The panel discussion, moderated by Gauthier Vannieuwenhuyse, Counsel in Hogan Lovells’ Paris International Arbitration team, addressed three main topics, namely: (i) the regulatory and commercial reasons explaining the increased scrutiny on ESG and human rights compliance; (ii) current dispute resolution mechanisms available to address the resulting rise in ESG and human rights disputes and their limits; and (iii) reasons why arbitration may very well be fit to help resolve such disputes.
To address these issues, the panel was comprised of four panelists:
- John Broussard, Associate General Counsel at LyondellBasell (one of the largest plastics, chemical, and refining companies in the world), with nearly 10 years of experience handling complex disputes as a litigation and appellate attorney.
- Tyler Gillard, Head of the Due Diligence Unit and Senior Legal Adviser at the Centre for Responsible Business Conduct of the Organisation for Economic Co-operation and Development (OECD), who currently leads the OECD’s work in various industries, including the financial, textile, and oil & gas sectors;
- Jeanne Sulzer, an international human rights lawyer with 20 years of experience, who currently heads Impact Litigation (a firm which supports, advises, and represents victims of international crimes and terrorism) as well as the International Justice Commission at Amnesty International (France);
- Christelle Coslin, a Litigation Partner and Co-Head of the global Business & Human Rights Practice at Hogan Lovells, with significant experience in a wide range of litigation, white-collar crime, and compliance matters, including in relation to the implementation of human rights compliance policies and programs as well as mass tort disputes.
A recording of the webinar can be found here.
What is meant by Human Rights and ESG
Mr. Gillard opened the conference by providing an overview of the meaning and scope of ESG concerns and Human Rights. ESG covers Environmental (e.g., management of hazardous chemical products or carbon emissions), Social (e.g., addressing the impact of a business on its workers or on the communities in which it operates), and Governance concerns (e.g., financial crime, corporate governance, or anti-corruption). He explained the conceptual shift in companies’ approach to ESG, with businesses moving from an inward-looking perspective focused on the commercial and financial impact of ESG compliance on their operations and risks toward an outward-looking approach focused on their impact on people and communities.
ESG and human rights corporate compliance concerns have long been addressed through soft law instruments, such as corporate policies and voluntary guidelines, which were in large part developed by the United Nations and the OECD. Mr. Gillard gave key examples of such instruments, including: (i) the United Nations Guiding Principles on Business and Human Rights (UNGPs) (2011), which implement the United Nations “Protect, Respect and Remedy” Framework; and (ii) the OECD Guidelines for Multinational Enterprises (2011), which call on companies to conduct due diligence on their supply chains and operations and address various business ethics issues, such as the protection of the environment or responsible tax practices.
Ms. Sulzer went on to address how human rights go well beyond the social aspect of ESG. This is because most ESG instruments remain soft law, whereas human rights are often addressed through State-negotiated frameworks of binding instruments, which span the entire spectrum of human rights. Said instruments include the Convention against Torture and Other Cruel, Inhuman or Degrading Treatment or Punishment (1985), the International Covenant on Civil and Political Rights (1966), as well as the more recent International Convention for the Protection of All Persons from Enforced Disappearance (2007).
Ms. Sulzer insisted on the need for concrete implementation of these instruments, which are enforceable against States but also individuals and corporations.
Why ESG and Human Rights disputes are increasingly relevant for businesses today
Mr. Gillard was asked to provide an overview of the development of an international framework of binding regulatory instruments regarding ESG and human rights.
Following up on Ms. Sulzer’s overview of the many international instruments which already create ESG and human rights obligations, he opined that the real challenge is now for concrete enforcement of existing frameworks at the national level, rather than for more instruments. He highlighted the increasingly important role of private actors in addressing this “enforcement gap.”
At the same time, he agreed that there currently is a regulatory shift towards binding obligations in this field, invoking instruments such as the Paris Agreement (2015) and conventions on access to information regarding the environment, such as the Regional Agreement on Access to Information, Public Participation, and Justice in Environmental Matters in Latin America and the Caribbean (Escazu Agreement) (2021). Again, these new instruments imply a real role for the private sector, which is expressly mentioned in the Paris Agreement when addressing, for example, means of reaching ‘net zero’ emissions.
Ms. Coslin went on to discuss similar European and domestic binding instruments covering ESG and human rights concerns.
Following up on Mr. Gillard’s discussion on the “enforcement gap,” she confirmed that compliance with ESG and human rights is no longer a matter of compliance only or ‘soft’ law, but already very much a matter of ‘responsibility’ and potential ‘liability.’ In this regard, she notably referred to the pioneering French Duty of Vigilance Law (2017), which imposes a duty on large French companies to design and implement a ’vigilance plan,’ requiring them to conduct due diligence of their operations and supply chains to prevent human rights violations and remedy such violations should they arise.
To achieve enforcement, the law targets parent companies for harms caused at any point in the supply chain and which could have been prevented through the vigilance plan. Ms. Coslin went on to point out that a dozen of court cases already exist, where companies are being blamed for not setting up or implementing properly their vigilance plan. This law therefore creates actual litigation risk and can no longer be seen as strictly falling into the realm of compliance only. This momentum, she explained, recently drove the European Union to its Proposal for a Directive on Corporate Sustainability Due Diligence dated February 2022 – an instrument which would apply to a very wide range of both EU and ex-EU companies doing business within the EU.
Mr. Broussard was then asked about his experience with the rise in binding commercial undertakings in the field of ESG and human rights, such as model clauses and industry-specific agreements. He explained that contracts have long contained general binding undertakings to comply with “all laws,” which includes compliance with anti-corruption regulations or environmental laws. However, over the last decade, supplier codes of conduct have more regularly been inserted into contracts and in general terms and conditions. Whilst these new undertakings have yet to give rise to disputes, he could foresee how litigation and arbitration proceedings were likely to materialize in the future in a B2B context.
This increase in ESG and human rights scrutiny brings about disputes, which in turn raises the question of the appropriate forum to resolve such claims, whether through current redress mechanisms or through arbitration.
Current redress mechanisms for ESG and Human Rights claims
When asked to provide an overview of mechanisms currently available to resolve such disputes, Ms. Sulzer explained that the key forum for State responsibility is the International Court of Justice. Regarding individual accountability, she invoked regional courts such as the Inter-American Court for Human Rights or the European Court for Human Rights, as well as national courts. She also mentioned the existence of numerous quasi-judicial committees which can also help victims petition for claims of human rights violations. Further, she insisted on how human rights claims required decision-makers capable of finding the right balance between protecting against violations and causing permissible rights limitations, mentioning the famous triple test of ‘legality, necessity and proportionality’ typically applied when assessing human rights claims.
As a litigation expert, Ms. Coslin explored whether current judicial mechanisms provide appropriate remedy to victims of human rights violations, which may require more than monetary compensation of any harm suffered. In some circumstances and under appropriate new frameworks, she thought arbitration might complement existing mechanisms to provide more effective remedies.
Members of the panel suggested that arbitration might be better fit for B2B rather than B2C disputes related to ESG and human rights, as the contractual nature of arbitration inherently limits the pool of potential parties.
Why arbitration is fit to resolve ESG and Human Rights disputes
It is generally admitted that the key characteristics of international arbitration are very much compatible with the resolution of ESG and human rights disputes (e.g., the ability to appoint arbitrators knowledgeable in the contemplated subject matter; the swift resolution of proceedings through the widespread adoption of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958).
Whilst litigation mechanisms remain the natural forum, with arbitration remaining the exception for the time being, in recent years ESG and human rights claims have been successfully raised in commercial and investment arbitration cases:
- In commercial arbitration, the ‘Bangladesh Accord on Fire and Building Safety’ Arbitrations are a typical example of how commercial arbitration can help resolve human rights claims. Following the collapse of a garment factory building in Bangladesh in 2013, various fashion brands, retailers, and trade unions decided to sign a five-year agreement committing to ensuring a “safe and sustainable” garment industry in the country.
Based on the arbitration mechanism provided therein, in 2016 two labour unions introduced two sets of arbitration proceedings against two multinational fashion brands, whose identities remain confidential. In 2018, the proceedings – which allowed for confidential information in orders, decisions and awards to be caveated and published – culminated in a settlement, with brands agreeing to pay US$2.3 million to remediate unsafe working conditions in Bangladeshi factories.
- In investment arbitration, the much-discussed ICSID case of Burlington v. Ecuador is another example of arbitration successfully addressing ESG and human rights claims. Indeed, whilst it was found liable for unlawful expropriation of the investor’s interests in certain oil exploration areas, Ecuador successfully raised counterclaims alleging that the investor’s activities had breached Ecuadorian environmental law and caused significant infrastructure damage. This led the tribunal to find the investor liable for over US$40 million in compensation.
Conclusion
In recent years, there has been a steady rise in ESG and human rights scrutiny, both from a regulatory and commercial standpoint. Whilst litigation mechanisms currently remain the more utilized fora to bring such disputes, arbitration and its characteristics have already enabled parties to bring successful claims, whether through commercial or treaty-based arbitration, and this trend should gather more traction in coming years.
