Arbitration in the ESG Era: The Future of Corporate Accountability in Nigeria and Beyond

Introduction

Environmental, Social and Governance considerations have taken central stage in global commerce. Investors, regulators and civil society expect corporations to account for their environmental impact, labour practices, and governance standards. With the increased expectations, disputes in these areas have been on a rise. Arbitration, long celebrated for its neutrality, cross-border enforceability, and procedural flexibility, is being positioned as a key practice for resolving ESG-related disputes.[1] Yet arbitration’s traditional features such as confidentiality, cost, and party autonomy beg the question. Does arbitration have a role to play in the resolution of ESG disputes and how would it work?

This article explores the potential and limitations of arbitration in ESG disputes, with particular focus on Nigeria as a case study. It argues that while arbitration can serve as a valuable mechanism for corporate accountability, reforms are required to adapt it to the demands of sustainability and inclusivity.

Overview of ESG

ESG stands for environment, social and governance. It is regarded as a scorecard, approach or standard of measuring a company’s non-financial impact, risks and opportunities.[2] Each aspect measures the policies companies implement to be conscious of their environment, social outlook and governance. ESG has taken the front row for investors seeking for sustainable investments. It goes beyond promises or CSR catch phrases. It has a broader view of sustainability and to a degree a standard measurement of how companies adopt these practices.[3]

The environmental criteria is concerned with how a company interacts with the environment. The factor considered include emission reduction, waste management, clime change impact, biodiversity, circular economy etc. Social criteria examines relations with people and this includes labour practices, gender diversity, community relations, human rights etc. Governance criteria evaluates the leadership of the company taking into consideration, board dynamics, shareholder’s rights, executive pay, intellectual property protection and many more.[4]

ESG has become increasingly important and is taking centre stage alongside profit making in determining the investing draw of a company. With sustainability conscious investment and public sentiments towards sustainable living any company without a clear ESG framework stands to lose out on the current market. This consciousness has pushed many companies to evaluate their policies to fit the current market scape.

Evolution of ESG Disputes

 The world has seen an increase in ESG related dispute and it has become a major risk factor that many companies have to consider in their daily operations. In 2023 alone the Sabin Center climate change litigation database captures over two thousand ESG related cases.[5] The most prominent areas of ESG disputes include; parent company liability claims, climate change litigation, value chain liability claims, audit disputes, and greenwashing.[6] In Africa, ESG litigation is also on a rise.

In Nigeria, with increasing regulations such as; The Nigerian Code of Corporate governance 2018, The Petroleum Industry Act 2021, The Labour Act LFN 2004, and Employees’ Compensation Act 2010, there is mounting pressure on companies to adopt ESG models internally. The compliance or lack thereof of some companies in Nigeria has also lead to an increase in ESG related dispute.[7]

Most notable are the environmental disputes against oil companies and the damage caused to the environment and community. In the case of Gbemre (for Iwherekan Community) v Shell Petroleum Development Co (SPDC) & Ors[8], the Federal High Court Benin held that routine gas flaring violates the constitutional rights to life and dignity, and ordered the state and operators to take immediate steps to stop gas flaring in the community.

The case of Centre for Oil Pollution Watch (COPW) v Nigerian National Petroleum Corporation (NNPC)[9], the Supreme Court liberalised locus standi in environmental litigation, recognising that NGOs may sue to protect the environment even without showing personal injury. It opens the courthouse door for public-interest ESG claims and strengthens the case for multiparty/amicus participation if ESG disputes move into arbitration.

ESG Disputes Attracting Arbitration

There is growing attraction of arbitration as an ESG dispute resolution strategy. In 2024, the Johannesburg Arbitration Week propelled the discussion further by examining the role that arbitration can play in ESG dispute resolution.[10]

The discussion at the panel sessions covered the advantages that Arbitration has over litigation in the context of ESG. Particularly the opportunity to appoint an arbitrator with the technical knowledge and skills tailored to ESG criteria. The other advantages are also its flexibility, neutrality and timely resolution of dispute. The enforceability and recognition of arbitral awards across borders is a major attraction.

The enforceability across borders is also what positions arbitration uniquely to deal with cross-border ESG issues. It helps with holding parent companies accountable especially when the local institution across Africa are not fully equipped to deal with the issues. The expertise of arbitrator also gives a big win to arbitration on this point as the technical know-how needed to equitably decide on the matter and follow along the proceedings is assured.

Challenges with Arbitration in ESG Disputes

While arbitration is lauded for its advantages above, there are still structural and conceptual challenges that hinder its full adoption. The challenges include issues on transparency and public interest, multiparty stakeholders, power imbalances and access to justice, enforcement and remedies, fragmented framework.

Arbitration is traditionally confidential, designed for commercial disputes between private parties. ESG cases, however, are classified as public interest cases as they typically impact the rights of communities, workers, or the environment. ESG disputes often involve multiple claimants from various classes and such cases are not extremely common in arbitration and some suggest that arbitration may not be able to handle the multiplicity.

Due to the cost heavy nature of arbitration, communities and NGOs which are the watchdogs of ESG principles are innately disadvantaged on the arbitration stage. Without third-party financing the power imbalance and access to justice widens. Another major talking point is that majority of arbitral trial involve the reward in monetary terms or adjustments of contracts of engagement. There is a reasonable fear that the remedies suitable for ESG disputes may not be enforceable by arbitration which is majorly unfamiliar to the dispute resolution method. 

Reforms and Innovations

There have been recent innovations that have taken into consideration the challenges that traditional arbitration face in resolving ESG disputes. These innovation signify the adaptability of arbitration in dealing with ESG realities. Some these innovations include:

1. The Hague Rules on Business and Human Rights Arbitration (2019): It introduced provisions for transparency, multiparty claims, amicus submissions, and arbitrators with human rights expertise.[11]
2. UNCITRAL Transparency Rules (2013), originally developed for investor–state arbitration, could inspire ESG arbitral practice.
3. Regional frameworks: The OHADA Uniform Act on Arbitration harmonises rules across 17 African states, offering a potential vehicle for ESG adaptation.
4. Third-party funding: Reports such as the ICCA–Queen Mary Task Force highlight how funding can support under-resourced claimants, particularly communities and NGOs.[12]

ESG Disputes and Arbitration in Nigeria: A Peculiar Case

Nigeria epitomises the challenges of ESG arbitration. The country’s dependence on oil and gas has generated severe environmental and social disputes, especially in the Niger Delta. Litigation, rather than arbitration, has dominated the dispute resolution scene involving ESG in Nigeria. Arbitration and even litigation of ESG principles are often pursued abroad due to community distrust of domestic remedies. An example is the case of Okpabi and Others v Royal Dutch Shell plc and Another (UK Supreme Court)[13] where the UK Supreme Court allowed Nigerian communities’ claims to proceed against the UK parent, emphasising that a parent company can owe a duty of care where it exercises significant control over a subsidiary’s operations.

Key peculiarities include:

1. Weak enforcement of environmental law: Frameworks like the Environmental Impact Assessment Act 1992 exist but suffer from poor enforcement and even mass ignorance of the existence of these laws.[14]
2. Public interest vs confidentiality: Nigerian ESG disputes, have a large impact on livelihoods of many Nigerians, who demand transparency and accountability. The private nature of arbitration seemly stands in opposition for the increased clamour for transparency in a country where transparency is far and in-between.
3. Costs and access: Arbitration remains prohibitively expensive for local communities.
4. Public policy hurdles: Nigerian courts scrutinise arbitral awards closely, and ESG awards could face resistance on policy grounds.[15]

Recommendation

These peculiarities with the Nigeria situation and arbitration makes the jump to it as an alternative in resolving ESG disputes hard. However, all hope is not lost in the introducing arbitration to ESG disputes in Nigeria. Nigerian arbitral institutions could adopt the Hague Rules[16], model ESG arbitration clauses could be introduced in extractive contracts, and public–private partnerships could fund community access to arbitration.

Conclusion

ESG has become three very important concepts that corporate bodies have to contend with in the planning and management of the company and its resources. It is a major compliance hurdle many companies have had to cross in recent times. It is also a great opportunity for businesses to scale sustainably and continuously. Many companies, communities and individuals have a role to play in the implementation of ESG criteria and through that role ESG disputes were born. In this article the way forward in settling these disputes was put forward. The role of arbitration as a smoother pathway was discussed and the challenges that follow. One thing is clear, there is no one way street to resolving ESG disputes but arbitration has come out as a strong contender for resolving this disputes. If done right arbitration could be position at the forefront of ESG dispute resolution in Nigeria.

Bibliography

1. A Fagbohun, ‘Public Policy and Enforcement of Arbitral Awards in Nigeria’ (2018) 62(3) Journal of African Law 407.
2. PwC Nigeria, ‘Environmental Social Governance (ESG): Creating Shared Value’ (PwC Nigeria), https://www.pwc.com/ng/en/services/environmental-social-governance.html
3. Environmental Impact Assessment Act 1992 (Nigeria)
4. National Environmental Standards and Regulations Enforcement Agency (Establishment) Act 2007.
5. Investopedia, ‘Environmental Social and Governance (ESG) Criteria’ https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp
6. Herbert Smith Freehills Kramer, ‘Arbitration is fast becoming the frontrunner for ESG-related disputes in Africa’ (HSF Kramer, 2024) https://www.hsfkramer.com/notes/africa/2024-posts/arbitration-is-fast-becoming-the-frontrunner-for-esg-related-disputes-in-africa
7. Ogier, ‘The Rise of ESG Litigation’ (Ogier, 23 January 2024) https://www.ogier.com/news-and-insights/insights/the-rise-of-esg-litigation/
8. Tunde Adisa Insights, ‘Navigating ESG Compliance in Nigeria: How Nigerian Entities Can Leverage ESG Compliance for Competitive Advantage’ (Tunde Adisa Media Insights) https://tundeadisa.com/media_insights/navigating-esg-compliance-in-nigeria-how-nigerian-entities-can-leverage-esg-compliance-for-competitive-advantage/
9. Enyo Law, ‘ESG Disputes’ (Enyo Law) https://enyolaw.com/expertise/esg-disputes/
10. The Hague Rules on Business and Human Rights Arbitration (12 December 2019) https://docs.pca-cpa.org/2019/12/The-Hague-Rules-on-Business-and-Human-Rights-Arbitration.pdf
11. ICCA–Queen Mary Task Force, Report on Third-Party Funding in International Arbitration (2018) https://www.arbitration-icca.org/icca-reports-no-4-icca-queen-mary-task-force-report-third-party-funding
12. Gbemre v Shell Petroleum Development Company Nigeria Ltd and Others (2005) AHRLR 151.
13. Centre for Oil Pollution Watch v Nigerian National Petroleum Corporation [2019] 5 NWLR (Pt 1666) 518.
14. Okpabi and others v Royal Dutch Shell plc and another [2021] UKSC 3

[1] Herbert Smith Freehills Kramer, ‘Arbitration is fast becoming the frontrunner for ESG-related disputes in Africa’ (HSF Kramer, 2024) https://www.hsfkramer.com/notes/africa/2024-posts/arbitration-is-fast-becoming-the-frontrunner-for-esg-related-disputes-in-africa accessed 23 September 2025.

[2] PwC Nigeria, ‘Environmental Social Governance (ESG): Creating Shared Value’ (PwC Nigeria), https://www.pwc.com/ng/en/services/environmental-social-governance.html  accessed 23 September 2025.

[3] Investopedia, ‘Environmental Social and Governance (ESG) Criteria’ https://www.investopedia.com/terms/e/environmental-social-and-governance-esg-criteria.asp accessed 23 September 2025.

[4] PwC Nigeria, ‘Environmental Social Governance (ESG): Creating Shared Value’ (PwC Nigeria), https://www.pwc.com/ng/en/services/environmental-social-governance.html  accessed 23 September 2025.

[5]Ogier, ‘The Rise of ESG Litigation’ (Ogier, 23 January 2024) https://www.ogier.com/news-and-insights/insights/the-rise-of-esg-litigation/ accessed 23 September 2025.

[6] Enyo Law, ‘ESG Disputes’ (Enyo Law) https://enyolaw.com/expertise/esg-disputes/ accessed 23 September 2025.

[7] Tunde Adisa Insights, ‘Navigating ESG Compliance in Nigeria: How Nigerian Entities Can Leverage ESG Compliance for Competitive Advantage’ (Tunde Adisa Media Insights) https://tundeadisa.com/media_insights/navigating-esg-compliance-in-nigeria-how-nigerian-entities-can-leverage-esg-compliance-for-competitive-advantage/ accessed 23 September 2025.

[8] Gbemre v Shell Petroleum Development Company Nigeria Ltd and Others (2005) AHRLR 151.

[9] Centre for Oil Pollution Watch v Nigerian National Petroleum Corporation [2019] 5 NWLR (Pt 1666) 518.

[10] Herbert Smith Freehills Kramer, ‘Arbitration is fast becoming the frontrunner for ESG-related disputes in Africa’ (HSF Kramer, 2024) https://www.hsfkramer.com/notes/africa/2024-posts/arbitration-is-fast-becoming-the-frontrunner-for-esg-related-disputes-in-africa accessed 23 September 2025.

[11] The Hague Rules on Business and Human Rights Arbitration (12 December 2019) https://docs.pca-cpa.org/2019/12/The-Hague-Rules-on-Business-and-Human-Rights-Arbitration.pdf accessed 23 September 2025.

[12] ICCA–Queen Mary Task Force, Report on Third-Party Funding in International Arbitration (2018) https://www.arbitration-icca.org/icca-reports-no-4-icca-queen-mary-task-force-report-third-party-funding

 accessed 23 September 2025

[13] Okpabi and others v Royal Dutch Shell plc and another [2021] UKSC 3

[14] Environmental Impact Assessment Act 1992 (Nigeria); National Environmental Standards and Regulations Enforcement Agency (Establishment) Act 2007.

[15] A Fagbohun, ‘Public Policy and Enforcement of Arbitral Awards in Nigeria’ (2018) 62(3) Journal of African Law 407.

[16] The Hague Rules on Business and Human Rights Arbitration (2019) https://docs.pca-cpa.org/2019/12/The-Hague-Rules-on-Business-and-Human-Rights-Arbitration.pdf accessed 23 September 2025.