The danger of corporate courts to green transition

Brig Newspaper | 18 May 2022

The danger of corporate courts to green transition

by Simi Borovská

Global Justice Stirling, a group under the democratic social justice organisation Global Justice Now and a society at the University of Stirling is holding a rally against corporate courts in front of Buchanan Galleries in Glasgow today.

The rally is specifically targeting law firm Clyde & Co because “they are one of the major 30 law firms within the world that work in corporate courts”, according to a spokesperson for the society, who does not wish to be named.

But what are these corporate courts, whose existence prompted Global Justice Now to organise a nationwide day of action?

A is for acronyms

The system of investor-state dispute settlement (ISDS) was first imagined by two men: Hermann Josef Abs, the chairman of the supervisory board of Germany’s largest bank, Deutsche Bank, during World War two ; and Hartley Shawcross, the Chief UK Prosecutor at the Nuremberg Trials and Attorney General of the Labour government, who later sat on the board of the oil and gas giant Shell.

According to the New Statesman, Abs imagined “a world in which investors everywhere would be protected by US-style property rights, enforceable in an international tribunal”.

Eventually, the World Bank set up the International Centre for the Settlement of Investment Disputes (ICSID) in 1966, but it was not until the end of 1990s that the number of bilateral investment treaties containing ISDS shot up. According to the United Nations Conference on Trade and Development (UNCTAD) data, there have been at least 68 ISDS cases initiated in 2020, pushing their overall number over 1,100.

Essentially, ISDS is an arbitration mechanism written into international investment treaties and trade agreements that allows foreign investors to sue a state, when they believe it has breached their investment rights. The whole process is done outside of the state judicial system and can directly oppose its judgements.

ISDS v climate action

In the recent years, as it has become apparent that nothing short of radical action can keep global temperatures 1.5 degrees below pre-industrial levels, the system of ISDS has begun to pose a threat to meaningful state climate action. The main culprit is the Energy Charter Treaty (ECT).

The ECT is an international agreement ratified in 1994 “to offer protection for Western companies investing in energy initiatives in former Soviet states, as many of these were deemed risky for potential investors”, according to Investigate Europe. By making use of the ISDS system, investors have a convenient way of settling potential disputes with the countries. However, nowadays the system does not target just Eastern Europe but instead deters almost all European and some non-European countries from implementing radical climate change policies.

Investigate Europe calculated that the ECT currently protects fossil infrastructure in the European Union, Great Britain, and Switzerland worth 344.6bn euros, three quarters of which is made up of gas and oil fields and pipelines. What makes matters even worse for the government budgets, investors can sue them not only for the money already invested but also for any expected profits that never materialised.

“In the context of states taking measures to combat climate change, the question is often who should bear the losses arising from the phasing out of unclean energy sources,” asked Clyde and Co in a blog post. Should it be the investors who risked their money or the states that implemented greener policy changes? While the answer may seem obvious to the Global Justice society, the law firm believes that “a public purpose—for example, addressing the climate crisis—does not in itself amount to a reason to make investors pick up the tab”.

The Netherlands is under fire

In 2019, a small non-profit Urgenda Foundation, won a case in the Dutch Supreme Court, compelling the government to reduce the country’s emissions to try and prevent climate change. As a result, the Dutch Parliament passed a law phasing out coal by 2030. The law affects the German energy company RWE, which owns a relatively new coal power plant in Eemshaven, Netherlands.

Emphasising the profit loss the decision to stop burning coal by 2030 would cause the company, RWE decided to invoke the ECT and sue the Dutch government at the ICSID for 1.4bn euros in compensation.

Another German energy company Uniper is following suit and suing the Dutch government for 900m euros. In a statement for Sky News, Uniper said they are “convinced that shutting down our power plant in Maasvlakte after only 15 years of operation would be unlawful without adequate compensation”.

And RWE, while saying the company “is not suing the Dutch government for deciding to phase out coal”, and they actually “support the energy transition in the Netherlands and associated measures to reduce carbon emissions”, they just think “the Dutch law does not provide for the resulting disruption to the property of affected companies”.

Who should pay the price?

Answering Clyde & Co’s question, the energy companies are convinced it is the state that should pay for the green transition.

However, it is not just the cost of the transition paid by the government and therefore the taxes of its citizens that people should worry about. The threat of a corporate court lawsuit itself can inhibit the country’s response to the climate crisis – an option that is even worse than paying out foreign investors, in which case the policy is at least put into place, all costs aside.

Global Justice Now trade campaigner Jean Blaylock, in an interview for Sky News, had another answer to the question of who should pay: “Fossil fuel companies should be paying to fix the climate crisis they caused, but instead they want a payout.”

Blaylock said: “When world leaders gather in Glasgow, they’ll make lofty promises on climate action, but it will all be for nought if fossil fuel companies can sue governments into a state of climate paralysis. It could make a mockery of pledges at COP26.”

source: Brig Newspaper