HSF CEO calls for arbitral institutions to confront new ESG landscape

A leading arbitration lawyer has called for arbitral institutions to be proactive in tackling Environmental, Social and Governance (ESG) issues in a keynote lecture held in Edinburgh.

Justin D'Agostino MH, Chief Executive Officer of Herbert Smith Freehills, is visiting Edinburgh as part of the inaugural Edinburgh International Arbitration Festival (ArbFest2023), currently underway in the city.

Delivering the keynote of the festival at The Signet Library, Mr D'Agostino told the audience that it is crucial to recognise the "climate of the age" in which we are living, in which it is important to recognise a combination of environmental change, fracturing geopolitical norms, pressure on globalisation and declining faith in governments, alongside a new generation of lawyers, clients and shareholders "seeking to hold to account employers, corporates and governments in a way that feels different to even a few years ago". 

As a result, Mr D'Agostino said, "everything is now ESG", with each strand – E, S and G, not mutually exclusive but "helplessly intertwined."

Mr D'Agostino said that, in response, the arbitral institutions should not shy away from confronting ESG issues head on.

"We – the arbitral community – as participants in an important multilateral system – have a role to play, and indeed a role we must play, to tackle the here and now let alone the issues ahead."

Mr D'Agostino proposed three ways arbitral institutions can play a role in addressing ESG issues. First, he said institutions need to identify and assess how ESG is pervading arbitral disputes. 

"The first [role] is for institutions to accurately track ESG's penetration into business-as-usual commercial arbitrations.  If we recognise, track and publicise where ESG issues are being raised and determined, it will allow us to better share learning and expertise.  

"This is especially important given that many of the risks for business are still relatively new – and how disputes surrounding those issues are resolved and dealt with are newer still."

Mr D'Agostino said that institutions could also play a role in influencing how arbitrations are run.

"The second role for institutions is the influence they can bring to bear on how arbitrations are run – through their procedural rules, but also through the way that they administer arbitrations.

He explained that this influence could take the form of specialist rules for the arbitration of ESG disputes, specialist panels of arbitrators, and tailoring existing procedural rules and practices to accommodate disputes in the ESG space.

Mr D'Agostino explained that the third role arbitral institutions could play was changing their own internal governance in the ESG space, reporting on their own energy consumption, emissions and environmental footprint, making their own sustainability commitments and looking to embed the Green Protocols into their procedural rules and practices.  

Concluding his speech, Mr D'Agostino said that arbitral institutions need to be proactive in taking action. 

"There is much to do, but much of which we should already be proud.  This is an exciting area of practice – and change – but we must remember the climate of our age.  The context means that these issues are not going anywhere.

"When users of arbitration are increasingly being judged and scrutinised on their own ESG credentials, institutions – in their rules, administration and organisational governance – cannot afford to be found wanting."

Read the full keynote speech here.