2022 Reports

Allocation of Climate-Related Risks in Investor–State Mining Contracts

Martin Dietrich Brauch; Perrine Toledano; Cody Aceveda

As the effects of climate change continue to worsen, mining projects, the communities surrounding them, and their host states are increasingly at risk of being affected by environmental disasters, with devastating social and economic consequences. Risk allocation provisions included in investor–state mining contracts, often considered boilerplate and replicated in agreements without careful consideration or negotiation, could potentially help the parties assign responsibilities between themselves and limit their losses in those cases. However, traditional risk allocation clauses within existing mining contracts, formulated before the world acknowledged the severity of climate change, do not adequately allocate climate-related risks and impacts between states and companies.

In this paper, we examine risk allocation provisions that are commonly used or could be used in mining contracts and discuss how they should be drafted—in investor–state contracts and contract templates—to clearly allocate the risks and impacts associated with the ever-worsening effects of climate change between states and mining companies. Covered in this paper are risk allocation clauses on force majeure; liability and indemnification or compensation for climate-related risks; insurance requirements; change-in-law or stabilization; periodic review; warranties and representation; stepin rights; and termination; as well as dispute settlement mechanisms (investor–state arbitration in particular).