The Importance of ESG and its effect on International Arbitration

Introduction

In recent years, the global world has experienced an upsurge in ethical standards on Environmental, Social and Governance (ESG) issues, as well as a growing awareness of the systemic and financial consequences of climate change and environmental damage. As Africa’s largest economy and one of the leading oil producing countries in the world, Nigeria is a test case of this renewed social awakening particularly by communities of the Niger Delta area with large crude oil deposits, as well as other stakeholders in the civic and energy spaces. This has no doubt prompted corporate stakeholders to pressurise businesses in many sectors and jurisdictions to be transparent about ESG due-diligence, risk management and reporting. Consequently, regulators have issued a suite of legislative interventions
to promote ESG in their environments and markets. In Nigeria, for example, the recently passed Petroleum Industry Act , contains elaborate provisions on ESG in response to the age-long protest and clamour by host-communities for adequate intervention in their human and environmental wellbeing hampered by oil exploration activities.

Again, as legal and commercial pressures on companies to move net zero and protect workers’ human rights ratchet up, many companies, particularly multinationals are beginning to overhaul, not only internal policies and practices, but also contractual relationships that underly their businesses as well. As a result, ESG-based clauses are increasingly finding their way into commercial contracts as a risk-mitigation strategy.

Indeed, to say that businesses are witnessing an ‘ESG revolution’ is not hyperbole. As recent trends have shown, active engagement with ESG issues is no longer a choice. Their impacts are dominating public and private conversations and increasingly shaping policy across all sectors of the global economy as was recently seen in the COP26 climate change conference which laid a solid foundation for the global community’s procession towards a more sustainable environment.