Singapore Convention Week: The significance of cross border mediation in sustainability and climate change disputes

Singapore Convention Week brings together thought leaders, practitioners and policy makers from all over the world annually to discuss emerging trends. This year, the event also commemorates the 5^th anniversary of the Singapore Convention on Mediation (the “Singapore Convention”), a multilateral treaty which offers a uniform framework for the enforcement of international settlement agreements resulting from mediation; and the 10^th anniversary of the Singapore International Mediation Centre. In this article, we consider the significance of cross border mediation in resolving disputes relating to climate change and sustainability. 

With the advent of climate change and sustainability disputes, national courts and international arbitral tribunals across a myriad of jurisdictions face increasing challenges in addressing novel issues in an increasingly complex environment, where applicable standards are no more apparent than before.  

The recent Bonn UN Climate talks have only reinforced the divergence of views amongst policymakers on the proper treatment of carbon markets, and in many ways the urgency for resolution in the upcoming COP 29 in Baku, Azerbaijan. Articles 6.2 and 6.4 of the Paris Agreement are yet to be ratified. These provisions set the foundational framework for market driven solutions in greenhouse gas emission reductions. It remains to be seen if any progress will be made when the UN meets in November this year. At the same time, there appears to be a growing debate that the Energy Charter Treaty is inconsistent with the Paris Agreement.

In addition, many corporations are grappling with new requirements from the Corporate Sustainability Reporting Directive, including the requirement to conduct a double materiality assessment. This assessment evaluates both the impact of a company's business on the environment and how sustainability compliance affects its financial aspects in the short to long term. The first sets of reports are expected to be submitted in 2025. 

Before legal norms around sustainability standards can develop with further clarity, national courts and international arbitral tribunals are already tasked with the challenge of providing concrete answers in a realm of relative uncertainty. This is where the flexible and non-adversarial nature of cross border mediation comes to the fore. Mediation allows parties to have a genuine opportunity to look at the interests from all sides of a dispute to reach a "win-win" solution that even a Judge or arbitral tribunal would not have the power to order. A national court of law or an international arbitral tribunal has limited powers to determine an issue. The privilege and responsibility would be to decide an outcome in accordance with the applicable law and rules. But one would struggle to see how this can be done when the task of ascertaining the applicable standards in the increasingly complex world of sustainability concerns is itself a challenge. There is no Judge in a mediation, but therein lies the beauty of the process. Parties have full control over the outcome of the dispute – creating the potential to transform disputes into agreements that contribute meaningfully to net zero targets beyond even the powers of a court or tribunal, allowing the mediation process to have real impact on the environment. 

Let us consider allegations of greenwashing by way of illustration. There are growing allegations that technology companies with their massive energy sapping data centres are some of the biggest polluters, where the purchase of carbon credits to reduce emission targets is merely a "license" to continue polluting. Activists are demystifying the apparent environmental benefits of electric vehicles with serious questions posed on allegedly "old world" environmental issues around the mining of cobalt in African countries, the mineral required to prevent batteries from overheating. In addition, queries are posed around the proper treatment and disposal of batteries. These perspectives sit on the side of the debate ranging from disbelief in the utility of carbon credits, with criticisms around the provenance, integrity and quality of carbon credits to outrage around scandals such as businesses that account for carbon credits that do not actually contribute to net zero goals (for example, carbon credits derived from trees planted in nature reserves).

More often than not however, in order to achieve genuine climate change solutions, a comprehensive and well-rounded set of perspectives is required in particular when many climate change and sustainability disputes are not necessarily and primarily motivated by monetary compensation in as much as they are driven by a desire for demonstrable change in the way people conduct their businesses.

In this regard, one may argue that the global carbon credits matrix is not a zero-sum game even if the conversations take place in a net zero target environment. The existence of draft Article 6.2 and 6.4 of the Paris Agreement is an inherent recognition of the reality of carbon credits. While the powers that be continue to agree to disagree, farmers and plantations need funding. Renewable energy research and development requires investment. At the same time, it is not difficult to see the struggle that businesses have to strategize, much less operationalize carbon credits driven strategies with clarity when the aforementioned Articles are not yet ratified.

A business could be expected to adopt a multi-dimensional approach to reducing its carbon footprint, using power purchase agreements and renewable energy certificates to reduce its scope 2 emissions, complemented by quality carbon credits to mitigate its footprint from across its entire value chain, scope 3 emissions or to account for and contribute to climate financing on the journey to achieving net zero targets, while developing a longer-term strategy to transit to non-market approaches to eliminate source 1 emissions with, for example, technology transfer and adoption (pursuant to the ratified Article 6.8 of the Paris Agreement). The latter takes a lot of time, and the confidentiality of cross border mediation, away from prying eyes of the public, media and business rivals presents a safe environment for parties to have a genuine conversation on how a workable plan with appropriate timelines to reduce carbon footprint could realistically look like.   

Cross border mediation is also an important way to resolve investor-state climate change and sustainability disputes. In the case of Eco Oro Minerals Corp. (“Eco Oro”) v. The Republic of Colombia, ICSID Case No. ARB/16/41, a dispute over USD 250 million arose when the legal institutions of Columbia decided to preserve its Santurbán Páramo which are high altitude wetland ecosystems, and as a result cancelled Eco Oro's mining permits for gold and silver deposits. Eco Oro filed a claim under the Canada Columbia Free Trade Agreement ("FTA") claiming that measures taken by Columbia had resulted in expropriation and contravention of legitimate expectations. Article 2201 of the FTA provides for an exemption for sustainability measures:

For the purposes of Chapter Eight (Investment), subject to the requirement that such measures are not applied in a manner that constitute arbitrary or unjustifiable discrimination between investment or between investors, or a disguised restriction on international trade or investment, nothing in this Agreement shall be construed to prevent a Party from adopting or enforcing measures necessary:

a.  To protect human, animal or plant life or health, which the Parties understand to include environmental measures necessary to protect human, animal or plant life and health…

Notwithstanding the above exemption, the arbitral tribunal took the view that the exemption failed to expressly state that Columbia's taking of sustainability measures would not give rise to compensatory liability to investors. As a result, the tribunal found that Columbia was liable for compensation. The outcome is arguably less than satisfactory. The real issue here is not whether the tribunal made the right decision or not, but that the tribunal had no choice but to decide in binary terms. Either Columbia was liable in damages or not. But very often, the complexities brought about by sustainability considerations cannot be assessed in black and white, and this is why cross border mediation serves as an important platform for parties to have a flexible, non-adversarial and confidential space to determine an outcome that works for both sides. This in particular given that Canada itself made a submission in the case to the effect that Columbia was well within its rights to take measures protect its environment. The Eco Oro v Columbia case signifies a missed opportunity for a middle ground to be reached, where the interests of all sides could be met. In an ideal world, an investor could be given both time and financial support by a State to effect a workable transition reciprocated with attractive commitments to return real impact to support the environment.  

Indeed, cross border mediation is very much part of the investor state dispute framework because many bilateral investment treaties and free trade agreements provide for a window for parties to attempt to resolve disputes amicably before escalating to arbitration. 

Conclusion

Perhaps the most important aspect for the significance of cross border mediation is that climate change and sustainability issues transcend beyond borders. The Singapore Convention on Mediation allows for international mediated settlement agreements to be internationally enforced or invoked in a signatory jurisdiction.

46 countries, including the United States, China, India and South Korea signed the Convention on the day it opened for signature. On 25 February 2020, Singapore and Fiji became the first two countries to deposit their respective instruments of ratification at the UN Headquarters in New York. With the third instrument of ratification deposited by Qatar on 12 March 2020, the Convention entered into force on 12 September 2020. As of 29 August 2024, the Convention has 57 signatories and 14 parties. In this Singapore Convention Week 2024, Costa Rica signed the Convention on 28 August 2024.

This article does not contain legal advice under any laws and should not be relied on as legal advice. Please get in touch with Shaun Leong, FCIArb, who specialises in cross border disputes, if you would like to understand in further detail any of the points covered in this piece.