ECF Legal Working Paper on Investment Treaties

The future of international investment is increasingly uncertain due to shifting political dynamics, including rising economic nationalism, regulatory reforms, and growing scepticism toward investor protections in trade and investment agreements. In this evolving landscape, the relationship between investment and sustainability becomes even more unpredictable, as some governments seek to align foreign investment with climate goals, while others prioritize economic growth over environmental commitments. A major point of contention is investor-state dispute settlement (ISDS), which has been criticized for discouraging ambitious climate policies by enabling investors to challenge sustainability-driven regulations. 

To shed light on these complexities, and thanks to the funding offered by the European Climate Foundation (ECF) the Centre for International Sustainable Development Law (CISDL) drafted a legal working paper titled “Climate and Investment Law Nexus Reimagined – Beyond ISDS, Obligations and Instruments to Avoid and to Defend” to identify best practices that support climate action, as well as legal barriers—particularly within investment arbitration—that hinder global efforts to combat climate change. This research provides valuable guidance for policymakers seeking to reconcile investment frameworks with sustainability objectives. 

The report identifies that broad ISDS clauses “seldom limit the type of claims that may be brought before an arbitral Tribunal” and thus “expose states to potential ISDS lawsuits for measures taken in relation to climate change”. Similarly, broad investment protection clauses can bring inconsistencies and ambiguities causing inconsistency and reluctance of Tribunals to accept the relevance of non-economic objectives, such as climate change, in ISDS. Finally, lengthy sunset clauses – ensure that certain protections or obligations of the agreement remain in effect for a specified period even after the agreement is terminated – cause a regulatory chilling effect on States in bringing new climate-related measures.

The report further explores IIA provisions that could potentially incentivize and synergize with the need to scale-up climate finance to reach the USD 1.3 trillion on green financing from private and public sources as agreed in the UNFCCC Conference of the parties in Baku in 2024. This includes provisions with positive investment in renewable energy promotion commitments and environmental commitments. Finally, the research provides key recommendations on investment provisions, as well as in other fields that could also provide support for the efforts to combat climate change, such as unilateral trade and investment measures, the linking of ETS mechanisms, among others.

However, the report is still in draft form, which can be accessed here, and the CISDL welcomes feedback from interested stakeholders. If you wish to contribute, please contact, please contact CISDL Programme Manager Matheus Garcia.