The Singapore Law Gazette

International Mediation

An Appropriate Tool for Climate Change-related Dispute Resolution

Climate change has been acknowledged as one of the key issues in today’s world. Given the level of global awareness and concern over the climate agenda, there is a global need for climate action and for climate investment from both the public and the private sector. Adopted in 2015, the historic Paris Agreement – the first-ever global legally binding agreement on climate change, incorporates in its Article 6.4 a mechanism to “contribute to the mitigation of greenhouse gas emissions and support sustainable development”.¹Paris Agreement, article 6.4 It further acknowledges the need to establish market and non-market mechanisms incentivizing, facilitating and enhancing participation by the public and the private sector. The Conference of the Parties of the Paris Agreement (COP 26) in Glasgow, adopted the rules, modalities and procedures for this mechanism whereby “a company in one country can reduce emissions in that country and have those reductions credited so that it can sell them to another company in another country. That second company use them for complying with its own emission reduction obligations or to help to meet net-zero²Decision 3/CMA.3 (COP 26)” establishing a market for Compliance and Voluntary Carbon Credits.

At the same time, the CEO of the IFC Philippe Le Houérou expressed, “The private sector holds the key to fight climate change” adding that “The private sector has the innovation, the financing, and the tools” but that government reforms are needed to unlock more private sector investment, to create innovative models, create new markets and attract the necessary investment ask”. The IFC report³Creating Markets for Climate Business Report of the International Finance Corporation of October 31, 2017 points out that more than USD 1 trillion is already being investment in climate-related projects, but that a stronger role of the private sector in industry sectors such as renewable energy, off-grid solar and energy storage, agribusiness, green buildings, urban transportation, water and urban waste management is required to accelerate the transition toward a low-carbon economy.

With the creation of new markets, new products and the acceleration of investments in areas that have over the years given rise to investment disputes (notably in renewable energy, urban transportation, water and urban waste management), it will come as no surprise that disputes will continue to emerge and possibly even mushroom. Judicial proceedings relating to climate commitments are emerging and so are contractual disputes involving important financial and business interests.

Indeed, climate change-related disputes can be complicated, with issues such as Investor-State disputes and State-State disputes that involve bilateral or multilateral ties between nations and commitments to private actors. These disputes largely revolve around striking a balance between climate action and preserving stakeholder interest or even national interests, particularly when States and public sector investment are involved.

Mediating Climate Change Disputes in the investor-State Dispute Settlement (ISDS) Context

Recently, we have been seeing a rise in arbitration claims brought by investors challenging climate change-related measures adopted by host States, claiming that these measures violate investor protections under investment treaties.

Based on data published by the UN Conference on Trade and Development (UNCTAD) in September 2022, at least 175 ISDS cases have been brought against States’ measures that are related to environmental protection, amounting to about 15% of all 1,190 known ISDS cases based on international investment agreements. Recent high-profile ISDS cases relating to countries’ efforts to protect the environment include Eco Oro v. Colombia, where the tribunal held that Colombia’s environmental mining ban violated the minimum standard of treatment afforded under the Colombia-Canada FTA, and that the general environmental exception provided under the FTA did not preclude the obligation to pay compensation. Another example is RWE v. The Netherlands where German energy company RWE initiated arbitration proceedings under the Energy Charter Treaty against the Netherlands’ decision to phase out all coal-fired power plants by 2030 (in pursuit of its Paris Agreements commitments), alleging that the measures did not provide adequate financial compensation.

These cases are merely examples of the complex territory that stakeholders must navigate as we transit towards a global climate-first imperative. Mediation, with its less adversarial process and nature, would help encourage both investors and States to collaborate and work out long-term solutions that would protect the environment while managing investor concerns and confidence. Mediation would avoid exposing the State to a decision by an arbitral tribunal as to the legitimacy of that State’s climate measures, and conflicting views about whether investment protection or environmental protection should prevail. It would give the State the option of adequately compensating investors without having to admit to a treaty violation.

In July 2023, the UNCITRAL Commission adopted Provisions on Mediation in investor-State disputes to be incorporated into investment treaties (existing and future)⁴UNCITRAL Model Provisions on Mediation for International Investment Disputes, Report of the United Nations Commission on International Trade Law fifty-sixth session (A/78/17), Annex I. and Guidelines on investor-State mediation⁵UNCITRAL Guidelines on Mediation for International Investment Disputes, Report of the United Nations Commission on International Trade Law fifty-sixth session (A/78/17), Annex II. that complement the ICSID Investor-State Mediation Rules, the IBA Investor-State Mediation Rules and of course the more generic UNCITRAL Mediation Framework,⁶See https://uncitral.un.org/en/texts/mediation. beginning with the Singapore Convention on Mediation.⁷United Nations Convention on International Settlement Agreements Resulting from Mediation (New York, 2018) (the “Singapore Convention on Mediation”), United Nations, Treaty Series, vol. 3369.

It is the overall objective of these investments and transactions that requires particular attention and calls for increased availability of mediation: these investments are made to fight climate change, technologies are developed, projects are financed to contribute to the decarbonization of the global economy and to saving the planet for the future generations. It is this finality that makes the call for new and alternative forms of dispute resolution particularly strong. In such situations, alternative dispute resolution (ADR) mechanisms, and particularly mediation, could play an increasingly important role.

The Argument for Mediation

Resolving these complicated disputes calls for the navigation of the multiple sensitivities surrounding climate change-related issues and involving multiple stakeholders, beyond the traditional contracting parties. Hence, mediation may be a fitting tool to consider. Mediation can advance more well-rounded discussions between the parties as they seek mutually beneficial solutions to solve environmental-related disputes, while still being jointly committed to uphold the best interests of the climate, environment and local communities. Mediation is also a preferred dispute resolution tool to involve or at least listen to a broader range of stakeholders. Furthermore, mediation brings about significant cost and time savings for parties during the process of dispute resolution. However, perhaps what is the most crucial is mediation’s potential to preserve relationships.

The unique aspect of mediation is that it can serve both as a standalone tool, or in conjunction with other mechanisms. Parties can often pursue mediation alongside legal proceedings, such as arbitration or litigation. In fact, many environmental courts and tribunals around the world offer mediation as a service and have cited it as a success factor in resolution, leading to a high percentage of cases being resolved without having to undergo a judicial trial. The role of the mediator here is significant; it falls on him/her to encourage the parties to consider the wider considerations of the climate change-related issues involved and how they can reach a satisfactory middle ground.

With its more flexible, collaborative nature that preserves relationships, mediation is an ideal resolution mechanism to consider when deciding how to resolve climate change-related disputes. Particularly for State-State disputes, mediation could arguably be more well suited in resolving climate change-related disputes than the Conciliation Commission, still to be established, as envisaged by the UNFCCC Article 14. Mediation is a more flexible and adaptable method for settling disputes than Conciliation and might allow, in disputes under the UNFCCC which is designed for the States Parties to the Convention, to also involve or listen to the private investors and the private funders of climate projects.

Mediation as the Future of Climate Change-related Dispute Resolution

According to the UN Environment Programme (UNEP) and the Sabin Center for Climate Change Law at Columbia University, court cases relating to climate change have more than doubled since 2017 and are only continuing to increase globally. This signifies that there is a need for more dynamic and integrated dispute resolution mechanisms as climate legislation becomes more established and widespread – particularly with the 2030 deadline of the Paris Agreement on the horizon.

Mediation alone will not be the be-all and end-all for climate change-related disputes, but its capacity to facilitate faster and more improved outcomes cannot be underestimated. Not only can mediation be an ADR solution on its own, it can also play a supporting role as part of a multi-tiered dispute resolution strategy to ensure a smoother process even if arbitration or litigation is pursued. What it requires is global agreement on recognition and enforcement of settlements, which is what frameworks like the Singapore Convention on Mediation hope to achieve.

It is important to remember that climate change-related disputes will inevitably arise as we navigate the relationship between economic activity and environmental sustainability. This is part of the growth journey that we have to undertake to build a climate-first society, and I believe that mediation will continue to play an important role in finding a new way forward.