Arbitration in Climate Change Finance

Abstract

The exponential growth of climate change-related investments will prompt an increase in the relating disputes. Arbitration has the potential to become a favoured resolution mechanism for this type of disputes. The investment arbitration framework is particularly adapted for the expectation both of investors and of host States. International investment agreements include substantive protections that could provide a basis for investors to advance claims against States based on environmental and climate change-related losses. Likewise, the same framework could also provide for a defence, and potentially for grounds for a counterclaim, to respondent States which have adopted environmental regulations in compliance with climate change undertakings. Investors may find it difficult to argue that they had been unaware of the States’ international obligations to take measures against climate change. Remarkably, out of the eleven investment arbitration cases where respondent States have raised counterclaims, the only two that were successful were based on environmental arguments.
         This chapter makes the case for the suitability of the arbitral procedure for climate change disputes, with parties being able to choose experts in the field as arbitrators or possibly challenge arbitrators for their lack of specialist expertise. Transparency of the proceedings and public participation should be further encouraged by arbitral institutions in order for arbitration to gain legitimacy in resolving climate change disputes.