Wolf von Kumberg, Arbitra International


“States must do what is possible to create an amicable framework for resolution of climate change-related disputes”

“The time for mediation to become an integral tool of investor state dispute resolution as part of a state’s energy transition strategy is, therefore, now”


The introduction of Mediation Rules by the International Centre for Settlement of Investment Disputes of the World Bank (ICSID) in 2022, will be particularly well suited to assisting in the resolution of Investor-State disputes arising out of the green energy transition.

Mediation, as a process whereby a neutral third party works with the disputing parties to facilitate an amicable resolution to the dispute, has many advantages over an adjudicative approach where a court or tribunal renders a decision. The key benefits of mediation for climate-related investor-state conflicts include the following:

a) helps preserve relationships and potentially permits the investment to continue or be restructured over a transition period, which will be critical for the phase-out of GHG emissions. This simply cannot be achieved through litigation.

b) can be attempted at an early stage in a conflict, which will permit for an organized and most cost-effective energy transition to take place.

c) is relatively inexpensive and quick, which is critical given the2030/2050 emissions

reduction/elimination timeframe.

d) saves lost opportunity costs spent in years of litigation.

e) allows for solutions that go beyond the remedies available to a court or arbitral tribunal, which will be needed for heavy carbon emitting entities to effectively transition without massive social and economic upheaval.

f) allows for a range of stakeholders such as community groups and NGOs to take part (not solely the disputing parties) so that a more robust and inclusive settlement can be reached, which will be essential to obtaining social buy-in to energy transition agreements.

g) allows for face-to-face contact between the Government, investors and other stakeholders, so that they retain the ability to structure an agreement, rather than having it imposed by a tribunal.

h) provides route to a win-win solution and allows a party to save face (important for politically sensitive situations), which will permit solutions that include scheduled phase-out, financial aid for exiting fossil fuel industries, carbon credits, investment opportunities in new sustainable energy projects (the list of possible solutions through mediation are endless, while remedies available in litigation and arbitration are largely financial);

j) takes into account cultural norms and concerns.

k) has fewer enforcement issues as the parties have themselves agreed to the settlement and will therefore be committed to it, which is not the case if a judgement is imposed on a reluctant party.

l) the process is as confidential or transparent as the parties wish it to be, so there is great flexibility in public announcements and press releases.

m) the parties can choose the mediator or co-mediators best qualified to assist with the dispute at hand, which will be critical for climate-related disputes (this process is simply not available when a court is involved); and

n) does not disrupt budgets the way a judgment/award would be as payments can be planned and structured over time rather than imposed.

States must do what is possible to create an amicable framework for resolution of climate change-related disputes. One key element is having a perceived transparent and fair system for resolving investor issues. Clearly, early dispute resolution will play a role in this. Some states have already implemented ombudsperson programs, and in addition have a stated policy of mediating disputes as a prerequisite to arbitration. Several states have adopted the Energy Charter Treaty (ECT) Model Protocol providing a proactive framework to utilise mediation at an early stage of disagreements with investors.

The range of climate change-related measures that will impact the energy sector is extremely wide and includes the following and more:

– the removal of fossil fuel subsidies;

– the introduction of carbon taxes;

– stricter emissions standards;

– electric vehicle mandates;

– denial of permits for exploration and development;

– transport or use of coal, gas or petroleum resources;

– and planned phase-out of certain carbon energy sources.

These measures when implemented will undoubtedly have direct impacts on specific investments in the energy sector, including leaving investors, funders and states with the problem of stranded assets. These regulatory and investment policy changes therefore pose a significant litigation risk for states, as market actors in the fossil fuel industry invoke investment protection under International Investment Agreements (IIAs) or Bilateral Investment Treaties (BITs) to challenge policy measures taken in furtherance of the Paris Agreement.

The steps being taken by the EU to render ineffective inter-EU BITS will not be the only call for revision of ISDS, as states struggle to realign many types of policy and regulatory initiatives due to energy transition demands and the need to drastically reduce carbon emissions in the coming decades. This is precisely where mediation can play a vital role, in helping the investor and the state to restructure their respective legal commitments and in some cases permit the investment to continue for a transitional period or in a different form or, alternatively, to bring it to an end on agreed terms. It can also allow for carbon energy providers to offer green energy alternatives, as many are now moving into solar and wind energy supply. Neither courts nor arbitration can provide these remedies. In any event, enforcing an arbitral award against a state that cannot or seeks to avoid payment because of environmental public policy concerns hardly makes good business sense.

Funders of energy transition initiatives will also play an important role in encouraging the use of mediation in potential disputes, including their endorsement of mediation in disputes clauses. This will be particularly important in projects where states are a party. Funders will be at the heart of phasing out old fossil fuel energy providers and industries and in their place funding new sustainable energy projects. They will want to ensure that this process is not interrupted and delayed by expensive, inefficient disputes. Funders can therefore mandate in their lending criteria the use of mediation.

The narrative is clear. States now must do all that is possible to create a climate of facilitation and compromise with investors who in good faith made investments based on energy policies that were acceptable in the past but are now no longer sustainable. Clearly, early dispute avoidance and regulation, rather than adversarial engagement, will play a role in this. The time for mediation to become an integral tool of investor state dispute resolution as part of a state’s energy transition strategy is, therefore, now.

Wolf von Kumberg, Arbitra International. The author is an independent mediator and arbitrator, the Chief Executive Officer (CEO) of Global Resolution Services and a member of Arbitra, a specialised alternative dispute resolution (ADR) service with offices in London, Abu Dhabi and Washington, DC. With extensive experience as an international general counsel in the aerospace, technology and energy sectors, he advises companies on legal and conflict issues related to climate change and the green energy transition, helping to develop strategies and procedures to manage these risks effectively and to facilitate the resolution of related disputes. He has worked extensively with ICSID to help develop mediation in ISDS and has been appointed to sit on the ICSID Conciliation Panel.