ESG reporting, which places significant pressure on them to diminish their environmental footprint.
What kind of impediments are there to amend arbitration clauses to include sustainability measures?
There are a number of concerns for including sustainability measures into arbitration clauses. First of them is that they are unrealistic because of the following reasons:
(1) Arbitration clauses are usually regarded as midnight clauses in contract negotiation. Therefore, it is difficult to convince parties to pay proper attention to the dispute resolution clause, and unrealistic to expect them to be interested in negotiating complex green measures.
(2) Sustainability measures evolve with time as technology becomes more advanced. Due to the fact that many commercial disputes arise years after a contract is signed, specified sustainability measures may no longer represent best practice when an arbitration is commenced.
(3) The laws governing conduct of arbitral proceedings also evolve. Sustainability measures included in arbitration clauses today may not be applicable in terms of future procedural requirements or limitations within the relevant jurisdiction or under the laws applicable to the arbitration agreement.
Secondly, it may prove to be counterproductive to include such measures in the arbitration clause.
(1) Arbitration is meant to be a flexible and to a certain extent, informal process. Therefore, including sustainability measures may make the process more complex and overlaid with regulation, such that the best features of arbitration would be lost.
(2) The consequences in case of a breach of related sustainability measures should be considered. Might a partial or complete failure to comply with these measures open the way to challenge an award or its enforceability? Alternatively, could the measures said to be a condition, breach of which entitles the innocent party to terminate the arbitration agreement?
(3) It would be difficult to assess or verify the respective party's compliance with the measures since there is no standardisation or consistency in ESG metrics. It will increase the cost of arbitration if parties have to engage experts or auditors to assess compliance or benchmark performance. Even if assessing compliance relies on self-reporting, then such reports would be challenged to be trustworthy particularly if there exists a financial incentive. For example, in case of carbon emissions, parties would tend to report lower emissions if compliance would be tied to the recovery of costs. This could become a distraction and increase costs rather than reduce them.
(4) Another concern is that mandating sustainability measures may discriminate against less well-resourced parties. It is certain that high-grade technology and access to a fast internet connection is required for the smooth running of a virtual hearing. This may have implications for due process for a party who does not have the resources or expertise of the opposing party to invest in the IT and infrastructure necessary for compliance with such measures.
(5) By introducing sustainability measures, there might be unforeseen legal disputes (satellite litigation) over how these measures are interpreted and applied. Moreover, this situation could provide an opportunity for dishonest parties to use unconventional, possibly deceptive legal strategies to their advantage.
What are alternative arguments in favour of introducing green arbitration measures?
Even though it can be argued that the best arbitration clause is a simple one, and that an overcomplicated arbitration clause can be counterproductive, there are three other principles that favour introducing green arbitration measures.
(1) The very real concerns over the environmental impact of arbitration would outweigh the potential procedural inefficiency in seeking to amend the midnight clause and increasing the costs of the arbitration.
(2) Even if we assume that environmental provisions in arbitration clauses are only occasionally warranted, which is not fully conceding, there are still instances where their inclusion makes sense. Consider special cases, like a particular transaction or a model agreement involving major entities like a large MNC or a state, which have the power to shape agendas. In these scenarios, such as investor-state treaties or precedent agreements for an MNC, potential procedural inefficiencies should be balanced against their influence on broader opinions. A mention of ESG is crucial, and procedural concerns should be measured against the significant agenda-setting influence.
(3) Even if sustainability measures in arbitration agreements are infrequent, they can be integrated in a concise and non-intrusive manner. In Asia, it is common to modify arbitration clauses to reference guidelines like the IBA rules on evidence, giving tribunals the flexibility in conducting the arbitration based on these rules. Similarly, arbitration agreements can provide liberty to the tribunal to refer to the green model procedural order when determining procedure. Such inclusions are beneficial because: (a) they preserve the tribunal's flexibility without any obligation and (b) they allow reference to an evolving third-party protocol that might be updated between the arbitration agreement's execution and when an arbitration arises.
In summary, despite potential procedural inefficiencies, there are three key reasons to include sustainability provisions in arbitration agreements:
(1) Balancing procedural concerns with the
environmental impact of arbitration.
(2) Recognising special cases where
procedural efficiency is not the sole focus and environmental considerations
are paramount.
(3) The provisions can be seamlessly integrated without much complexity.
What are alternative arguments against introducing green arbitration measures?
Arbitration agreements do not need to explicitly include sustainability measures. A good arbitration clause is concise, containing only essential components like seat, number of arbitrators, language, and possibly an institution's nomination. While sustainability measures in arbitration are supported, they should be adopted differently, not as a contractual obligation. Many clients already uphold ESG commitments and choose sustainable arbitration practices without formal requirements. Imposing such obligations might risk additional, unnecessary litigation. Trying to find middle ground by simplifying sustainability obligations would not be ideal either, as it might become ineffective or lead to lengthy negotiations. A better approach would be to agree on these measures at the beginning of the arbitration or through adopting rules of arbitral institutions that support sustainability. Institutions like London Court of International Arbitration (LCIA) and International Chamber of Commerce (ICC) already promote sustainable practices, and as they update their rules, sustainability will likely be more integrated. In summary, there would not be any need to modify arbitration agreements with sustainability measures; they are impractical, counterproductive, and redundant. [2]
Conclusion:
Supporters of the Campaign for Greener Arbitration’s Green Protocol argue that parties in international arbitration should consider amending arbitration clauses to include sustainability measures due to environmental advantages as well as several motivations for parties to adopt more eco-friendly arbitration practices such as significant reductions in arbitration expenses and addressing ESG reporting requirements. They believe that related provisions can be seamlessly integrated into arbitration agreements without much complexity. On the other hand, opposing parties suggest that there would not be any need to modify arbitration agreements with sustainability measures since they are impractical, counterproductive, and redundant. However, due to urgencies in solving of environmental issues and ESG concerns, international arbitration community declare that it is time for action not words.
Prepared By: Sude Çapoğlu
References:
1.Campaign for Greener Arbitrations, Official Website, available at https://www.greenerarbitrations.com/#:~:text=An%20initiative%20to%20reduce%20the,environmental%20impact%20of%20international%20arbitrations.
2. Reed Smith, ‘Should arbitration agreements be amended to include sustainability measures?’, Arbitral Highlights, available at https://reedsmithinternationalarbitration.podbean.com
3. Greenwood, Lucy, Falcicchio, Christine and Foty, Cherine Foty, ‘The Campaign for Greener Arbitration’s Green Protocols: Actions Not Words’, Kluwer Arbitration Blog, April 22, 2021, available at https://arbitrationblog.kluwerarbitration.com/2021/04/22/the-campaign-for-greener-arbitrations-green-protocols-actions-not-words/
