ESG and Climate Considerations in Commercial Arbitration

On 17 September 2026, CIArb London Branch and the Energy Arbitration Club held a panel discussion hosted by Herbert Smith Freehills Kramer. The panel looked at how ESG and climate issues are shaping commercial arbitration - a dimension of these disputes that is often overlooked.  The panel covered how tribunals are approaching these issues, how businesses come into conflict with suppliers and counterparties, and how contract drafting can manage the risk.

Sir Christopher Vajda KC (Vice Chair, CIArb London Branch; Monckton Chambers) gave the introductory remarks. Paul Kinninmont FCIArb (Chair, CIArb London Branch Committee; Partner, Freeths) moderated a panel of Louise Barber (Of Counsel, Herbert Smith Freehills Kramer), Professor Armando Castro (UCL and Gatehouse Chambers) and Judy Fu (Arbitrator and Barrister, 3 Verulam Buildings). Colin Johnson (Chair, Energy Arbitration Club; Alvarez & Marsal) gave the closing remarks.

The main message was that ESG disputes are already common in arbitration, but they rarely carry an ESG label. They surface as familiar disputes about termination, force majeure, warranties or environmental impact, so they are easy to miss in institutional statistics and public reports. Much of these types of disputes are resolved confidentially, which keeps them out of view.

Key themes from the panel discussion

• Source of disputes: Commercial disputes start with ambiguous contracts and mismatched expectations when circumstances change. ESG has become a major driver of that change, through new regulation, shifting views of risk and value, and evolving science. They are most common in joint ventures, energy and infrastructure projects, relationships with lenders and insurers, and post-M&A claims, and cross-border deals are especially exposed.
• Reasonableness and foreseeability: Tribunals are increasingly asked what a party could reasonably have foreseen, what response was proportionate, and who should bear the cost. Foreseeability is time-specific and moving fast, which makes older contract wording harder to apply.
• Soft law and enforceability: Many ESG obligations sit in voluntary standards, group policies and aspirational language. This raises questions about what is binding, whether change in law clauses respond to such standards, and how to read terms like "best available science" when there is no agreed metric. Passing emissions reporting duties down supply chains is a particular pressure point.
• Damages and valuation: Environmental factors bite hardest here. Tribunals must take a forward-looking view of regulatory and asset risk, and developments in international law may push valuations further apart.
• Strategic use of ESG: Parties may use ESG-related events as a lever to renegotiate or exit a contract. Tribunals will look closely at conduct and the precise wording of the contract.
• Social and governance: The discussion moved on to termination and corruption, including the difficult choice between affirming and terminating a contract where bribery is alleged.

The panel was followed by a Q&A session, and the evening ended with drinks generously hosted by Herbert Smith Freehills Kramer.