In commercial contracts, a wide range of contractual ESG obligations are implemented. According to an International Bar Association’s (IBA) 2023 report, 42% of responding businesses have already had experience with contractual ESG disputes, and 37% have had experience with external ESG complaint mechanisms. ESG is omnipresent, regardless of sector, industry and contract.
While ESG-related investor-state arbitration has been established for decades, there has been a global surge in ESG arbitration in various other areas in recent years. Current cases demonstrate that ESG arbitrations involving all types of parties, all kinds of contracts, and all areas of law, are on the increase.
Further complexity arises in cross-border business and investment relationships, where the respective parties’ home countries have different approaches to ESG issues. For instance, the EU's ESG-friendly policies are in stark contrast to the US-administration’s anti-ESG sentiment. To give a few examples: The US withdrew (again) from the Paris Agreement and its emission reduction commitments on 20 January 2025; The Securities and Exchange Commission announced on 27 March 2025 that it was withdrawing its legal defence of the climate disclosure rules, effectively abandoning its efforts to require companies to report on climate risks and greenhouse gas emissions such that the climate disclosure rule is now considered highly unlikely to be implemented; The US-administration is now also targeting State ESG laws, with an announcement on 8 April 2025 that "many States have enacted, or are in the process of enacting burdensome and ideologically motivated ‘climate change’ or energy policies (…)".
The approach to ESG taken by governments will shape corporate and investment strategies in their respective regions. There is increasing pressure from investors, lenders and business partners to establish legally binding ESG responsibilities – but where government approaches vary, global businesses with a presence in multiple regions may struggle with the implementation of those ESG responsibilities, leading to further tension. The implementation of ESG metrics also opens the door for competitors to take a closer look at what companies are or are not doing. As such, market participants have a lot to consider when navigating this dynamic environment.
Recent examples from Germany show regular problems with the implementation of ESG metrics. The NGO Deutsche Umwelthilfe recently won a greenwashing lawsuit against Lufthansa. According to the Cologne Regional Court (judgment of 21 March 2025 - 84 O 29/24), Lufthansa had failed to inform its passengers about its CO2 offsetting measures in relation to flights that were advertised as 'climate-neutral' or 'sustainable'. That was after Lufthansa won the MSCI ESG Ranking for the "strongest ESG performance" for the third time in autumn 2024. Additionally, Frankfurt’s public prosecutors found that Deutsche Bank’s DWS falsely promoted financial products with ESG characteristics and fined Deutsche Bank EUR 25 million.
First Quantum vs. Panama:
In November 2023, Panama's Supreme Court declared a concession agreement in favour of Canadian First Quantum, for the Cobre Panama mine, invalid on constitutional grounds following mass protests over environmental and corruption concerns. Consequently, the mine was shut down. First Quantum immediately initiated ICC arbitration proceedings against Panama in which it claimed USD 20 billion and, at the same time, issued a notice of intent to initiate arbitration proceedings under the Canada-Panama Free Trade Agreement (FTA). In April 2025, Panama's President announced that the mine would reopen as part of an association with First Quantum, after the latter withdrew its claims in March 2025 (First Quantum Minerals Ltd. v. Republic of Panama - ICC Case No. unknown, ICSID Case No. ARB/25/18).
Solvay v. Edison:
In 2001, Italian company Solvay acquired shares in the Italian subsidiary of Edison, Agora. Agora’s subsidiaries operated industrial plants in Italy. In the SPA between Solvay and Edison, Edison guaranteed that it and its subsidiaries would 'in substance' comply with applicable Health, Safety and Environment laws. In a subsequent ICC arbitration, Solvay claimed that the plants at certain locations had contaminated the environment. Additionally, available reports confirming the contamination had not been submitted to the authorities. By a partial award, the tribunal awarded Solvay damages of approx. EUR 91 million in respect of losses for the period up to 2016. Proceedings in respect of losses for the period from 2017 onwards are still pending (Solvay Specialty Polymers Italy v. Edison S.p.A. - ICC Case No. 18666/FM/MHM/GFG).
Glencore International A.G. v. Republic of Colombia:
In the current investment arbitration between mining giant Glencore and the government of Colombia, the ICSID tribunal has accepted two indigenous groups as petitioners alleging violations of indigenous rights and the right of access to water (Glencore International A.G. v. Republic of Colombia - ICSID Case No. ARB/21/30).
As can be seen, although primarily focused on environmental issues, there are also major pending arbitrations that arise from social and governance issues.
While ESG-related investor-state arbitration has been established for decades, there has been a global surge in ESG arbitration in various other areas in recent years. Current cases demonstrate that ESG arbitrations involving all types of parties, all kinds of contracts, and all areas of law, are on the increase.
The complexity of implementing ESG metrics
Despite ESG's universal adoption, its implementation carries legal risks and potential for disputes. In particular, ESG metrics must comply with both governmental and supranational regulations, such as the dense European regulatory landscape, recently expanded to include the Supply Chain Directive (CS3D) (although the implementation date of that directive has been partially extended: A majority of the EU parliament has recently voted to postpone the CS3D’s implementation). Supranational ESG regulations are backed up (or countered…) by national ones. For example, various national supply chain laws with different scopes were already in place even before the implementation of CS3D (e.g., the French Loi sur le devoir de vigilance or the Netherland’s Child Labour Due Diligence Law). The German Lieferkettensorgfaltspflichtgesetz (LkSG) shows that such additional national legislature could create confusion. To protect human rights and the environment throughout the supply chain, German law stipulates that responsible parties must be clearly designated, preventive measures must be implemented, and risk management and complaint systems must be put in place. There are also comprehensive documentation and reporting obligations. The domestic law of Germany is not necessarily in line with the EU directive. Thus, the law is to be abolished again after only a short period of validity.Further complexity arises in cross-border business and investment relationships, where the respective parties’ home countries have different approaches to ESG issues. For instance, the EU's ESG-friendly policies are in stark contrast to the US-administration’s anti-ESG sentiment. To give a few examples: The US withdrew (again) from the Paris Agreement and its emission reduction commitments on 20 January 2025; The Securities and Exchange Commission announced on 27 March 2025 that it was withdrawing its legal defence of the climate disclosure rules, effectively abandoning its efforts to require companies to report on climate risks and greenhouse gas emissions such that the climate disclosure rule is now considered highly unlikely to be implemented; The US-administration is now also targeting State ESG laws, with an announcement on 8 April 2025 that "many States have enacted, or are in the process of enacting burdensome and ideologically motivated ‘climate change’ or energy policies (…)".
The approach to ESG taken by governments will shape corporate and investment strategies in their respective regions. There is increasing pressure from investors, lenders and business partners to establish legally binding ESG responsibilities – but where government approaches vary, global businesses with a presence in multiple regions may struggle with the implementation of those ESG responsibilities, leading to further tension. The implementation of ESG metrics also opens the door for competitors to take a closer look at what companies are or are not doing. As such, market participants have a lot to consider when navigating this dynamic environment.
Recent examples from Germany show regular problems with the implementation of ESG metrics. The NGO Deutsche Umwelthilfe recently won a greenwashing lawsuit against Lufthansa. According to the Cologne Regional Court (judgment of 21 March 2025 - 84 O 29/24), Lufthansa had failed to inform its passengers about its CO2 offsetting measures in relation to flights that were advertised as 'climate-neutral' or 'sustainable'. That was after Lufthansa won the MSCI ESG Ranking for the "strongest ESG performance" for the third time in autumn 2024. Additionally, Frankfurt’s public prosecutors found that Deutsche Bank’s DWS falsely promoted financial products with ESG characteristics and fined Deutsche Bank EUR 25 million.
ESG in arbitration
Given the reputational risks associated with ESG and the importance of confidentiality, ESG-related arbitration is rising too. As the case law shows, ESG arbitration is complex and can take different forms:First Quantum vs. Panama:
In November 2023, Panama's Supreme Court declared a concession agreement in favour of Canadian First Quantum, for the Cobre Panama mine, invalid on constitutional grounds following mass protests over environmental and corruption concerns. Consequently, the mine was shut down. First Quantum immediately initiated ICC arbitration proceedings against Panama in which it claimed USD 20 billion and, at the same time, issued a notice of intent to initiate arbitration proceedings under the Canada-Panama Free Trade Agreement (FTA). In April 2025, Panama's President announced that the mine would reopen as part of an association with First Quantum, after the latter withdrew its claims in March 2025 (First Quantum Minerals Ltd. v. Republic of Panama - ICC Case No. unknown, ICSID Case No. ARB/25/18).
Solvay v. Edison:
In 2001, Italian company Solvay acquired shares in the Italian subsidiary of Edison, Agora. Agora’s subsidiaries operated industrial plants in Italy. In the SPA between Solvay and Edison, Edison guaranteed that it and its subsidiaries would 'in substance' comply with applicable Health, Safety and Environment laws. In a subsequent ICC arbitration, Solvay claimed that the plants at certain locations had contaminated the environment. Additionally, available reports confirming the contamination had not been submitted to the authorities. By a partial award, the tribunal awarded Solvay damages of approx. EUR 91 million in respect of losses for the period up to 2016. Proceedings in respect of losses for the period from 2017 onwards are still pending (Solvay Specialty Polymers Italy v. Edison S.p.A. - ICC Case No. 18666/FM/MHM/GFG).
Glencore International A.G. v. Republic of Colombia:
In the current investment arbitration between mining giant Glencore and the government of Colombia, the ICSID tribunal has accepted two indigenous groups as petitioners alleging violations of indigenous rights and the right of access to water (Glencore International A.G. v. Republic of Colombia - ICSID Case No. ARB/21/30).
As can be seen, although primarily focused on environmental issues, there are also major pending arbitrations that arise from social and governance issues.
Conclusion
Despite the EU's campaign against the Energy Charter Treaty, that Treaty remains a gateway to environmental investor-State arbitration due to its 20-year sunset clause.
The issue of governance will further find its way into ESG-related arbitration, not least due to rising global sanctions regimes (e.g. against Russia for its war of aggression against Ukraine), and through force majeure clauses (e.g., as was discussed but ultimately rejected in JSC PowerMachines vs Vietnam Oil and Gas Group and PetroVietnam Technical Service Corporation - SIAC Case No. ARB 274/19/AB).
While the arbitrability of greenwashing allegations is being debated in Australia, Latin America is seeing a sharp rise in ESG-related arbitrations, as is Africa. Sustainability commitments are becoming binding as greater sensitivity to ESG issues results from political awareness.
All of this points to the rise of 'ESG arbitration' as part of the international dispute resolution environment – one that is likely to shape the legal landscape in the coming years.
At the same time, tribunals are likely to further refine their approach to ESG issues, in balancing the economic interests of businesses and investors against ESG objectives.
If you have any questions or would like to discuss any of these topics and what they mean for you and your business, please contact our International Arbitration experts below.
