ICCA 2026: arbitration faces the ESG challenge and the right to regulate

At the 27th International Council for Commercial Arbitration (ICCA) Congress, held in Madrid from 13 to 15 April 2026, one of the most substantive and forward-looking discussions focused on the growing impact of ESG considerations on international arbitration, particularly in relation to the right to regulate.

The panel "Right to Regulate – ESG & Climate Change" provided a structured analysis of a central tension in contemporary arbitration practice: the balance between States’ sovereign right to regulate—especially in environmental and climate matters—and the protections afforded to foreign investors under international investment treaties and complex contractual frameworks.

Against this backdrop, speakers explored how the acceleration of public policies aimed at energy transition, decarbonisation and environmental protection is reshaping legal risk. Measures such as the phase-out of fossil fuels, the introduction of carbon taxes, and the promotion of renewable energy are increasingly giving rise to disputes, both in investor-State arbitration (ISDS) and commercial arbitration.

The panel also examined the evolution of treaty drafting, particularly the growing inclusion of explicit language recognising the State’s right to regulate in pursuit of public interest objectives, as well as the limits of that right when measured against traditional standards such as fair and equitable treatment and protection against indirect expropriation. These developments raise complex questions regarding interpretative consistency and the degree of discretion exercised by arbitral tribunals.

Within this discussion, Christian Leathley, partner at Herbert Smith Freehills Kramer (London/New York), contributed a practice-oriented perspective, highlighting the increasing technical sophistication of ESG-related disputes and the need to integrate regulatory, economic and geopolitical considerations into arbitration strategy. His participation also reflects the role of leading international firms in shaping emerging standards in this space.

More broadly, the panel underscored the role of arbitration as a dispute resolution mechanism in an increasingly fragmented legal environment, marked by the interaction between public international law and private law. In this sense, arbitration is not only resolving disputes but also, in practice, contributing to the evolving balance between sustainability objectives, investor protection and legal certainty.

The session formed part of a Congress held under the theme "International Arbitration: Local, Global or Both?", which reaffirmed the hybrid nature of modern arbitration and further positioned Madrid as a strategic hub in the global conversation—particularly given its strong connections with Latin America and its growing institutional relevance.

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