Summary: 

Els discussed supply chain-related due diligence and third-party verifications. According to the CSDD, companies are required to integrate due diligence into their corporate policies and to establish and annually update a due diligence policy describing (a) the company’s approach to due diligence; (b) a code of conduct describing the rules and principles of the company (large companies mostly already have such codes); and (c) the processes put in place to implement due diligence.

Simon and Lucas discuss ESG claims from a third-party funder’s perspective. Litigation finance can be a suitable solution in supporting meritorious ESG claims by helping to overcome typical hurdles of accessing material information and covering litigation costs. Yet, legal finance is not a “one-stop shop” as several preconditions must be met for the “funding stars to align”. Funders apply the usual criteria for assessing a claim and consider, e.g., predictability and prospects of success, quantum and duration until final resolution. Therefore, other available options such as pro bono legal support initiatives should also be considered by claimholders.

Summary: Adolf and Alice Fremuth-Wolf discussed ESG-related supply chain arbitrations – Joinders and Consolidations. Adolf started out by clarifying what is the purpose and goal of joinders and consolidations in arbitration proceedings. Adolf emphasized the ever-increasing interrelatedness between ESG (in particular climate-related issues) and international commercial arbitrations involving multiple parties of multiple tiers (e.g. employer, contractor, subcontractors, lower-tier subcontractors, etc) along international supply chains (supply chain arbitrations). Alice presented the broad joinder provisions and the concise consolidation rules contained in Article 14 and Article 15 of the VIAC Rules 2021 comparing them with the much more detailed provisions in the ICC Arbitration Rules 2021 (Articles 7-9). Adolf thereafter explained the HKIAC (revocation) and SIAC Rules and presented relevant case law as well as a model clause on consolidation and joinder to be inserted into arbitration agreements along the supply chain in order to avoid disputes about consolidations and joinders. Alice concluded by analyzing why the SIAC Cross Institutional Consolidation Protocol 2017 ultimately was not a success in practice.

Alice gave an overview on the differentiation of different types of arbitral awards relevant for the enforcement regime under Chinese procedural law. The distinction is made in China between domestic, foreign-related and foreign arbitral awards. In comparison to foreign-related arbitral awards, foreign awards are in general understood as those rendered in a foreign country. Guojian elaborated on the detailed provisions and case law applicable to the qualification of arbitral awards as foreign-related awards, even though they were issued in China. As explained by Adolf, the parties need to be aware of the distinction when they negotiate supply chain contracts with Chinese suppliers. As to the enforcement of foreign arbitral awards, China has made substantial improvements by its implementation of the so-called “Prior Reporting System” which Alice examined.

Summary: Adolf discussed the importance of the EU/New Zealand Free Trade Agreement (EU/NZ-FTA) for the enforcement of the climate-related targets contained in the Paris Agreement. He focused on the climate change-related provisions (effective implementation of the Paris Agreement, including commitments with regard to Nationally Determined Contributions) being part of the sustainability chapter. The EU/NZ-FTA would include a unique dispute settlement mechanism for sustainability-related issues with the possibility of sanctions confirmed by a Panel composed of three persons being selected from official lists and sub-lists. Adolf pointed out that violations which seriously jeopardize the achievement of the Paris Agreement’s targets could possibly trigger compensation payments or, more realistically, a party’s suspension of the application of other obligations contained in the EU/NZ-FTA. Finally, he pointed out that the EU/NZ-FTA could be a trendsetting agreement for bilateral free trade agreements concluded by the EU with other nations. This could result in a more effective implementation of the Paris Agreement’s targets.

In his presentation on Climate Change and Investment Protection, Herfried analysed (a) the role of the Paris Agreement in investment arbitrations against countries that deliberately destroy renewable energy production; and (b) the relationship between the Paris Agreement and the Fair and Equitable Treatment standard (FET) for the determination of the so-called “illegality threshold”, which is the starting point for the determination of damages under the differential hypothesis or but-for premise. He underlined the role of the Paris Agreement in the USMCA Consultations between the US and Mexico as regards the Mexican Energy Policy, that is likely to trigger a wave of investment arbitrations against Mexico for the deliberate destruction of renewable energy production. As regards the relationship of the Paris Agreement and FET, Herfried referred to Article 31(3) of the Vienna Convention on the Law of Treaties, which provides that when interpreting a treaty any relevant rules of international law applicable to the relations between the parties shall be taken into account. Nikos stated that as regards the level of greening of the revised Energy Charter Treaty (ECT), it should be noted that as in CETA and other recent investment agreements, the ECT now contains an explicit provision on the ‘right to regulate’ of states, to achieve legitimate policy objectives such as the protection of the environment, including climate change mitigation and adaptation, protection of public health, safety or public morals. The revised ECT introduces a new level of flexibility by allowing contracting parties to selectively exempt themselves from certain important provisions of the ECT.

Michaela and Alice discussed the challenges and financing of administrative (public) claims relating to ESG/sustainability matters. Michaela sketched out the public and private enforcement mechanism of the CSDD based on the draft of the European Commission. Whilst no final conclusion can yet be drawn, she pointed that out that, based on the present draft, climate protection does not play an important role as it does not constitute an enforcement due diligence duty. Alice concluded by providing insights into the challenges that funding of such public claims pose because they usually lack proceeds that could be shared with a funder. These claims are important and private capital is needed to solve public problems. It is clear that crowd-funding and pro bono legal support will play an important role but also commercial funders will think hard how to be able to support this cause.