Can Eken and Udayasree Sadasivuni1
“Arbitration clauses can mandate adherence to recognized environmental benchmarks, holding businesses accountable for their sustainability commitments and promoting transparency”
Arbitration and sustainability are two subjects that have similar trends. As arbitration has become popular in recent years, ‘eco-friendly’, ‘green’, and ‘sustainable’, these terms have also recently become more and more popular. The use of such words promises that companies make to consumers, investors, and regulators. However, when businesses exaggerate or misrepresent their environmental efforts, the consequences can be severe and can be termed ‘greenwashing’.2
In 2021, H&M faced public outrage when its ‘Conscious’ collection, marketed as sustainable, was found to contain misleading claims, exposing the company to reputational harm and legal risks.3 Similarly, in 2015, Volkswagen’s ‘Dieselgate’ scandal revealed that the automaker had installed software to cheat emissions tests, marketing its diesel vehicles as environmentally friendly while they exceeded legal pollution limits.4 These cases not only resulted in multibillion–dollar fines and lawsuits but also eroded consumer trust and triggered tighter regulatory scrutiny across jurisdictions.
These cases illustrate the growing risks businesses face as sustainability expectations become more stringent. With consumers, investors, and regulators demanding greater transparency, companies are more vulnerable than ever to accusations of greenwashing. Once exposed, such misrepresentations can lead to long and costly litigation that not only drains resources but also damages relationships with stakeholders. Public legal battles often erode trust, putting businesses at a disadvantage even after a settlement. However, arbitration offers an alternative path, one that is faster, more discreet, and tailored to the complexities of sustainability disputes.
The Role of Arbitration in Resolving Sustainability Disputes
Arbitration provides a confidential forum where international or domestic disputes can be resolved without causing any damage to the reputation of companies involved in the dispute. In cases like H&M’s, arbitration could have allowed the brand to address concerns through a neutral process, avoiding fragmented lawsuits across jurisdictions. This flexibility is particularly valuable for sustainability disputes, which often involve nuanced technical issues.5 This feature allows tailoring of procedures to perfectly fit the needs of the sustainability issues that are not suitable for traditional courts. The tribunals composed of subject-matter experts in environmental standards, carbon markets, or corporate responsibility can offer more informed decisions, reducing the chances of misinterpretation or inconsistent rulings.6
Tailoring arbitration procedures isn’t limited to picking an expert tribunal or deciding seat of arbitration, but it can be a strategic move. For example, to prevent disputes from escalating, businesses can embed measurable sustainability commitments directly into their contracts.7 Clear terms around environmental goals, emission reduction targets, or resource management obligations help avoid misunderstandings and create accountability from the outset.8 Contracts that define sustainability metrics in detail reduce the likelihood of disagreements over vague or unverifiable claims. If disputes do arise, arbitration clauses within these agreements ensure that conflicts are addressed efficiently without resorting to lengthy litigation.
Arbitration agreements can incorporate early mediation mechanisms, encouraging parties to collaboratively resolve disagreements at an early stage and helping to preserve valuable business relationships.9 In addition, implementing early dispute mitigation protocols, such as regular risk audits, can further enhance this process.10 These audits enable companies to identify vulnerabilities in their sustainability claims, ensuring that their practices align with market expectations and regulatory developments. By proactively addressing potential issues, businesses can make necessary adjustments before disputes escalate into formal conflicts.
Arbitration clauses can mandate adherence to recognized environmental benchmarks, holding businesses accountable for their sustainability commitments and promoting transparency.
Companies that implement strong sustainability reporting practices, supported by third-party verification, are less likely to encounter disputes over misleading claims.11
Conclusion
Given the dynamic nature of environmental regulations, companies also benefit from incorporating transition and adaptation clauses into their contracts.12 These provisions offer flexibility by acknowledging that sustainability obligations may evolve due to technological advancements or regulatory shifts. 13 Collaborative dispute resolution protocols further enhance the effectiveness of arbitration in sustainability disputes. Providing expertise on sustainability in arbitration proceedings, and international or domestic arbitration disputes can help resolve sustainability issues.
Footnotes
1 Can Eken, Assistant Professor in Commercial Law, Durham University, Co-investigator, JusTN0W initiative at Durham University’s Centre for Sustainable Development Law and Policy E-mail: can.eken@durham.ac.uk ORCID: 0000-0003-0261-4623; Udayasree Sadasivuni, Partner, Srivatsasa Solicitors & Attorneys LLP, Email: udaya.sadasivuni@ssatorneys.com
2 de Freitas Netto, S.V., Sobral, M.F.F., Ribeiro, A.R.B. et al. Concepts and forms of greenwashing: a systematic review. Environ Sci Eur 32, 19 (2020). https://doi.org/10.1186/s12302-020-0300-3 accessed on 17th October 2024
3 Stern, M. (2022) H&M case shows how Greenwashing Breaks Brand promise, Forbes. Available at: https://www.forbes.com/sites/retailwire/2022/07/13/hm-case-shows-how-greenwashing-breaks-brand-promise/ (Accessed: 17 October 2024).
4 Hotten, R. (2015) Volkswagen: The Scandal explained, BBC News. Available at: https://www.bbc.com/news/business-34324772 (Accessed: 18 October 2024).
5 Guerin, Tom, “Environmental Arbitration: Overview and Case Studies,” 21 J. Envtl. L. & Prac. 309 (2007).
6 Jacob D. Grierson & Annet van Hooft, Arbitration in Complex Environmental Disputes, 23 Arb. Int’l 345 (2007)
7 Lalit Kumar Deb & Prithivi Raj, Arbitration Strategies for Resolving Climate Change and Sustainability Disputes in Commercial Transactions, 3 INDIAN REV. INT’l ARB. 10 (December 2023).
8 ibid
9 Resolving Climate Change Related Disputes through Arbitration and ADR (2019) www.iccwbo.org/climate-change- disputes-report. Available at: https://iccwbo.org/wp-content/uploads/sites/3/2019/11/icc-arbitration-adr-commission-report-on-resolving-climate-change-related-disputes-english-version.pdf (Accessed: 24 October 2024).
10 Lalit Kumar Deb & Prithivi Raj, Arbitration Strategies for Resolving Climate Change and Sustainability Disputes in Commercial Transactions, 3 INDIAN REV. INT’l ARB. 10 (December 2023).
11 Bullock, H. et al. (2023) Greenwashing: Navigating the risk, The Harvard Law School Forum on Corporate Governance. Available at: https://corpgov.law.harvard.edu/2023/07/24/greenwashing-navigating-the-risk/ (Accessed: 27 October 2024); and Vyas, R.P. (2024) Guarding green claims: Indian approach towards a sustainable future: National law school of india university, National Law School of India University |. Available at: https://ceerapub.nls.ac.in/guarding-green-claims-indian-approach-towards-a-sustainable-future/ (Accessed: 25 October 2024).
12 Schepker, D. J., Oh, W.-Y., Martynov, A., & Poppo, L. (2014). The Many Futures of Contracts: Moving Beyond Structure and Safeguarding to Coordination and Adaptation. Journal of Management, 40(1), 193-225. https://doi.org/10.1177/0149206313491289
13 Transition clauses protect businesses from legal risks associated with outdated commitments, helping them remain compliant with current standards while minimizing the chances of disputes. ibid