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The Way Forward in Implementing Circular Economy

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is The African ADR Practitioner of the Year 2022, The African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

In order to implement a circular economy, there is need for governments to develop and implement policies on circular economy while also aligning circular economy principles with national climate goals. Such policies should focus on key areas of circular economy such as minimizing single-use plastics and the promotion of environmentally friendly products and on mainstreaming energy efficiency, clean energy and e-mobility in multiple sectors. Governments also have role in implementing circular economy through designing new financing instruments, such as green bonds and blended financing, to raise funds to achieve widespread transformational change towards green economies.

In addition, it has been pointed out that by ensuring circular economy approaches are embedded into national climate goals such as Nationally Determined Contributions (NDCs), countries can accelerate the transition to a low-carbon economies, protect the natural environment, and create green, decent, and dignified jobs as well. Circular economy can aid countries in meeting their climate targets by cutting greenhouse gas emissions associated with industry, agriculture, and land use that the energy transition cannot address due to its potential to eliminate waste and pollution therefore reducing greenhouse gas emissions across value chains, circulate products and materials therefore retaining their embodied energy, and regenerate nature thus sequestering carbon in soil and products.

It is therefore pertinent for governments to implement policies on circular economy and align circular economy approaches with national climate goals. There is also need to enhance financing for businesses, startups, organizations and individuals undertaking initiatives to implement circular economy. One of the key challenges facing the implementation of circular economy especially in developing countries has been identified to be inadequate financing for businesses especially MSMEs to transition to circular economy.

Access to finance in developing countries remains a barrier, especially for small businesses in the circular economy and for businesses in general, in part due to unfavourable factors such as high interest rates. It is therefore important for developing countries including those in Africa to enable access to finance in order to unlock circular economy through initiatives such as grant financing, lowering risks, removing policy barriers in order to foster investments, and investing in circular infrastructure.

Enhancing access to finance and investments in circular businesses can enable an inclusive development approach that creates opportunities for marginalised people including the youth and women. It is also imperative for countries to strengthen their laws and policies on waste management in support of waste prevention and circular economy. It has been argued that countries need to modernize their laws and policies on waste management on an ongoing basis to make them fit for the circular economy and the digital age.

Countries should therefore improve their legislation on towards circularity. It is also imperative for organizations and businesses to integrate sustainability criteria into business strategies by improving their corporate governance framework and enhance disclosure of environmental data in order to effectively implement circular economy.

There is also need for developed countries to support developing countries in areas such technology development and transfer in order to accelerate the adoption of clean and green technologies necessary to implement circular economy. Developing countries often face barriers in embracing technology and innovation necessary to implement circular economy in areas such as renewable energy, sustainable agriculture, waste management, and recycling. It has correctly been argued that technology in its advanced stages along with technological capabilities are key factors in the successful implementation of circular economy principles at different levels and in different areas.

Technology development and transfer is envisioned under the Paris Agreement which urges countries to promote and facilitate enhanced action on technology development and transfer in order to support the implementation of the Agreement. It is therefore important for countries to cooperate in technology development and transfer in order to implement circular economy while also achieving climate targets envisioned under the Paris Agreement.

Finally, it is necessary to enhance public awareness on circular economy. It has been pointed out that the public can play an important role in implementing circular economy by demanding environmentally friendly products and services and actively minimizing waste by embracing practices such as reducing, reusing and recycling of materials. Countries should therefore enhance public awareness by facilitating investments in education, providing information and active public participation to increase environmental awareness and the benefits of circular economy.

It has been suggested that improving community awareness about environmental protection and resource conservation, and environmental certification of products can accelerate the transition to circular economy. Public awareness can encourage the public to embrace the principles of circular economy including reducing, reusing and recycling of materials. In addition to public awareness, countries should also embrace public participation in implementing circular economy. It has been argued that many reviews of the various circular economy-related policies show that the huge public support for policies such those relating to the ban on the use, manufacture, and importation of single-use plastic bags in Kenya demonstrates the importance of public participation in the enforcement of public policies that support circular economy principles.

Public participation is a key principle of environmental governance that has been recognized in various countries including Kenya. The Constitution of Kenya enshrines public participation as one of the national values and principles of governance. The Constitution also obligates the state to encourage public participation in the management, protection and conservation of the environment. Countries should therefore embrace public participation in order to effectively implement circular economy for sustainability.

References

Africa Circular Business Alliance., ‘Circular Economy Implementation Strategies for Sustainable Transportation.’ Available at https://www.linkedin.com/pulse/circulareconomy-implementation-strategies/ (Accessed on 01/12/2023).

Africa Circular Economy Network., Available at https://www.acen.africa/ (Accessed on 01/12/2023).

Africa Development Bank Group., ‘The African Circular Economy Alliance (ACEA).’ Available at https://www.afdb.org/en/topics-andsectors/topics/circular-economy/african-circular-economy-alliance-acea (Accessed on 01/12/2023).

African Development Bank Group., ‘African Development Bank Group Launches Dedicated Trust Fund for Circular Economy.’ Available at https://www.afdb.org/en/news-and-events/press-releases/african-developmentbank-group-launches-dedicated-trust-fund-circular-economy-51948 (Accessed on 01/12/2023).

East African Community., ‘Regional Bioeconomy Strategy 2021/22-2031/32.’ Available at https://www.eac.int/press-releases/2515-eac-unveils-regionalbioeconomy-strategy-2021-22-2031-32 (Accessed on 01/12/2023).

Ellen MacArthur Foundation.,’ What is a Circular Economy?.’ Available at https://www.ellenmacarthurfoundation.org/topics/circular-economyintroduction/overview#:~:text =The%20circular%20economy%20is%20a,remanufact ure%2C%20recycling%2C%20and%20composting (Accessed on 30/11/2023).

Ellen McArthur Foundation., ‘Completing the Picture: How the Circular Economy Tackles Climate Change.’ Available at https://www.ellenmacarthurfoundation.org/completing-the-picture (Accessed on 30/11/2023).

Ellen McArthur Foundation., ‘Plastics and the Circular Economy -Deep Dive.’ Available at https://www.ellenmacarthurfoundation.org/plastics-and-the-circulareconomy-deepdive#:~:text=The%20vision%20for%20a%20circular%20economy%20for%20plastic% 20has%20six,need%20for%20single%2Duse%20packaging (Accessed on 01/11/2023).

European Commission., ‘A new Circular Economy Action Plan For a Cleaner and More Competitive Europe.’ Available at https://eurlex.europa.eu/resource.html?uri=cellar:9903b325-6388-11ea-b735- 01aa75ed71a1.0017.02/DOC_1&format=PDF (Accessed on 01/12/2023).

European Parliament., ‘Circular Economy: Definition, Importance and Benefits.’ Available at https://www.europarl.europa.eu/news/en/headlines/economy/20151201STO0560 3/circular-economy-definition-importance-andbenefits#:~:text=The%20circular%20economy%20is%20a,cycle%20of%20 products%2 0is%20extended (Accessed on 30/11/2023).

Fwangkwal. B., Luotonen. E., & Jarvinen. L., ‘Africa’s Circular Economy Needs Support from Policymakers.’ Available at https://www.sitra.fi/en/articles/africas-circulareconomy-needs-support-from-policymakers/ (Accessed on 30/11/2023).

Gendre. I., ‘Circular Economy: Definition and Principles.’ Available at https://greenly.earth/en-us/blog/company-guide/circular-economy-definition-and-principles (Accessed on 30/11/2023).

Greenovations-Africa., Available at https://vc4a.com/greenovationsafrica/greenovations-africa-2023/ (Accessed on 01/12/2023).

Heshmati. A., ‘A Review of the Circular Economy and its Implementation.’ Available at https://docs.iza.org/dp9611.pdf (Accessed on 01/12/2023).

Lewis. I., ‘AfDB’s Donor-Funded Facility Supports Africa’s Circular Economy.’ Available at https://impact-investor.com/afdbs-donor-funded-facility-supportsafricas-circular-economy/ (Accessed on 30/11/2023).

Muriithi. J., & Ngare. I., ‘Transitioning Circular Economy from Policy to Practice in Kenya.’ Available at https://www.frontiersin.org/articles/10.3389/frsus.2023.1190470/full#:~:text=Kenya%20has %20been%20working%20toward,new%20avenues%20for%20financial%20growth (Accessed on 30/11/2023).

Mwita. M., ‘East Africa Mulls Shifting from Linear to Circular Economy.’ Available at https://theexchange.africa/investing/africas-development/east-africa-mulls-shifting-fromlinear-to-circular-economy/ (Accessed on 01/12/2023).

Nairobi Garage., ‘Mr Green Africa // Kenyan Recycling Startup Secures Round of Funding.’ Available at https://nairobigarage.com/mr-green-africa-secures-round-offunding/ (Accessed on 01/12/2023).

Norouzi. M., ‘Circular Economy in the Building and Construction Sector: A Scientific Evolution Analysis.’ Journal of Building Engineering, Volume 44, 2021.

Packaging Europe., ‘Afri-Plastics Challenge Provides Funding for African Recycling Businesses, New Bioplastics, Waste Conversion Processes, and more.’ Available at https://packagingeurope.com/news/afri-plastics-challenge-provides-funding-forafrican-recycling-businesses-new-bioplastics-waste-conversion-processes-andmore/9548.article#:~:text=Afri%2 DPlastics%20Challenge%20provides%20funding,a nd%20more%20%7C%20Article%20%7C%20 Packaging%20Europe (Accessed on 01/12/2023).

The 10 Principles of a Circular Economy., Available at https://www.lombardodier.com/contents/corporate-news/responsiblecapital/2020/september/the-10-steps-to-a-circular-econo.html (Accessed on 30/11/2023).

United Nations Development Programme., ‘Circular Economy.’ Available at https://climatepromise.undp.org/what-we-do/areas-of-work/circular-economy (Accessed on 30/11/2023).

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United Nations Development Programme., ‘What is Circular Economy and Why Does it Matter?.’ Available at https://climatepromise.undp.org/news-andstories/what-is-circular-economy-and-how-it-helps-fight-climate-change (Accessed on 30/11/2023).

United Nations Development Programme., ‘Why the Green, Circular Economy is Key to Beating the Triple Planetary Crisis.’ Available at https://www.undp.org/blog/whygreen-circular-economy-key-beating-triple-planetary-crisis (Accessed on 30/11/2023).

Vandycke. N et al., ‘Defining the Role of Transport in the Circular Economy.’ Available at https://blogs.worldbank.org/transport/defining-role-transportcircular-economy (Accessed on 01/12/2023).

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The Nexus between Environmental Social and Governance (ESG) and Arbitration

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

Arbitration is form of Alternative Dispute Resolution (ADR) mechanisms. ADR refers to a set of mechanisms that are applied in management of disputes without resort to adversarial litigation. It has been described as a private and consensual process where parties to a dispute agree to present their grievances to a third party for resolution. It is argued that ESG principles have become a model for sustainable business development through which a corporations’ goal for solving environmental, social and governance problems is achieved. Consequently, ESG considerations have an increasing impact in international business as evidenced by the incorporation of sustainability clauses in investment contracts. In such contracts, investors are required to adhere to the concept of sustainable development as envisaged under the contracts and failure to do so may result in ESG related disputes.

In the wake of the climate change debate, there have been calls for responsible business practice towards climate change mitigation through measures such as reduction of carbon emissions. The Paris Agreement on Climate Change has raised the awareness of the need for global efforts to combat climate change and the role of responsible and ethical corporate behavior towards achieving this goal. Further, corporations are increasingly required to safeguard human rights as envisaged by ‘S’ pillar of ESG.

However, some corporations have been accused of violating these ESG concerns as a result of their business practices. Some corporations have been accused of failing to promote climate change mitigation through reduction of carbon emissions and transitioning to cleaner energy production. Further, some corporations have been accused of violating fundamental human rights such as the right to a clean and healthy environment especially in the investment sphere in Africa. These instances have resulted in an increasing number of ESG-related disputes. The growth of ESG concerns has seen corporations being increasingly required to embrace ESG principles in their business practices. Consequently, ESG clauses are being adopted in commercial and investment contracts.

In case of violation of such clauses, ESG related disputes are bound to occur. It has been asserted that adoption of ESG related practices into pre-existing social and governance models adopted by corporations would be disruptive. The inclusion of ESG clauses in commercial contracts not only points to the importance of ESG concerns to companies but it also serves as potential source of disputes where such considerations are not complied with. ESG issues are not only reshaping corporate behavior across the globe but can also be a potential battleground in international disputes25. This creates the need for an effective mechanism of management of such disputes in order to enhance ESG principles in the quest for Sustainable Development.

Arbitration has for a long time been the most viable mechanism for management of international commercial and investment disputes. It offers a neutral forum for the management of disputes and addresses some of the concerns that parties may have in relation to the other parties’ legal system. In international commercial and investment arbitration, parties are reluctant to submit to the jurisdiction of the other party due to the likelihood of favoritism by the host judicial system. Further, arbitration has the potential of facilitating expeditious management of disputes.

In international commercial and investment arbitration, there is need to manage disputes expeditiously in order to preserve the commercial interests of parties. The viability of arbitration in management of international commercial disputes is further enhanced by the availability of a legal framework for the recognition and enforcement of foreign arbitral awards. The New York Convention provides the legal framework for the recognition and enforcement of foreign arbitral awards across different jurisdictions. Consequently, the adoption of ESG elements in international commercial and investment agreements has resulted in the use of arbitration to manage disputes arising from such agreements.

ESG concerns have become prominent in investor-state arbitration with arbitral tribunals having to determine issues relating to climate change, corruption and human rights. It has been asserted that the growth of ESG will redefine the practice of arbitration as it seeks to adapt to the new concerns created by ESG. However, the flexibility of arbitration and its ability to adapt to emerging concerns means that it is well positioned to manage ESG disputes. However, there is need for reform in order to enhance the role of arbitration in managing ESG disputes.

*This article is an abridged version of the Article The Place of Environmental, Social and Governance (ESG) in Arbitration (Available for download at Kariuki Muigua & Co. Advocates Website, follow the link) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

Hamilton. J & Coulet-Diaz. M., ‘Arbitration & the ESG Era’ available at https://www.whitecase.com/news/media/arbitration-esg-era (accessed on 28/09/2022).

International Arbitration in 2022., ‘The Rising Significance of ESG and the Role of International Arbitration’ available at https://www.freshfields.com/en-gb/our-thinking/campaigns/internationalarbitration-in-2022/the-rising-significance-of-esg-and-the-role-of-international-arbitration/ (accessed on 28/09/2022)

Mazhorina. M.V., ‘ESG Principles in International Business and Sustainable Contracts’ available at https://aprp.msal.ru/jour/article/view/3223?locale=en_US (accessed on 28/09/2022).

Moses. L.M, ‘The Principles and Practice of International Commercial Arbitration’ 2 nd Edition, 2017, Cambridge University Press 28 Ibid 29Muigua. K., ‘Promoting International Commercial Arbitration in Africa’ available at http://kmco.co.ke/wp-content/uploads/2018/08/PROMOTING-INTERNATIONAL-COMMERCIALARBITRATION-IN-AFRICA.pdf

Muigua. K., ‘International Investment Law and Policy in Africa: Human Rights, Environmental Damage and Sustainable Development’ available at http://kmco.co.ke/wpcontent/uploads/2018/11/International-Investment-Law-and-Policy-in-Africa-AILA-Conference-Paper5-11-2018.pdf (accessed on 28/09/2022)

Muigua. K., ‘Realising Environmental, Social and Governance Tenets for Sustainable Development’ available at http://kmco.co.ke/wp-content/uploads/2022/07/Realising-Environmental-Social-andGovernance-Tenets-of-Sustainable-Development-Kariuki-Muigua-July-2022.pdf (accessed on 28/09/2022)

Muigua. K., ‘Settling Disputes Through Arbitration in Kenya’ Glenwood Publishers Limited, 4th Edition, 2022

Ross. A., ‘We need talk about ESG’ available at https://globalarbitrationreview.com/we-need-talkabout-esg (accessed on 28/09/2022)

The ALP Review., ‘The Importance of ESG and its effect on International Arbitration’ available at https://www.alp.company/sites/default/files/ALP%20Review%20- %20The%20Importance%20of%20ESG %20and%20its%20effect%20on%20International%20Arbitration.pdf (accessed on 28/09/2022).

United Nations Conference on International Commercial Arbitration, ‘Convention on the Recognition and Enforcement of Foreign Arbitral Awards’ United Nations, 1958

Von Wobeser., ‘The Role of Arbitration in ESG Disputes’ available at https://www.vonwobeser.com/index.php/publication?p_id=1650 (accessed on 28/09/2022)

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Enhancing the Role of Arbitration in Management of ESG Disputes

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

Arbitration represents a viable mechanism for management of ESG disputes. The following are proposals for interventions towards embracing arbitration in management of ESG disputes for Sustainable Development towards enhancing the use of arbitration in ESG disputes:

Enhancing Knowledge in ESG Concerns

Statistics show that many ESG related disputes are being managed through arbitration. According to the International Chamber of Commerce, engineering, construction and energy disputes represent the highest number of cases handled representing 38% of all cases registered so far. Such disputes entail ESG components such as renewable energy projects, environmental protection and human rights concerns. This demonstrates that ESG and arbitration are inextricably linked. Arbitration practitioners thus need to equip themselves with knowledge in ESG related matters in order to be better placed to manage ESG related disputes.

Promoting Sustainable Development

Sustainable Development has been defined as development that meets the needs of the present generation without compromising the ability of future generations to meet their own needs. This concept entails a combination of elements including environmental protection, economic development and social issues. The importance of Sustainable Development has seen the adoption of the Sustainable Development Goals as the global blueprint of development. Most of the Sustainable Development Goals entail aspects of ESG such as clean water and sanitation, affordable and clean energy, industry, innovation and infrastructure and climate action. Arbitration practitioners should therefore promote the principles of sustainable development when managing ESG related disputes. This could entail requiring investors to comply with the host country environmental laws and ESG standards in mining, energy and construction disputes which have an ESG bearing.

Upholding Human Rights

The ‘S’ pillar in ESG seeks to promote responsible and ethical corporate behavior through aspects such as respect for human rights. However, corporate behavior especially in the investment sphere in Africa has resulted in gross violation of human rights. Some corporations which have invested in oil exploration have been accused of human right abuses, environmental degradation and unsustainable peace due to their business culture. In Kenya, a multinational corporation that has invested in the agricultural sector has been accused of human right abuses such as killings, rape, and other forms of sexual and gender-based violence allegedly committed by its guards, bad labour practices and land injustices against the neighbouring communities. Some of these disputes have ended up in arbitration where tribunals are called upon to adjudicate on human rights issues. Arbitrators should thus seek to uphold human rights in such disputes by rendering awards that are in line with human rights standards. By promoting human rights, arbitrators will be embracing the ‘S’ pillar that is fundamental in the ESG debate.

Promoting Good Governance

The Governance pillar in ESG seeks to achieve good financial and accounting standards as well as legal and regulatory compliance, such as transparency, corporate structures and ethics in corporate conduct. It also seeks to align Governance with the Sustainable Development Goals where governance issues include industry, innovation and infrastructure (Goal 9); peace, justice and strong institutions (Goal 16); and partnerships with public and private institutions (Goal 17). Good governance can be promoted through arbitration by rendering awards that adhere to good governance practices such as transparency, accountability, reporting and disclosure.

Seeking Expert Assistance in Complex ESG Matters

Arbitration has a significant role in promoting ESG tenets in areas such as climate change. Arbitrators play a significant role in shaping and adapting international law to respond to the climate crisis. However, in some instances, arbitration has been slow to act to act in response to the climate crisis. Some climate change concerns such as determining adherence to climate change commitments through low carbon transition requires arbitrators to be fully informed and engaged in such concepts. This may require expert analysis and guidance from persons with requisite knowledge in environmental matters. Arbitrators should therefore seek expert assistance in such issues in order to be fully informed and render awards that promote ESG principles.

Conclusion

The relationship between Environmental, Social and Governance (ESG) and arbitration continues to grow. Adoption of ESG by corporations as a means of promoting responsible and ethical business practices and the wide use of arbitration in management of international commercial and investment disputes points to increased use of arbitration in management of ESG related disputes. In managing such disputes, arbitrators should promote ESG considerations whilst balancing the needs and interests of parties involved in issues such as climate change. Arbitration represents a viable mechanism for managing ESG disputes while simultaneously promoting Sustainable Development. There is need to enhance the viability of arbitration in management of ESG related disputes.

*This article is an abridged version of the Article The Place of Environmental, Social and Governance (ESG) in Arbitration by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

References

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Way Forward in Managing Risk and Liability of ESG Litigation

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By Hon. Prof. Kariuki Muigua, OGW, PhD, C.Arb, FCIArb is a Professor of Environmental Law and Dispute Resolution at the University of Nairobi, Member of Permanent Court of Arbitration, Leading Environmental Law Scholar, Respected Sustainable Development Policy Advisor, Top Natural Resources Lawyer, Highly-Regarded Dispute Resolution Expert and Awardee of the Order of Grand Warrior (OGW) of Kenya by H.E. the President of Republic of Kenya. He is the Academic Champion of ADR 2024, the African ADR Practitioner of the Year 2022, the African Arbitrator of the Year 2022, ADR Practitioner of the Year in Kenya 2021, CIArb (Kenya) Lifetime Achievement Award 2021 and ADR Publisher of the Year 2021 and Author of the Kenya’s First ESG Book: Embracing Environmental Social and Governance (ESG) tenets for Sustainable Development” (Glenwood, Nairobi, July 2023) and Kenya’s First Two Climate Change Law Book: Combating Climate Change for Sustainability (Glenwood, Nairobi, October 2023), Achieving Climate Justice for Development (Glenwood, Nairobi, October 2023) and Promoting Rule of Law for Sustainable Development (Glenwood, Nairobi, January 2024)*

In order for companies to manage the risk and liability associated with ESG litigation, it is imperative for them to strengthen their ESG reporting and disclosure requirements. It has been observed that recent ESG trends have driven the requirement by businesses to report on ESG aspects such as human rights and environmental standards as evidenced by emerging legal frameworks requiring companies to report on human rights and environmental issues, emerging mandatory human rights due diligence legislation, and increased legal enforcement and litigation risks.

As a result, it is important for companies to treat public disclosures in relation to ESG matters seriously and consider taking independent auditing and verification steps, particularly for annual ESG-related reports and/or other material ESG disclosures. Such an approach can help companies effectively manage and reduce the risk of ESG related litigation.

In addition, it has been argued that there is need for companies to embrace best practices in order to mitigate the risks of ESG litigation and also address such litigation when it arises. For example, it has been suggested that companies should conduct risk assessments in order to determine the likelihood of ESG related suits and deal with such concerns immediately; undertake public engagement to order to ensure openness and transparency in ESG matters; build knowledge on ESG issues in order to be well equipped to handle ESG claims when they arise; and strengthen their management systems and internal practices in order to enhance compliance with ESG standards.

It has been observed that ESG litigation is associated with several risks to companies including regulatory and enforcement risk, reputational risk, damage to brand, potential disruption by activists and financial risks such as loss of access to capital and financial losses as a result of damages, fines and other forms of monetary compensation. It is also imperative to strengthen access to justice in ESG matters. It has been pointed out that in order for litigants to be given the right of access to courts in ESG matters, whether individually, collectively, or as a third party or amicus curiae, the criteria pertaining to standing, which differ from jurisdiction to jurisdiction, must be followed.

It is also necessary to widen and strengthen the jurisdiction of courts on ESG issues such as climate change. Further, it has been pointed out that there is need to embrace techniques such as litigation funding in order to provide the financial stability and support needed to pursue legal action without compromising on the quality of representation or legal strategy in ESG matters. It has been argued that litigation funding can be an effective strategy for needy claimants to pursue claims against a company that they may ordinarily not be able to afford, enabling them to ultimately to hold companies to account for ESG failures.

Finally, it is imperative for companies to think creatively and strategically in order to effectively resolve ESG claims. It has been pointed out that ESG claims may significantly differ from other types of litigation companies have previously faced, hence the need for creative solutions towards these claims. For example, in ESG claims, there is need to bear in mind both the litigation aspects of a dispute, and broader ESG concerns including those around reputation and access to capital. As a result, it has been suggested that there is need for companies to be alive to the potential for resolving ESG claims outside the court room, and what mitigation strategies could be deployed to avoid litigation.

Alternative Dispute Resolution (ADR) mechanisms are ideal in managing ESG disputes by fostering privacy, cost effective and expeditious management of disputes while also allowing parties to select experts to hear and determine contentious ESG matters. In addition, it has correctly been observed that businesses would normally prefer to have their disputes managed in a private manner in order to prevent ruining their image in public and also in an expeditious and cost-effective manner in order to protect business interests.

It has also been pointed out that the use of ADR mechanisms such as mediation in managing ESG related disputes is a practical demonstration of a sustainability-oriented business culture since mediation can offer a quick, flexible, consensual and win-win solution based on the mutually accepted interests of the parties. ADR mechanisms can therefore be an effective tool to enable companies manage the risks associated with ESG litigation.

*This is an extract from the Article: Fostering Environmental, Social and Governance (ESG) Litigation for Sustainability, Available at: https://kmco.co.ke/wp-content/uploads/2024/02/Fostering-Environmental-Social-and-Governance-ESG-Litigation-for-Sustainability.pdf (Accessed 2nd March 2024) by Hon. Prof.  Kariuki Muigua, OGW, PhD, Professor of Environmental Law and Dispute Resolution, Senior Advocate of Kenya, Chartered Arbitrator, Kenya’s ADR Practitioner of the Year 2021 (Nairobi Legal Awards), ADR Lifetime Achievement Award 2021 (CIArb Kenya), African Arbitrator of the Year 2022, Africa ADR Practitioner of the Year 2022, Member of National Environment Tribunal (NET) Emeritus (2017 to 2023) and Member of Permanent Court of Arbitration nominated by Republic of Kenya and Academic Champion of ADR 2024. Prof. Kariuki Muigua is a foremost Environmental Law and Natural Resources Lawyer and Scholar, Sustainable Development Advocate and Conflict Management Expert in Kenya. Prof. Kariuki Muigua teaches Environmental Law and Dispute resolution at the University of Nairobi School of Law, The Center for Advanced Studies in Environmental Law and Policy (CASELAP) and Wangari Maathai Institute for Peace and Environmental Studies. He has published numerous books and articles on Environmental Law, Environmental Justice Conflict Management, Alternative Dispute Resolution and Sustainable Development. Prof. Muigua is also a Chartered Arbitrator, an Accredited Mediator, the Managing Partner of Kariuki Muigua & Co. Advocates and Africa Trustee Emeritus of the Chartered Institute of Arbitrators 2019-2022. Prof. Muigua is a 2023 recipient of President of the Republic of Kenya Order of Grand Warrior (OGW) Award for his service to the Nation as a Distinguished Expert, Academic and Scholar in Dispute Resolution and recognized among the top 5 leading lawyers and dispute resolution experts in Band 1 in Kenya by the Chambers Global Guide 2024 and was listed in the Inaugural THE LAWYER AFRICA Litigation Hall of Fame 2023 as one of the Top 50 Most Distinguished Litigation Lawyers in Kenya and the Top Arbitrator in Kenya in 2023.

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