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International Investment Law and Climate Change: Reframing the ISDS Reform Agenda

In: The Journal of World Investment & Trade
Author:
Lorenzo Cotula Law, Economies and Justice Programme, International Institute for Environment and Development (IIED) London United Kingdom

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https://orcid.org/0000-0003-3747-4771
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Abstract

Ongoing investment law reform processes take the investment treaty system as the starting point. While this can generate actionable reform options, it also entrenches ‘path dependency’ and forecloses space for more foundational questions. This article argues that, in the context of climate change, effective reform requires re-embedding debates within a policy space that places climate at its centre. The argument entails recognising: (i) climate change as a comprehensive ecological, economic and social challenge; (ii) the preferential nature of the protections investment treaties establish for foreign investment; and (iii) the structural misalignments that exist between this legal regime and climate action. It also involves interrogating the normative considerations invoked to justify investment protection treaties. The findings highlight the need to reorient collective reflection towards designing reforms that – rather than address narrowly defined concerns within the current system – develop a new system that can respond to 21st century challenges.

1 Introduction

The imperative to avert a climate catastrophe has prompted debates about the role of law in facilitating or constraining transitions towards low-carbon economies. As energy companies initiated investor-State arbitrations in response to fossil fuel phaseouts, public attention honed in on the global network of international treaties that protect foreign investment. This was amid concerns that the treaties’ broad protections and the large amounts many arbitral tribunals have awarded to foreign investors could make it more difficult for governments to keep global warming below 1.5°C.1 Though framed in the distinctive vocabulary of international investment law, these concerns highlight broader questions about the ways in which the law allocates the costs of public action and affects societies’ ability to confront climate change.

Ongoing initiatives to reform investment protection treaties and investor- State dispute settlement (ISDS) are yet to do justice to these questions. The United Nations Commission on International Trade Law (UNCITRAL)’s Working Group III on Investor-State Dispute Settlement Reform has documented many governments’ concerns about international arrangements for settling disputes between foreign investors and States.2 But it has provided limited opportunities for meaningful discussion of climate issues, partly owing to the procedural focus of its mandate.

More generally, explorations of reform options tend to take the investment treaty system as the starting point, with reform proposals addressing specific issues related to substantive provisions or procedural aspects. This approach helps anchor discussions to existing policies and generate actionable ways forward. But it also entrenches ‘path dependency’, as historical legacies disproportionately shape future trajectories; and it tends to produce piecemeal reforms that rarely alter the fundamentals.3

In other words, taking the current system as the starting point forecloses space for more foundational questions about ultimate policy objectives and the most effective means for pursuing them, and about the normative values that should guide decisions on reconciling or prioritising different objectives.4 Can economic growth and ecological integrity really be reconciled?5 What types of investments should be promoted, what obstacles constrain them, and what policies are needed to overcome them?6 In the context of the necessary and necessarily disruptive efforts to readjust economies to climate change, who is most vulnerable and deserving of policy support, and who should bear the costs of climate action?7

To help reposition the debate around these more foundational questions, this article makes the case for shifting the start-point of reform explorations towards a deeper understanding of the climate challenge and its implications for investment policy. This argument involves recognising the complexities of climate change as a comprehensive ecological, economic and social problem (Section 2); the preferential nature of the legal protections that the prevailing model of international investment law establishes for foreign investment (Section 3); and the structural misalignments that exist between this legal regime and climate policy (Section 4). It also involves interrogating and fundamentally challenging the normative considerations commonly invoked to justify investment protection treaties (Section 5). The findings highlight the need to reorient collective reflection towards designing reforms that – rather than address narrowly defined concerns within the current system – develop a new system that can respond to 21st century challenges (Section 6).

2 Climate Change: A Comprehensive Ecological, Economic and Social Problem

While debates rage on about the need for ambitious climate action, it is increasingly clear that we are running out of time. The Intergovernmental Panel on Climate Change (IPCC) – the United Nations body for assessing climate science – has highlighted, with extraordinarily high levels of scientific consensus, that anthropogenic greenhouse gas emissions are already causing global warming and changes in the climate system, including ‘weather and climate extremes in every region across the globe’.8 Evidence shows that climate change is destroying habitats, species and biodiversity, with human activities ‘threaten[ing] more species with global extinction now than ever before’.9 This scientific consensus about the growing human-induced pressures on nature resonates with evidence from diverse systems of knowledge, including indigenous knowledge from around the world, which have also documented rapid ecological change.10

The Paris Agreement set the objective of limiting the temperature increase to ‘well below’ 2°C above pre-industrial levels and of pursuing efforts to limit it to 1.5°C, recognising that achieving the 1.5°C goal would ‘significantly reduce the risks and impacts of climate change’.11 Positions vary on the most effective strategies for meeting these targets: from approaches that place technological innovation at their centre, to more fundamental economic reorganisation addressing the deeper-level drivers of harmful production and consumption. But there is broad scientific consensus that rapid, comprehensive action is necessary.

Commenting on the energy sector, for example – a main contributor of greenhouse gas emissions, and as such a decisive sector for climate action – the International Energy Agency noted that meeting the 1.5°C target calls for ‘nothing less than a complete transformation of how we produce, transport and consume energy’.12 Besides reducing energy consumption, this involves phasing out coal-fired power plants, first in richer countries then globally, and reorienting energy sources from fossil fuels to renewables, with energy scenarios consistent with 1.5°C requiring no investments in new oil and gas fields.13 While several governments have taken steps to reduce greenhouse gas emissions, the IPCC noted that keeping global warming below 1.5°C or even 2°C requires further ‘deep and sustainable emission reductions’ within a short period of time.14

Climate change also brings to the fore complex distributive problems within and across countries.15 Inequalities between States affect both historical responsibilities for climate harm and contemporary levels of greenhouse gas emissions, as many low and middle-income countries have contributed little to climate change but stand to be most affected by it.16 Beyond inter-State relations, the IPCC found that ‘[t]he 10% of households with the highest per capita emissions contribute a disproportionately large share of global household “greenhouse gas” emissions’.17 Low-income, racialised and politically marginalised communities have often suffered the greatest impacts of fossil fuel extraction, in the form of land dispossession, pollution and health hazards.18

Distributive issues are pervasive in contemporary climate policy. In France, a carbon tax perceived to disproportionately affect lower-income people prompted a wave of social protests.19 The prospect of industry phaseouts has raised questions about ‘just transition’ and the position of workers employed in businesses that become obsolete.20 And compensation payments to industry in the context of fossil fuel phaseouts have attracted public scrutiny,21 particularly considering the role that certain fossil fuel businesses have played in delaying climate action,22 and global support for the ‘polluter pays’ principle, whereby those causing environmental harm should bear its costs.23

3 Investment Protection Treaties as a Preferential Legal Regime

Investment law is a highly specialised field of international law. At root, however, it rests on foundational legal concepts, such as property and contract, that work to stabilise expectations in the face of regulatory change.24 Commonly found across diverse legal regimes, these concepts provide the basis of economic organisation: as Julia Dehm noted, even the monetary value of assets is not a ‘pregiven fact’ resulting from market forces alone; it is also a function of the legal affirmation, protection and enforcement of rights over those assets.25 In investment law, property and contract underpin the rules of customary international law and the extensive network of treaties protecting foreign investment. Relative to other legal arrangements, international investment law establishes exacting standards of protection for property and contract, creating a preferential regime for foreign investment.

By defining substantive rules and dispute settlement procedures, investment treaties influence the protection of corporate property against the exercise of public authority. The treaties determine, for example, whether the impact of public action on protected rights or expectations is such that it must be accompanied by payment of compensation.

To be clear, investment treaties protect investment, rather than property, and the two notions overlap but do not coincide.26 Investment can take many forms, including arrangements outside property relations. It is a dynamic concept connected to running a business enterprise and usually involves capital contributions, a duration, risk taking and the aim of generating returns.27 That said, the historical development of capitalist economies and the rise of enterprise as source and storage of wealth have made property also a dynamic notion.28 While a static concept of property emphasises holding assets, a more dynamic notion centres on expectations and revenue generating potential, as reflected in the proposition, attributed to Jeremy Bentham, that ‘[p]roperty is nothing more than the basis of a certain expectation’.29

Crystallised in the Latin brocard pacta sunt servanda, sanctity of contract also interrogates future expectations and the relationship between private and public interests. That a contract is binding between the parties is a cardinal principle of private law.30 International law applies a variant of this principle to relations between States, as regards the binding nature of treaties.31 In international investment law, sanctity of contract cuts across private and public-law dimensions, requiring States to honour their contractual obligations towards foreign investors.

Sanctity of contract featured prominently in the early days of international investment law, when business lawyers invoked it to resist newly independent countries’ efforts to renegotiate petroleum and mining concessions.32 Investor-State arbitrations over the years have cemented sanctity of contract as a foundational principle of investment law.33 Investment treaties typically include concession contracts in their lists of protected assets and many treaties require States to honour their contractual obligations towards nationals of the other State(s).34

Protecting foreign investors’ expectations is at the centre of the investment treaty regime. This is not only because arbitral tribunals have interpreted certain treaty provisions – particularly those on ‘fair and equitable treatment’ – as protecting the ‘legitimate expectations’ that foreign investors had when they made the investment, which subsequent regulatory changes could frustrate.35 It is also, in more general terms, because expectations underpin the very notions of property and contract, enabling businesses to manage risk and secure projected returns on capital.36

In reconciling competing needs for legal stability and change, legal systems usually qualify the protection of expectations. Constitutional property clauses typically enable compressions of property for regulation, taxation and expropriation purposes, if the measures meet certain conditions. Similarly, national laws typically qualify sanctity of contract with other rules, such as those concerning force majeure or fundamental changes of circumstances.

Legal systems strike diverse balances between multiple public and private interests, reflecting different juristic approaches and political circumstances.37 In addition, broad notions such as property refer to diverse realities: when applied to a family home, property intersects with basic rights, such as the right to housing; while in connection with large-scale commercial assets, it raises issues more closely related to the organisation of business activities.38 National legal regimes for different kinds of property rights may vary, owing to sectoral regulation in areas such as housing, agrarian relations or corporate governance.

Beyond their considerably diverse formulations, investment treaties advance a distinctive conception of property protection and sanctity of contract, which sets them apart from other legal regimes. The treaties are primarily concerned with protecting one set of commercial operators – foreign investors. They establish protections for these actors’ assets, beyond the arrangements available under national law or international human rights law.39

After high-profile arbitrations prompted a public backlash against the investment treaty regime, legislators in some jurisdictions sought reassurances that the treaties should not give foreign investors ‘greater rights’ than those available to domestic operators.40 But there is substantial evidence for the preferential nature of the system, including different outcomes in domestic court cases and investor-State arbitrations on the same dispute, and arbitral tribunals explicitly affirming that investment protection treaties subject public action to more stringent parameters of scrutiny than other legal regimes.41

Much debate about the preferential nature of investment treaties’ protections has focused on investor-State arbitration, which creates ‘a parallel regime “for foreign investors”, designed to function as a more effective substitute for domestic courts’.42 Unlike human rights treaties, which typically require claimants to first pursue domestic litigation, investment protection treaties usually enable foreign investors to access international arbitration directly. In investment treaty arbitration, the arbitral tribunal’s jurisdiction is based on a treaty with the stated objective of protecting foreign investment. This structurally deprioritises other considerations that are, at best, framed as exceptions or qualifiers to the investment protection standards; meanwhile, investor obligations clauses remain rare in the investment treaty landscape.43

Procedural rules in domestic legal systems typically protect third parties whose rights or interests may be at stake in the dispute – for example, through the right to intervene in the proceeding.44 On the other hand, international investment law is primarily concerned with the binary relationship between an investor and a State; scope for third parties to intervene in arbitral proceedings is confined to one-off submissions subject to the tribunal’s discretion.45 Widely ratified multilateral treaties facilitate the enforcement of pecuniary awards, enabling foreign investors to collect damages more easily than would be possible with a court judgment.46

The preferential nature of the investment treaty regime is not limited to procedures. It also stems from a distinctive approach to substantive standards. Because legal protections vary extensively across national jurisdictions and international legal regimes, a comprehensive review is beyond the scope of this exploration. Broadly speaking, however, preferential treatment for foreign investment tends to arise from differences in overall approaches for balancing public and private interests, in applicable substantive rules and in legal remedies, including damages awarded.

Consider the protection of property against expropriation. Under international law, this protection applies not only to direct transfers of ownership but also to regulatory measures affecting an investment to such an extent that it must be deemed to have been expropriated.47 Many domestic legal regimes also require compensation for regulatory takings and regional human rights courts have found interferences with property that fell short of direct expropriation to violate right-to-property clauses.48 However, investment protection treaties provide guarantees that ‘are typically more robust than their domestic analogues’.49

For example, regional human rights courts have adopted deferential approaches when reviewing State conduct, such as through the ‘margin of appreciation’ doctrine developed by the European Court of Human Rights. And in its extensive right-to-property jurisprudence, the European Court has required States to strike an overall ‘fair balance’ between public and private interests when establishing whether compensation is due and on what terms.50

Comparable efforts to piece together competing interests are reflected in many national constitutions, which can require consideration of factors besides market value when calculating compensation. The Constitution of South Africa, for example, requires payment of ‘just and equitable compensation’, which must involve ‘an equitable balance between the public interest and the interests of those affected, having regard to all relevant circumstances’. These include the asset’s market value, but also its current use, the history of its acquisition and use, and the purpose of the expropriation.51

On the other hand, arbitral tribunals have been reluctant to apply deferential approaches such as the margin of appreciation doctrine when interpreting investment protection treaties.52 The expropriation clauses typically found in those treaties make no reference to striking an overall fair balance; rather, they require States to individually meet specific conditions and pay foreign investors prompt, adequate and effective compensation, with adequacy typically determined by the asset’s full market value.53

Such differences in approach have practical implications. For example, human rights jurisprudence admits that public-purpose interventions affecting whole economic sectors could involve lower compensation amounts for the individual properties impacted, so long as compensation is reasonably related to market value and public action strikes a fair balance between public and private interests.54 On the other hand, arbitral tribunals have ruled out the possibility that States may discount compensation in large-scale redistributive reforms, as investment protection treaties entitle investors to market-value compensation ‘independently … of the number and aim of the expropriations done’.55

In addition, most investment protection treaties do not specify how to calculate damages if the State violates the treaty. Arbitral tribunals have applied the general international law principle whereby States must ‘wipe out all the consequences’ of their unlawful conduct.56 Many tribunals have interpreted this as requiring the State to pay investors the cash flow they would have earned had the measure not been implemented, which can result in very large amounts.57

Because of these substantive, procedural and remedial specificities, investment protection treaties have enabled foreign investors to obtain compensation in circumstances where damages might not have been available under national law, or in amounts that exceed the damages they would have received through national or human rights courts.58

When discussing the interface between investment law and climate action, then, the issue is not whether, in general, foreign investors should receive compensation or access remedy, but about them doing so based on special terms. Over the years, concerns about the reach of investment protection rules have prompted shifts in treaty drafting, including more qualified language on indirect expropriation and other treaty standards, and environmental exceptions; though developments in the arbitral jurisprudence have highlighted the limited effectiveness of such textual changes.59

4 Investment Protection and Climate Policy

There are structural misalignments between climate policy and the investment treaty system. While investment treaties protect all covered foreign investments and do not differentiate between high and low-carbon activities, certain investments, such as investments in new oil and gas fields, are climate-harmful. And while keeping temperature increases within the Paris Agreement targets requires systemic measures to regulate, restrict or phase out climate-obsolete activities, the investment treaty system is fundamentally about protecting business in the face of public action, potentially increasing the cost of climate response.60 Even without arbitral proceedings, legal protections may affect negotiating power between States and business, and ultimately negotiating outcomes, with States adjusting policy approaches or offering higher compensation to avoid expensive legal claims.61

As the IPCC noted, this can constrain space for environmental action, with measures shelved or delayed, in full or in part.62 Documented instances of climate-related ‘regulatory chill’ highlight concerns about investor claims hindering the most progressive countries’ ambitions to end oil and gas exploration, including members of the Beyond Oil and Gas Alliance (BOGA).63 And although these initial reports illustrate how investment protection treaties can stymie climate policy in high-income countries, the adverse effects may be felt even more acutely in low and middle-income countries. This is because public finances may be under greater pressure and the protection of foreign investment often hinges on older treaties – particularly those negotiated between global-North and global-South States – that tend to make less provision for social and environmental policy objectives.64

Concerns about investment protection and environmental action are not new: many investor-State disputes over the years have originated from measures to mitigate the environmental impacts of economic activities. But climate change fundamentally alters the terms of these debates, raising systemic issues to be confronted within a short period of time. The magnitude of the economic transformations required, the very large sums invested in fossil fuels worldwide, the aggregate scale of potential investor claims and the narrow time window available for public action create an unprecedented challenge in investment treaty policy.65

Compared to other policy areas, climate change also presents specificities deriving from the existence of an extensive body of international climate law. Emerging jurisprudence indicates that States also have obligations to reduce greenhouse gas emissions under international human rights law.66 While there is no direct inconsistency between these and investment protection rules, tensions can arise in their practical application.

The Paris Agreement requires States parties to ‘prepare’, ‘maintain’ and ‘account for’ Nationally Determined Contributions to reduce greenhouse gas emissions, and to increase their climate ambition over time.67 Meeting these contributions may require phasing out emission-intensive activities such as coal-fired energy generation.68 The Paris Agreement also calls on States to ‘conserve and enhance, as appropriate, sinks and reservoirs of greenhouse gases’, including forests.69 Doing so might require restricting or terminating investments in sensitive ecosystems. In these ways, measures to implement the Paris Agreement can adversely affect protected foreign investments.70 In addition, instruments that promote investment without differentiating between high and low-carbon activities are at odds with the Paris Agreement’s call for ‘[m]aking finance flows consistent with a pathway towards low greenhouse gas emissions’.71

On one level, international law offers tools to address tensions between rules governing foreign investment, climate change and human rights. For example, ‘systemic integration’ would require an investor-State arbitral tribunal interpreting an investment protection treaty to also consider other relevant, applicable rules of international law.72 But systemic integration does not change the scope of an arbitral tribunal’s jurisdiction, and thus the rules it is responsible for interpreting and applying, which are ultimately those in the investment protection treaty. Systemic integration also grants arbitral tribunals considerable discretion – for example, on which rules are relevant and how they should be taken into account.73

Explicit references to climate-related arguments in investor-State arbitration have been few and far between,74 and features of the investment treaty system make it more difficult to properly consider climate issues. Climate change is inherently a global challenge, with international climate instruments identifying it as a ‘common concern of humankind’.75 This makes it a shared interest of all States and humanity as a whole: adverse impacts affect everybody, albeit differently, and responses require collective action, though developing and developed countries have ‘common but differentiated responsibilities’.76 In practice, climate struggles often happen at the grassroots and climate issues are embedded in seemingly more localised disputes – for example, where activists mobilised to protect fragile ecosystems that naturally absorb carbon.77

These local-to-global dimensions highlight misalignments with the framing of ISDS. Investors bring claims against a State, and the terms of the dispute are framed by the legal arguments developed by the investor and the State. But a global concern is at stake, which has no direct representation in the proceedings. There are no clear mechanisms, in the current system, to avoid dispute settlement outcomes that are counterproductive from a global climate perspective, for example if the investor and the State reach an amicable settlement that involves withdrawing the climate measure, in full or in part.

5 Normative Considerations

Misalignments between climate policy and the legal regime protecting foreign investment raise questions about the normative considerations that would justify the regime’s continued application in its current form. Debates about investment treaties’ rationale are longstanding and need not be repeated here. Very succinctly, ‘consequentialist’ arguments justify the treaties based on their reputed positive consequences, particularly in the form of cross-border investment and economic growth. As regards climate change, these arguments highlight the positive role investment protection treaties would play in promoting the renewable energy investments needed to support the low-carbon transition.78

This normative justification is undermined by the inconclusive evidence on whether investment treaties promote investment.79 Some evidence suggests the treaties are particularly valued in the extractive industry sectors, where the large sunk costs and the long timeframes businesses need to recover costs and generate returns make investments more vulnerable to opportunistic State conduct.80 Oil and gas was a key sector in the historical emergence of international investment law.81 But the extractive industries also present opportunities to set protections through contracts. Climate change requires moving away from fossil fuels, rather than promoting new investments in them. Meanwhile, the factual fabric of renewable energy arbitrations points to financial incentives as the main drivers of investment decisions.82 And as investment protection treaties do not usually differentiate between different economic activities, they are blunt instruments for promoting the specific types of investment needed for the energy transition.

A second set of normative justifications in support of the investment treaty regime is ‘deontological’, in that the arguments seek to justify the system based not on its practical outcomes, but on its supposed inherent rightfulness. One line of argument connects the protection of foreign investment to the rule of law,83 highlighting that the investment treaty regime offers an international forum for private actors to seek review of the legality of State action. According to a corollary argument imbued with consequentialist dimensions, investment protection treaties would also catalyse wider national-law reforms promoting the rule of law.84

International rules and institutions can indeed provide spaces for independent review of State conduct. But the rule-of-law argument is in tension with procedural concerns, partly reflected in the UNCITRAL Working Group III deliberations, about ‘multiple hatting’, conflicts of interests and unpredictability of outcomes in investor-State arbitration, which hardly seem consistent with the rule of law.85 Meanwhile, empirical studies have found little evidence of the investment treaty regime spurring wider ‘good governance’ reforms.86

More fundamentally, the rule-of-law argument sidesteps questions about what considerations would justify granting foreign investors a treatment that goes beyond the protections available in many national jurisdictions and international human rights law. The investment treaty regime reflects a distinctive approach to piecing together multiple private and public interests, with foreign investors’ expectations placed at centre-stage. Many critiques of the investment treaty regime uphold rule-of-law principles but advocate for the law to embody a different balance of interests.

Climate action raises wider normative questions about how to distribute the costs of public measures within societies. For example, public policy has long allowed or even encouraged coal-generated electricity; but for States to reduce greenhouse gas emissions, this approach would require a rethink. In these situations, should restrictions or phaseouts be accompanied by any transition relief, and if so to whom? This question is not specific to international investment law; it is, as David Gaukrodger remarked, ‘ubiquitous throughout the domestic and international policy landscape.’87

The ‘legal transitions’ literature provides food for thought on such normative questions, having long explored whether, under what circumstances and on what terms States should offset losses resulting from socially desirable legal change, such as through compensation payments.88 Scholarly writings in fields such as normative philosophy, legal theory and law and economics offer diverse perspectives, partly reflecting different assumptions about the role of the State and the nature of public action.

Some authors argue that legal transitions are inherently dangerous because they unsettle established relations and regulators can abuse their power; as such, legal transitions should be minimised, so private actors can organically adjust their activities, and accompanied by compensation where they do occur.89 With regard to climate change, however, there is little doubt that deliberate public action – including, in many contexts, regulatory change – is necessary and many states have already taken steps in this direction. In addition, the need for legal safeguards and compensatory arrangements does not, in itself, justify a preferential regime for any one set of actors.

A body of opinion in the legal transitions literature – including research in the law and economics tradition – holds that regulatory change should not be accompanied by transition relief such as compensation. This is partly because the expectation of compensation can create perverse incentives for private actors to overinvest in obsolete activities.90 Conversely, if there is no expectation of compensation, businesses are incentivised to adjust their behaviour and even anticipate regulatory changes. This aspect resonates with investment treaty reform debates, particularly because jurisprudential approaches tying damages to the cash flow the venture would have generated over its entire life cycle can shift climate risk from businesses to public authorities.91

Considering the relation between climate change and social inequalities adds further complexities. Though framed in neutral technical language, the investment treaty regime is deeply connected to the distribution of wealth and power.92 This includes relations between States: as already noted, the structure of the global network of investment treaties – with many older treaties concluded between global-North and global-South States, through negotiations often shaped by unequal bargaining power – means that countries in the global South face more stringent regulatory discipline.

In addition, the investment treaty regime centres the relationship between an investor and a State, but real-life socio-economic processes typically connect complex webs of actors. In a coal phaseout, for example, investment protection treaties would offer remedy to international capital invested in coal power plants. But they would not provide relief to the workers employed in the industry, the small-scale domestic businesses supplying goods and services to it, and many other actors who may be more vulnerable to the impacts of climate action – for example, if job loss destroys a family’s livelihood.93

As public finances are finite, a system that offers large compensation payments to one set of actors could divert resources from relief for other actors, such as social protection or professional requalification for workers in industries that become obsolete. By selectively providing rights and remedies for foreign investors, the investment treaty regime can compound social inequalities in the face of climate change.

This succinct exploration challenges prevailing justifications for the current model of investment protection in the context of climate change. If policy makers were to design international investment law today, and in the light of the climate challenge, there would be little policy rationale for moulding it in its current form. Addressing the misalignments between climate policy and the investment treaty system requires a step-change in reforming international investment law.

6 From Analysis to Action

Climate change is not just another policy issue to consider alongside many others; nor is it an environmental issue alone. Rather, it is a comprehensive global challenge with integrated ecological, social and economic dimensions. Confronting this challenge requires realigning all areas of public policy, including investment law, with climate goals.

There are structural misalignments between investment protection treaties and climate policy. This includes broad notions of foreign investment that, by not differentiating between high and low-carbon activities, protect climate-harmful investments; a prevalent focus on investment protections, against inconclusive evidence on the effectiveness of these protections in promoting investments needed for the energy transition; standards of treatment that, by protecting foreign investors’ expectations based on historical representations and longer-term business prospects, tend to shift climate risk from businesses to States and reduce policy space for climate action; and misalignments between the investor-State framing of investment dispute settlement and the recognition of climate change as a ‘common concern of humankind’.

By protecting one set of interests in complex socio-economic transitions, the investment treaty regime can also compound the inequalities within, between and across States, with which climate change is intertwined, raising questions about ‘just transition’ and ‘common but differentiated responsibilities’. And while international climate negotiators discuss how to finance remedying the climate impacts that adaptation alone cannot address,94 particularly in low and middle-income countries, investment protection treaties channel compensation payments to the fossil fuel businesses responsible for climate harm – in contrast with the spirit of the ‘polluter pays’ principle.

Careful analysis of the existing system of investment protection treaties in the light of climate change can inform decisions on how to deal with the many treaties currently in force, with proposals ranging from climate change carve-outs,95 to coordinated treaty termination.96 But designing a system fit for the climate challenge requires thinking anew and taking climate imperatives, rather than existing investment treaty approaches, as the starting point. And if analysis centres climate change, it calls for a fundamental rethink that goes beyond currently available multilateral reform talks, such as in the context of UNCITRAL Working Group III.

Investment protection treaties as currently conceived are only one possible form that a body of international law on foreign investment can take. There is scope to reimagine international investment law along different lines, starting from the overarching policy goals pursued (such as the transition to low-carbon economies); the specific types of investment to promote and regulate (for example, in renewable energy); the empirically documented obstacles that constrain those investments; and the policy responses needed to overcome those obstacles.97

This raises technical questions about harnessing empirical evidence on most pressing constraints and effective responses, and about developing new treaty models that can align investment with climate policy. While this task is challenging, efforts can build on unofficial drafting exercises aimed at remodelling investment treaties from a climate perspective.98 They can also build on lessons from actual investment treaty policies that have already departed, to varying extents, from prevailing approaches.

This may include studying the implementation and outcomes of treaties centred on investment cooperation, such as those promoted by Brazil.99 It may also involve reviewing experiences where treaty drafting was tailored to specific concerns rather than preconceived investment protection models. For example, the Comprehensive Agreement on Investment (CAI) concluded ‘in principle’ between China and the European Union (EU) addresses issues such as non-discrimination by State-owned enterprises and regulatory bodies, and transparency in economic governance, including subsidies; these themes reflected key EU demands in the negotiations, informed by problems reported by EU businesses in China.100

The task of reimagining international investment law also highlights political economy issues about realistic prospects for meaningful change within the short time available, particularly as incentives for transformative reform have often been limited in international investment law.101 In turn, these aspects raise questions about which new alliances can take the agenda forward, including among climate policy constituencies, and which negotiating fora might help overcome or bypass the constrained parameters of available investment treaty reform processes.

International investment law is a decentralised system primarily based on bilateral and regional treaties. But effective, rapid responses need collective thinking and coordinated action. Addressing these technical and political questions, then, requires nurturing multilateral spaces where States and non-State actors can explore options beyond the confines of existing reform processes.102 It calls for multilateral policy making to complement the procedural mandate of UNCITRAL Working Group III with a more holistic perspective on deepening and accelerating reform. This broader approach may enable considering a wider range of interests beyond the investor-State dyad, and the intersections with other rules of international law. While global problems require global responses, regional processes can offer important contributions, for example at the pan-African level. There is also a compelling case for coordinating investment treaty reform with climate diplomacy and addressing investment treaty issues in United Nations climate talks. The climate challenge requires re-embedding discussions about investment treaties within a policy space that places climate at centre stage.

1

Kyla Tienhaara, ‘Regulatory Chill in a Warming World: The Threat to Climate Change Policy Posed by Investor-State Dispute Settlement’ (2018) 7(2) TEL 229; Lea Di Salvatore, ‘Investor-State Disputes in the Fossil Fuel Industry’ (International Institute for Sustainable Development 2021) <www.iisd.org/publications/report/investor-state-disputes-fossil-fuel-industry>; David Gaukrodger, ‘The Future of Investment Treaties: Possible Directions’ (2021) OECD Working Paper on International Investment 2021/03, 16–19 <www.oecd-ilibrary.org/finance-and-investment/the-future-of-investment-treaties-possible-directions_946c3970-en>; Martin Dietrich Brauch, ‘Reforming International Investment Law for Climate Change Goals’ (2020) Columbia Centre on Sustainable Development Working Paper <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3692450>. See also United Nations Conference on Trade and Development (UNCTAD) and International Institute for Environment and Development (IIED), ‘International Investment Agreements and Climate Action’ (2022) <https://unctad.org/system/files/non-official-document/IIED_UNCTAD_IIAs_climate_action.pdf>; UNCTAD, ‘The International Investment Treaty Regime and Climate Action’ (2022) <https://unctad.org/system/files/official-document/diaepcbinf2022d6_en.pdf>; The OECD-led process on ‘The Future of Investment Treaties’ including eg ‘Investment Treaties and Climate Change: The Alignment of Finance Flows Under the Paris Agreement’ (Conference on Investment Treaties, 10 May 2022) <www.oecd.org/investent/investment-policy/oecd-background-investment-treaties-finance-flow-alignment.pdf> all accessed 26 July 2023; Sandrine Maljean-Dubois, Hélène Ruiz Fabri and Stephan W Schill, ‘Special Issue: International Investment Law and Climate Change’ (2022) 23(5–6) JWIT 737.

2

See eg UNCITRAL, ‘Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of Its Thirty-Sixth Session’ (Vienna, 29 October–2 November 2018) UN Doc A/CN.9/964 <https://documents-dds-ny.un.org/doc/UNDOC/GEN/V18/075/12/PDF/V1807512.pdf?OpenElement>; ‘Report of Working Group III (Investor-State Dispute Settlement Reform) on the Work of Its Thirty-Seventh Session’ (New York, 1–5 April 2019) UN Doc A/CN.9/970, paras 17–40 <https://documents-dds-ny.un.org/doc/UNDOC/GEN/V19/024/04/PDF/V1902404.pdf?OpenElement> both accessed 26 July 2023. On this process, see Anthea Roberts and Taylor St John, ‘Complex Designers and Emergent Design: Reforming the Investment Treaty System’ (2022) 116(1) AJIL 96.

3

This is particularly the case because unreformed arbitral tribunals have adopted conservative interpretations of recalibrated treaty provisions; see Wolfgang Alschner, Investment Arbitration and State-Driven Reform: New Treaties, Old Outcomes (OUP 2022).

4

See Daria Davitti, Investment and Human Rights in Armed Conflict: Charting an Elusive Intersection (Hart 2019).

5

Julia Dehm, ‘Environmental Justice Challenges to International Economic Ordering’ (2022) 116 AJIL Unbound 101, 102.

6

Lise Johnson, Brooke Skartvedt Güven and Jesse Coleman, ‘Investor-State Dispute Settlement: What Are We Trying to Achieve? Does ISDS Get Us There?’ (CCSI Blog, 11 December 2017) <http://wordpress.ei.columbia.edu/vcc/2017/12/11/investor-state-dispute-settlement-what-are-we-trying-to-achieve-does-isds-get-us-there/> accessed 26 July 2023.

7

Martin Dietrich Brauch, ‘Taking Equity into Account in International and Domestic Legal Frameworks on Compensation for Climate Change and the Energy Transition’ (CCSI Blog, 2 May 2022) <https://ccsi.columbia.edu/equity-just-transition-climate-justice-compensation-energy-transition-isds> accessed 26 July 2023.

8

Intergovernmental Panel on Climate Change (IPCC), ‘Climate Change 2021: The Physical Science Basis – Working Group I Contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change: Summary for Policy Makers’ (2021) para A3 <www.ipcc.ch/report/ar6/wg1/downloads/report/IPCC_AR6_WGI_SPM_final.pdf> accessed 26 July 2023.

9

Intergovernmental Science-Policy Platform on Biodiversity and Ecosystem Services (IPBES), ‘Global Assessment Report on Biodiversity and Ecosystem Services: Summary for Policymakers’ (2019) paras A5, B and C5 <https://ipbes.net/global-assessment> accessed 26 July 2023.

10

On the role of traditional ecological knowledge in tracking climate change, see eg Clarence Alexander and others, ‘Linking Indigenous and Scientific Knowledge of Climate Change’ (2011) 61(6) BioScience 477; Douglas Nakashima, Igor Krupnik and Jennifer T Rubis (eds), Indigenous Knowledge for Climate Change Assessment and Adaptation (CUP 2018). See also Report of the Special Rapporteur on the Rights of Indigenous Peoples: Victoria Tauli Corpuz, ‘Impacts of Climate Change and Climate Finance on Indigenous Peoples’ Rights’ (1 November 2017) UN Doc A/HRC/36/46, paras 22–24 <https://daccess-ods.un.org/tmp/5840244.29321289.html> accessed 26 July 2023.

11

Paris Agreement (entered into force 4 November 2016) art 2(1)(a) <https://unfccc.int/sites/default/files/english_paris_agreement.pdf> accessed 26 July 2023.

12

International Energy Agency, ‘Net Zero by 2050 A Roadmap for the Global Energy Sector’ (2021) 13 <https://iea.blob.core.windows.net/assets/beceb956-0dcf-4d73-89fe-1310e3046d68/NetZeroby2050-ARoadmapfortheGlobalEnergySector_CORR.pdf> accessed 26 July 2023. According to the report, the energy sector accounts for some three-quarters of greenhouse gas emissions (ibid 13).

13

ibid 23.

14

IPCC (n 8) para B1.

15

See Brauch (n 7).

16

See Harro van Asselt, ‘Breaking a Taboo: Fossil Fuels at COP26’ (EJIL:Talk!, 26 November 2021) <www.ejiltalk.org/breaking-a-taboo-fossil-fuels-at-cop26/> accessed 26 July 2023. Olabisi D Akinkugbe and Adebayo Majekolagbe, ‘International Investment Law and Climate Justice: The Search for a Just Green Investment Order’ (2023) 46(2) Fordham Intl L J 169, 186–87. On inequality and international law, see Ingo Venzke, ‘International Law and the Spectre of Inequality’ (2021) 9(1) L Rev Intl L 111.

17

IPCC, ‘Climate Change 2022: Mitigation of Climate Change: Working Group III Contribution to the Sixth Assessment Report of the Intergovernmental Panel on Climate Change’ (2022) para B3 <IPCC_AR6_WGIII_FinalDraft_FullReport.pdf>. See also Fergus Green and Noel Healy, ‘How Inequality Fuels Climate Change: The Climate Case for a Green New Deal’ (2022) 5(6) One Earth (online) <https://doi.org/10.1016/j.oneear.2022.05.005> both accessed 26 July 2023.

18

Carmen G Gonzalez, ‘Climate Change, Race, and Migration’ (2020) 1 J L & Pol Econ 109, 116.

19

Todd N Tucker and Timothy Meyer, ‘Reshaping Global Trade and Investment Law for A Green New Deal’ in Kyla Tienhaara and Joanna Robinson (eds), Routledge Handbook on the Green New Deal (Routledge 2023) ch 7.

20

See eg International Labour Organisation, ‘Guidelines for a Just Transition Towards Environmentally Sustainable Economies and Societies for All’ <www.ilo.org/global/top ics/green-jobs/publications/WCMS_432859/lang--en/index.htm> accessed 26 July 2023.

21

Benjamin Wehrmann, ‘Experts Criticise Proposed German Coal Exit Law for Deviating from Commission Compromise’ (Clean Energy Wire, 25 May 2020) <www.cleanenergy wire.org/news/experts-criticise-proposed-german-coal-exit-law-deviating-commission -compromise>; Bart-Jaap Verbeek, ‘Compensation for Stranded Assets?’ (SOMO long read, 28 April 2021) <www.somo.nl/compensation-for-stranded-assets/> both accessed 26 July 2023.

22

See eg Geoffrey Supran and Naomi Oreskes, ‘The Forgotten Oil Ads that Told Us Climate Change Was Nothing’ (The Guardian, 18 November 2021) <www.theguardian.com/envi ronment/2021/nov/18/the-forgotten-oil-ads-that-told-us-climate-change-was-noth ing?CMP=twt_a-environment_b-gdneco>; The documentary series ‘Big Oil v The World’ (BBC, 2022) <www.bbc.co.uk/programmes/p0cgql8f> both accessed 26 July 2023.

23

Rio Declaration on Environment and Development (adopted 16 June 1972) principle 16.

24

See eg Nicolás M Perrone, Investment Treaties and the Legal Imagination: How Foreign Investors Play by Their Own Rules (OUP 2021) 18–19.

25

Julia Dehm, ‘Law and the “Value” of Future Expectations: Climate Change, Stranded Assets and Capitalist Dynamics’ (Verfassungsblog, 6 March 2020) <https://verfassungsblog.de/law-and-the-value-of-future-expectations-climate-change-stranded-assets-and-capitalist-dynamics/> accessed 26 July 2023.

26

See eg Zachary Douglas, ‘Property, Investment, and the Scope of Investment Protection Obligations’ in Zachary Douglas, Joost Pauwelyn and Jorge E Viñuales (eds), The Foundations of International Investment Law: Bringing Theory into Practice (OUP 2014) 363–406, 374.

27

See eg Nova Scotia Power Incorporated (Canada) v Bolivarian Republic of Venezuela (II), ICSID Case No ARB(AF)/11/1, Award (30 April 2014) para 84.

28

For a discussion, see Stefano Rodotà, Il Terribile Diritto: Studi sulla Proprietà Privata (2nd edn, Il Mulino 1990) 149–71. Critical scholarship has also highlighted the connections between the historical development of capitalism, slavery and colonialism, and their lasting impacts on the notion of property. See particularly Brenna Bhandar, Colonial Lives of Property: Law, Land and Racial Regimes of Ownership (Duke UP 2018); K-Sue Park, ‘The History Wars and Property Law: Conquest and Slavery as Foundational to the Field’ (2022) 131 Yale LJ 1062.

29

Jeremy Bentham, Theory of Legislation (Etienne Dumont ed, Charles Milneb Atkinson tr, OUP 1914) 145. Arbitral tribunals applying international investment law have typically favoured such dynamic notions of property; see eg Methanex Corporation v United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (3 August 2005) para IVD.17.

30

See eg UNIDROIT Principles on International Commercial Contracts (2016) art 1.3. For a discussion of ‘sanctity of contracts’ and its limits under private law, see eg Stephen Waddams, Sanctity of Contracts in a Secular Age: Equity, Fairness and Enrichment (CUP 2019).

31

Vienna Convention on the Law of Treaties (signed 23 May 1969, entered into force 27 January 1980) 1155 UNTS 331 (VCLT) art 26.

32

Juan Carlos Boue, ‘Much More than a Footnote (or Three): Frank C Hendryx and an Untold Story of Petroleum Concessions and the Genesis of ICSID’ (2022) 13 JIDS 1.

33

See eg Libyan American Oil Company v Government of the Libyan Arab Republic, Award (12 April 1977); Texaco Overseas Petroleum Company (TOPCO) and California Asiatic Oil Company v The Government of Libyan Arab Republic, Award (19 January 1977); The Government of the State of Kuwait v The American Independent Oil Company (Aminoil), Final Award (24 March 1982) 1033. For a discussion, see Nagla Nassar, Sanctity of Contracts Revisited: A Study in the Theory and Practice of Long-Term International Commercial Transactions (Martinus Nijhoff 1995); Jason Webb Yackee, ‘Pacta Sunt Servanda and State Promises to Foreign Investors Before Bilateral Investment Treaties: Myth and Reality’ (2009) 32(5) Fordham Intl L J 1550; Jean Ho, ‘International Law’s Opportunities for Investor Accountability’ in Jean Ho and Mavluda Sattorova (eds), Investors’ International Law (Hart 2021) 13–44, especially 17, 33–37.

34

See eg Agreement Between the Republic of the Philippines and the Swiss Confederation on the Promotion and Reciprocal Protection of Investments (entered into force 23 April 1999) arts I(2)(e) and X(2) <https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2174/download> accessed 26 July 2023.

35

International Thunderbird Gaming Corp v The United Mexican States, UNCITRAL, Award (26 January 2006) para 147.

36

See Perrone (n 24) 21.

37

For example, because of their far-reaching socio-economic implications, constitutional property clauses often involve particularly difficult political negotiation.

38

Enrico Rossi, ‘Reconsidering the Dual Nature of Property Rights: Personal Property and Capital in the Law and Economics of Property Rights’ (2020) <https://ssrn.com/abstract=3659193> accessed 26 July 2023.

39

See Anil Yilmaz Vastardis, who talked of ‘justice bubbles for the privileged’ and Ivar Alvik, who discussed the legitimacy problems associated with the preferential treatment for foreign investors. Anil Yilmaz Vastardis, ‘Justice Bubbles for the Privileged: A Critique of the Investor-State Dispute Settlement Proposals for the EU’s Investment Agreements’ (2018) 6(2) Lond Rev Intl L 279; and Ivar Alvik, ‘The Justification of Privilege in International Investment Law: Preferential Treatment of Foreign Investors as a Problem of Legitimacy’ (2020) 30(1) EJIL 289.

40

See eg US Trade Act of 2002, s 2102(b)(3) <www.govinfo.gov/content/pkg/PLAW-107 publ210/html/PLAW-107publ210.htm> accessed 26 July 2023; EU Regulation No 912/2014 Establishing a Framework for Managing Financial Responsibility Linked to Investor-to -State Dispute Settlement Tribunals Established by International Agreements to Which the European Union Is Party (23 July 2014) OJ L257/121, preambular para 4 <https://eur-lex.europa.eu/legal-content/EN/TXT/PDF/?uri=CELEX:32014R0912&from=EN> accessed 26 July 2023.

41

Gaukrodger (n 1) 14. See also David Gaukrodger and Kathryn Gordon, Investor-State Dispute Settlement: A Scoping Paper for the Investment Policy Community (OECD 2012) <www.oecd.org/investment/investment-policy/WP-2012_3.pdf>; several papers comparing investment law standards to those applicable in specific jurisdictions, such as: Armand De Mestral and Robin Morgan, ‘Does Canadian Law Provide Remedies Equivalent to NAFTA Chapter 11 Arbitration?’ (Centre for International Governance Innovation, 2016) <www.cigionline.org/sites/default/files/isa_paper_no.4.pdf>; Bart-Jaap Verbeek, ‘Super-Protections’ for Corporations: How Investment Treaties and Investor-to-State Dispute Settlement Grant Foreign Investors Greater Rights than Dutch and EU Law’ (SOMO Factsheet 2021) <www.somo.nl/wp-content/uploads/2021/03/SOMO-Factsheet-Greater-rights.pdf> all accessed 26 July 2023.

42

Alvik (39) 295. See also Yilmaz Vastardis (n 39).

43

On steps to integrate investor obligations in investment treaties, see eg Priscila Pereira De Andrade and Nitish Monebhurrun, ‘Mapping Investors’ Environmental Commitments and Obligations’ in Ho and Sattorova (n 33) 263–90.

44

Jesse Coleman and others, ‘Third-Party Rights in Investor-State Dispute Settlement: Options for Reform’ (Submission by CCSI, IIED and IISD to UNCITRAL Working Group III on Investor-State Dispute Settlement Reform, 15 July 2019) <https://scholarship.law.columbia.edu/sustainable_investment_staffpubs/150> accessed 26 July 2023.

45

See eg Lorenzo Cotula and Nicolás M Perrone, ‘Investors’ International Law and Its Asymmetries: The Case of Local Communities’ in Ho and Sattorova (n 33) 71–88.

46

On this point, see also Alvik (n 39) 294–95.

47

Starrett Housing Corporation, Starrett Systems, Inc and others v The Government of the Islamic Republic of Iran, Bank Markazi Iran and others, Iran-US Claims Tribunal Case No 24, Interlocutory Award (19 December 1983) para 66.

48

See eg Sporrong and Lönnroth v Sweden (ECtHR, 23 September 1982) 35.

49

Julian Arato, ‘The Private Law Critique of International Investment Law’ (2019) 113 AJIL 1, 14.

50

See eg James and others v United Kingdom (ECtHR, 21 February 1986) para 54.

51

Constitution of the Republic of South Africa s 25(3).

52

A few arbitral awards referred to the ‘margin of appreciation’ doctrine. See Continental Casualty v Argentine Republic, ICSID Case No ARB/03/9, Award (5 September 2008) para 181; Philip Morris Brands Sàrl, Philip Morris Products SA and Abal Hermanos SA v Oriental Republic of Uruguay, ICSID Case No ARB/10/7, Award (8 July 2016) para 388. However, most awards have not referred to this doctrine, and some have explicitly ruled out its relevance, arguing that investment treaties set more exacting standards. See Siemens AG v Argentine Republic, ICSID Case No ARB/02/08, Award (6 February 2007) para 354; Quasar De Valores SICAV SA, Orgor De Valores SICAV SA, GBI 9000 SICA V SA and ALOS34SL v Russian Federation, SCC Arbitration, Award (20 July 2012) paras 22–23; Bernard von Pezold and others v Republic of Zimbabwe, ICSID Case No ARB/10/15, Award (28 July 2015) paras 465–68; Philip Morris Brands Sàrl, Philip Morris Products SA and Abal Hermanos SA, ICSID Case No ARB/10/7, Concurring and Dissenting Opinion of Gary Born (8 July 2016) paras 85–88.

53

On this issue, see eg Toni Marzal, ‘Quantum (In)Justice: Rethinking the Calculation of Compensation and Damages in ISDS’ (2021) 22 JWIT 249.

54

See for example Lithgow and others v United Kingdom (ECtHR, 24 June1986) Series A no 1, para 121. In Scordino v Italy (ECtHR, 29 March 2006) Series A no 1, Grand Chamber Judgment, the European Court of Human Rights held that ‘in many cases … only full compensation can be regarded as reasonably related to the value of the property’ but the right to property ‘does not … guarantee a right to full compensation in all circumstances’ and ‘legitimate objectives in the “public interest” … may call for less than reimbursement of the full market value’ (paras 95–97). The Court ultimately found that a rule setting compensation at 50% of market value, further reduced by 40% if the owner provided no ‘voluntary’ agreement to the expropriation, and a further 20% tax deduction, in the absence of specific public interests to justify these terms, constituted a ‘disproportionate and excessive burden’ for owners and thus a violation of the right to property (ibid paras 101–04).

55

Bernardus Henricus Funnekotter and others v Republic of Zimbabwe, ICSID Case No ARB/05/6, Award (22 April 2009) para 124. However, in Ina Corporation v The Government of the Islamic Republic of Iran, Iran-US Claims Tribunal, Award (13 August 1985) 378, the Tribunal held that customary international law could require less than full compensation for large-scale nationalisations, although the members of the Tribunal disagreed on the meaning and implications of this statement. The Tribunal went on to decide the case on the basis of an applicable treaty and ordered payment of full compensation. See also the reference to debates as to whether ‘systematic large-scale nationalization, eg of an entire industry or a natural resource’ may justify ‘less than full compensation’ in SEDCO Inc v National Iranian Oil Co & Islamic Republic of Iran, Award (27 March 1986), Vincent Coussirat-Coustère and Pierre Michel Eisemann (eds), Repertory of International Arbitral Jurisprudence – Volume III, 1946–1988 (Martinus Nijhoff 1991) 1264. An arbitral tribunal applying customary international law – rather than an investment protection treaty – to an expropriatory environmental measure also excluded that the nature of the public purpose could justify lower compensation; see Compañía del Desarrollo de Santa Elena, SA v Republic of Costa Rica, ICSID Case No ARB/96/1, Final Award (17 February 2000) paras 71–72.

56

Factory at Chorzów case (Germany v Poland) [1928] PCIJ Series A No 17, para 125.

57

For a fuller discussion, see Jonathan Bonnitcha and Sarah Brewin, ‘Compensation Under Investment Treaties: What Are the Problems and What Can Be Done?’ (IISD 2020) <www .iisd.org/publications/compensation-under-investment-treaties> accessed 26 July 2023; Jonathan Bonnitcha and others, ‘Damages and ISDS Reform: Between Procedure and Substance’ (2021) 14(2) JIDS 213.

58

See eg the widely differing amounts awarded by the European Court of Human Rights and by an investor-State arbitral tribunal in connection with the Yukos disputes (around USD 1.8 billion and USD 50 billion, respectively), partly reflecting different findings on the merits; Eric De Brabandere, ‘Yukos Universal Limited (Isle of Man) v The Russian Federation: Complementarity or Conflict? Contrasting the Yukos Case Before the European Court of Human Rights and Investment Tribunals’ (2015) 30(2) ICSID Rev 345. For a discussion of international investment law in the light of approaches applied in selected domestic jurisdictions, see Gaukrodger and Gordon (n 41) 79–87.

59

Alschner (n 3). One arbitral decision found that an environmental exception did not preclude the State’s duty to compensate investors for adverse impacts on their business; in a system where compensation is the main legal remedy, this approach deprives the environmental exception of any practical significance. See Eco Oro Minerals Corp v The Republic of Colombia, ICSID Case No ARB/16/41, Decision on Jurisdiction, Liability and Directions on Quantum (9 September 2021) paras 822–37; J Benton Heath, ‘Eco Oro and the Twilight of Policy Exceptionalism’ (Investment Treaty News, 20 December 2021) <www .iisd.org/itn/en/2021/12/20/eco-oro-and-the-twilight-of-policy-exceptionalism/> accessed 26 July 2023.

60

See Martin Dietrich Brauch, ‘Climate Action Needs Investment Governance, Not Investment Protection and Arbitration’ (CCSI Blog, 15 March 2022) <https://ccsi.columbia.edu/news/climate-action-needs-investment-governance-not-investment-protection-isds> accessed 26 July 2023; Di Salvatore (n 1); Akinkugbe and Majekolagbe (n 16) 170–72.

61

Kyla Tienhaara and Lorenzo Cotula, ‘Raising the Cost of Climate Action? Investor-State Dispute Settlement and Compensation for Stranded Fossil Fuel Assets’ (IIED, 2020) <https://pubs.iied.org/17660IIED/> accessed 26 July 2023.

62

IPCC (n 17) s 14.5.1.3.

63

Elizabeth Meager, ‘COP26 Targets Pushed Back Under Threat of Being Sued’ (Capital Monitor, 14 January 2022) <https://capitalmonitor.ai/institution/government/cop26-ambitions-at-risk-from-energy-charter-treaty-lawsuits/> accessed 26 July 2023, reporting that ‘[t]he climate ministers of Denmark and New Zealand have admitted … that the threat of investor-State lawsuits has prevented their governments from being more ambitious in their climate policies’. The report cites New Zealand’s climate change minister as saying that the country could not join BOGA as a full member because by doing so it ‘would have run afoul of investor-State settlements’. It also cites the Danish climate minister as stating that the country set a 2050 rather than 2030 or 2040 target for ceasing oil and gas exploration, because ‘incredibly expensive’ compensation would have otherwise been owed to fossil fuel companies.

64

Uche Ewelukwa Ofodile noted that ‘old-generation’ investment treaties dominate in Africa, including with higher-income countries home to major oil companies operating on the continent; Uche Ewelukwa Ofodile, ‘Response to the OECD’s “The Future of Investment Treaties: Public Consultation on Investment Treaties and Climate Change”’ in Investment Treaties and Climate Change OECD Public Consultation (OECD 2022) 91. See also Akinkugbe and Majekolagbe (n 16) 191–93.

65

For initial efforts to quantify the scale of potential liabilities, see Tienhaara and Cotula (n 66); Kyla Tienhaara and others, ‘Investor-State Dispute Settlement: Obstructing a Just Energy Transition’ (2022) Climate Policy (online).

66

See eg UN Special Rapporteur on the Protection and Promotion of Human Rights in the Context of Climate Change, ‘Promotion and Protection of Human Rights in the Context of Climate Change Mitigation, Loss and Damage and Participation’ (22 July 2022) UN Doc A/77/226, paras 9, 10, 15 <https://documents-dds-ny.un.org/doc/UNDOC/GEN/N22/438/51/PDF/N2243851.pdf?OpenElement>; The State of the Netherlands v Stichting Urgenda, Supreme Court of The Netherlands, Case 19/00135, Judgment (20 December 2019) available in English translation at <https://climate-laws.org/geographies/netherlands/litigation_cases/urgenda-foundation-v-state-of-the-netherlands> both accessed 26 July 2023. See also Peter D Cameron 2021, International Energy Investment Law: The Pursuit of Stability (2nd edn, OUP 2021) 581.

67

Paris Agreement (n 11) arts 4(2) and 13.

68

See eg Cameron (n 66) 580. The ‘Glasgow Climate Pact’ adopted at Climate COP26 called on States to ‘accelerat[e] efforts towards the phasedown of unabated coal power and phase-out of inefficient fossil fuel subsidies’; ‘Report of the Conference of the Parties Serving as the Meeting of the Parties to the Paris Agreement on its Third Session’ (Glasgow, 31 October–13 November 2021) Addendum: Decision 1/CMA.3, para 36 <https://unfccc.int/sites/default/files/resource/cma2021_10_add1_advpdf> accessed 26 July 2023.

69

Paris Agreement (n 11) art 5.

70

On the relationship between international investment and climate law, see Kate Miles, ‘International Investment Law and Climate Change: Issues in the Transition to a Low Carbon World’ (2008) The University of Sydney Law School Research Paper <https://papers.ssrn.com/sol3/papers.cfm?abstract_id=1154588> accessed 26 July 2023; Jorge E Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’ (2009) 80(1) BYIL 244; Ximena Fuentes Torrijo, ‘Climate Change and International Investment Treaties’ in Michael Faure (ed), Encyclopedia of Environmental Law: Volume I – Climate Change Law (Edward Edgar 2021) 309–19.

71

Paris Agreement (n 11) art 2(1)(c).

72

VCLT (n 31) art 31(3)(c) (n 31). See eg Urbaser SA and Consorcio de Aguas Bilbao Bizkaia, Bilbao Biskaia Ur Partzuergoa v The Argentine Republic, ICSID Case No ARB/07/26, Award (8 December 2016) paras 1190, 1200, 1204.

73

For a discussion of the limits of systemic integration in investor-State arbitration, see Johannes Hendrik Fahner and Matthew Happold, ‘The Human Rights Defense in International Investment Arbitration: Exploring the Limits of Systemic Integration’ (2019) 69(3) ICLQ 741.

74

For a few examples, see Mala Sharma, ‘Integrating, Reconciling, and Prioritising Climate Aspirations in Investor-State Arbitration for a Sustainable Future: The Role of Different Players’ (2022) 23(5–6) JWIT 746, 758–62. For an exercise in rewriting an arbitral decision in the light of climate considerations, see Laura Létourneau Tremblay, ‘In Need of a Paradigm Shift: Reimagining Eco Oro v Colombia in Light of New Treaty Language’ (2022) 23(5–6) JWIT 915.

75

United Nations Framework Convention on Climate Change (signed 4–14 June 1992, entered into force 21 March 1994) (UNFCCC) first preambular paragraph <https://unfccc.int/resource/docs/convkp/conveng.pdf> accessed 26 July 2023; Paris Agreement (n 11) 11th preambular paragraph. See Frederiech Soltau, ‘Common Concern of Humankind’ in Kevin R Gray, Richard Tarasofsky and Cinnamon Carlarne (eds), Oxford Handbook of International Climate Change Law (OUP 2016) 203–12.

76

UNFCCC (n 75) arts 3(1) and 4(1); Paris Agreement (n 11) arts 2(2), 4(3) and 4(19). See also Soltau (n 75).

77

See eg Eco Oro Minerals Corp v Republic of Colombia (n 59). Though this dispute was not framed in climate terms, it arose from the banning of mining in a fragile ecosystem that acts as a carbon sink. See eg Judgment C-035, Constitutional Court of the Republic of Colombia (8 February 2016) paras 149–50; Eco Oro Minerals Corp v The Republic of Colombia (n 59) para 636.

78

See eg Asian Development Bank, ‘OECD Public Consultation on Investment Treaties and Climate Change: Expression of Interest’ in OECD, Investment Treaties and Climate Change OECD Public Consultation | January–March 2022: Compilation of Submissions (OECD 2022) 19.

79

Joachim Pohl, ‘Societal Benefits and Costs of International Investment Agreements: A Critical Review of Aspects and Available Empirical Evidence’ (OECD 2018) <www .oecd-ilibrary.org/finance-and-investment/societal-benefits-and-costs-of-international -investment-agreements_e5f85c3d-en> accessed 26 July 2023. Alvik noted that even if evidence showed that the treaties do promote investment, ‘there is little evidence that this requires overprotecting investments beyond what follows from the rationale of the minimum standard’; Alvik (n 39) 304.

80

Jonathan Bonnitcha and others, The Political Economy of the Investment Treaty Regime (OUP 2017) 127–35, 161. UNCTAD estimates that fossil-fuel businesses have initiated 192 known treaty-based investor-State arbitrations in the past, though the measures at stake did not necessarily relate to environmental action. See UNCTAD, ‘Treaty-Based Investor-State Dispute Settlement Cases and Climate Action’ (2022) <https://unctad.org/system/files/official-document/diaepcbinf2022d7_en.pdf> accessed 26 July 2023.

81

For a fuller discussion, see Lorenzo Cotula, ‘Oil, “Modernity” and Law: Revisiting the Abu Dhabi Arbitration in the Age of the Climate Crisis’ (9 March 2022) TWAIL Rev – TWAILR: Reflections #42/2022 <https://twailr.com/oil-modernity-and-law-revisiting-the-abu-dhabi-arbitration-in-the-age-of-the-climate-crisis/> accessed 26 July 2023.

82

On this point, see also Ladan Mehranvar and Sunayana Sasmal, ‘The Role of Investment Treaties and Investor-State Dispute Settlement in Renewable Energy Investments’ (Columbia Center on Sustainable Investment 2022) <https://ccsi.columbia.edu/content/role-investment-treaties-and-investor-state-dispute-settlement-isds-renewable-energy> accessed 26 July 2023.

83

See the work of the International Law Association’s Committee on Rule of Law and International Investment Law, ‘The Role of Investment Treaties and Investor-State Dispute Settlement (ISDS) in Renewable Energy Investments’ <https://www.ila-hq.org/en_GB/committees/rule-of-law-and-international-investment-law> accessed 26 July 2023; and August Reinisch and Stephan W Schill (eds), Investment Protection Standards and the Rule of Law (OUP 2023). See eg ADC Affiliate Limited and ADC & ADMC Management Limited v The Republic of Hungary, ICSID Case No ARB/03/16, Award (2 October 2006) para 423 holding that ‘while a sovereign State possesses the inherent right to regulate its domestic affairs, the exercise of such right is not unlimited and must have its boundaries … [T]he rule of law, which includes treaty obligations, provides such boundaries’.

84

For a critical appraisal, see Mavluda Sattorova, The Impact of Investment Treaty Law on Host States: Enabling Good Governance? (Hart 2018).

85

See eg United Nations Commission on International Trade Law (n 2) paras 66–108. For a seminal work on these aspects, see Gus Van Harten, Investment Treaty Arbitration and Public Law (OUP 2007).

86

See particularly Sattorova (n 84).

87

Gaukrodger (n 1) 13.

88

Barbara H Fried, ‘Ex Ante/Ex Post’ (2003) 13(1) J Contemp Legal Issues 123, 123. For a foundational conceptual framework, see Louis Kaplow, ‘An Economic Analysis of Legal Transitions’ (1986) 99(3) Harv L Rev 509; and Louis Kaplow, ‘Transition Policy: A Conceptual Framework’ (2003) 13(1) J Contemp Legal Issues 161. For a discussion of ‘legal transition’ concepts in relation to climate action, see particularly Fergus Green, ‘Legal Transitions Without Legitimate Expectations’ (2020) 28(4) J Pol Phil 397; Fergus Green and Ajay Gambhir, ‘Transitional Assistance Policies for Just, Equitable and Smooth Low-Carbon Transitions: Who, What and How?’ (2020) 20(8) Climate Policy 902.

89

Richard A Epstein, ‘Beware of Legal Transitions: Presumptive Vote for the Reliance Interest’ (2003) 13(1) J Contemp Legal Issues 69.

90

See eg Kaplow, ‘Transition Policy: A Conceptual Framework’ (n 88) 179: ‘As long as the government provides for compensation of any portion of losses, that portion is no longer a cost to private actors and hence will be ignored, resulting in overinvestment’. See also Daniel Shaviro, ‘When Rules Change Revisited’ (2003) 13(1) J Contemp Legal Issues 279, 286.

91

Emma Aisbett, ‘Submission to the OECD Public Consultation on Investment Treaties and Climate Change’ in OECD (n 78) 10; Jonathan Bonnitcha, ‘Submission to the OECD Public Consultation on Investment Treaties and Climate Change’ in ibid 28. See also Gaukrodger (n 1) 13.

92

On the relation between investment treaties and global inequality, see Nicolás M Perrone and David Schneiderman, ‘International Economic Law’s Wreckage: Depoliticization, Inequality, Precarity’ in Emilios Christodoulidis, Ruth Dukes and Marco Goldoni (eds), Research Handbook on Critical Legal Theory (Edward Edgar 2019) 446–72; Gus Van Harten, The Trouble with Foreign Investor Protection (OUP 2020) 1–6.

93

On this point, see also Brauch (n 7).

94

On ‘Loss and Damage’ in international climate diplomacy, see eg Clara Gallagher and Simon Addison, ‘Financing Loss and Damage: Four Key Challenges’ (IIED 2022) <https://www.iied.org/sites/default/files/pdfs/2022-10/21141iied.pdf> accessed 26 July 2023.

95

See eg Joshua Paine and Elizabeth Sheargold, ‘A Climate Change Carve-Out for Investment Treaties’ (2023) 26(2) JIEL 285 <https://doi.org/10.1093/jiel/jgad011> accessed 26 July 2023.

96

Lise Johnson and others, ‘Clearing the Path: Withdrawal of Consent and Termination as Next Steps For Reforming International Investment Law’ (Columbia Center on Sustainable Investment 2018) <https://ccsi.columbia.edu/content/clearing-path-withdrawal-consent-and-termination-next-steps-reforming-international-0> accessed 26 July 2023.

97

For similar lines of argument, see Johnson, Skartvedt Güven and Coleman (n 6); Brauch (n 60); and Center for International Environmental Law (CIEL), Client Earth and the International Institute for Sustainable Development (IISD), ‘Submission to the Organisation for Economic Co-Operation and Development on Investment Agreements and Climate Change’ in OECD, Investment Treaties and Climate Change OECD Public Consultation (OECD 2022) 64.

98

See eg Sofia de Murard, ‘The Treaty on Sustainable Investment for Climate Change Mitigation and Adaptation: A Model to Steer International Law Toward Renewable Energy Investments and the Low-Carbon Transition’ (Investment Treaty News, 20 June 2020) <www.iisd.org/itn/en/2020/06/20/the-treaty-on-sustainable-investment -for-climate-change-mitigation-and-adaptation-a-model-to-steer-international-law -toward-renewable-energy-investments-and-the-low-carbon-transition-sofia-murard/> accessed 26 July 2023.

99

Henrique Choer Moraes and Felipe Hees, ‘Breaking the BIT Mold: Brazil’s Pioneering Approach to Investment Agreements’ (2018) 112 AJIL Unbound 197; Geraldo Vidigal and Beatriz Stevens, ‘Brazil’s New Model of Dispute Settlement for Investment: Return to the Past or Alternative for the Future?’ (2018) 19 JWIT 475.

100

Stuart Lau, ‘EU Investment Deal with China Likely to Hinge on Three Key Elements, Says European Trade Official’ (South China Morning Post, 14 May 2020) <www.scmp .com/news/world/europe/article/3084288/eu-trade-official-says-investment-deal-china -likely-hinge-two-key> accessed 26 July 2023. The CAI is not in force and its prospects are unclear at present. Investment protection is covered by a set of bilateral treaties between China and individual EU member States; the CAI envisages further negotiation on this issue. On the significance of the CAI in international investment law, see Julien Chaisse and Matthieu Burnay, ‘Introduction – CAI’s Contribution to International Investment Law: European, Chinese, and Global Perspectives’ (2022) 23 JWIT 497.

101

Federico Ortino, ‘ISDS and Its Transformations’ (2023) 26 JIEL 177, 186.

102

UNCTAD’s World Investment Forum and the OECD-led process on ‘The Future of Investment Treaties’ offer particularly relevant spaces in this regard <https://www.oecd.org/investment/investment-policy/investment-treaties.htm> accessed 26 July 2023.

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