By Wolf von Kumberg FCIArb

Ciarb, the Stockholm Chamber of Commerce and CEDR hosted the Energy Transition Disputes Forum on 17 April 2023. The Forum in Stockholm explored issues relating to energy transition, including the impact of climate laws and climate science on global economic activities, civil society, and States.

The Forum consisted of three panels that reviewed the energy transition disputes risk from several perspectives. I chaired the first panel for Arbitra. The second panel was chaired by James South for CEDR. Mercy McBrayer FCIArb chaired the third panel for Ciarb.

The first panel, comprising industry specialists, defined energy transition disputes and reviewed the nature of current litigation worldwide and in the Nordics, and their impact on several industry sectors. The group discussed whether these are typical business dispute risks or something extraordinary. The general consensus was that they have a critical impact on all facets of a business and therefore differ from typical dispute risks. Companies, therefore, have to look at ways to mitigate these risks. This could be done by having a risk audit identifying those areas of the business most exposed to disputes risk, reviewing the contractual relationships existing in those areas and then establishing a mitigation plan to reduce the risk. Pragmatic dispute resolution solutions are also required since courts and even arbitration may not be best suited to resolve transition issues. Methods such as facilitated negotiation, mediation and dispute boards were discussed. Dispute Boards, in particular, were seen to have real application to green sustainable projects. These projects, which will help lead to net zero goals, cannot be held up by disputes, as the imperative is not simply financial but vital to reducing the impact of climate change.

The second panel discussed the impact of the energy transition on States and Investors. The need for States to meet their Paris obligations[1] will require a significant shift from fossil fuel-based energy sources to sustainable energy. This will require the restructuring of long-term investment agreements and concessions; such restructuring may expose States to potential Investor State claims. This has already been seen in the context of the Energy Charter Treaty (ECT) and International Centre for Settlement of Investment Disputes (ICSID) claims brought against some EU States for proactive energy shifting. States and investors will have to engage in collaborative methods of restructuring these relationships to avoid this. The other threat for States and Investors is being left with stranded fossil fuel assets unless a scheduled and orderly wind-down is negotiated. Again, the methods for this need to be explored, but they will definitely include forms of facilitated negotiation.

The last panel reflected on the interface between energy transition and environmental, social and governance (ESG). Increasingly companies are facing regulatory requirements to make ESG reports. They are also facing civil actions from NGOs, shareholders and Governments because of claims of greenwashing. There is also a human rights and social aspect to energy transition and how it is handled by companies that can expose them to claims of this nature. Companies are being exposed to regulatory penalties for potential misreporting and increasingly to various forms of stakeholder claims. Companies will have to look closely at their ESG-related statements and representations to ensure that they are factually supported. This will require greater scrutiny of representations made by companies concerning sustainability and energy transition.

The Forum closed with a consensus that:

• The energy transition exposed companies across industries to extraordinary dispute risks
• States would, by necessity, have to find collaborative means to restructure existing fossil fuel commitments with investors
• Energy transition and sustainability representations made by States would have to be closely scrutinized and factually supported.

About the author:

Wolf von Kumberg FCIArb is a dual qualified lawyer (Canada and England) mediator, arbitrator and dispute board member, who has spent his 30-year career as a senior legal executive with Litton Industries Inc. and Northrop Grumman Corporation dealing with international legal and compliance issues in North America, Europe, the Middle East and Asia. Wolf has now established his own international consulting firm - Global Resolution Services Limited - aimed at providing solutions for the regulatory, compliance, governance, CSR and conflict risk scenarios faced by companies wishing to engage in the global market. He is a Member of the dispute resolution specialist chambers Arbitra with offices in London, Washington DC and Abu Dhabi.

[1] Paris Obligations - The Paris Agreement is a diplomatic pact that unites States in the fight against climate change. The most important aspect of the Paris Agreement is that all member States must commit to reducing their greenhouse gas emissions every five years. These pledges are known as Nationally Determined Contributions (NDCs) or, obligations. These NDCs represent the efforts undertaken by each State to reduce national emissions and adapt to the impact of climate change. For instance, the European Union pledges to reduce emissions to at least 40% below 1990 levels by 2030.