The legal block on climate action

Critics argue that the Investor-State Dispute Settlement (ISDS) system serves to shield fossil fuel interests from governmental measures, thereby hampering environmental initiatives. This occurs both directly, by diverting funds that could otherwise be used for green transitions, and indirectly, by discouraging regulatory actions that might lead to legal challenges. 

Countries such as New Zealand and Denmark have acknowledged postponing fossil fuel restrictions due to the threat of ISDS litigation. Similarly, Spain has reported that ISDS claims have obstructed its energy transition efforts, with over 50 claims totaling more than $11 billion filed against it.

Concessions

The Intergovernmental Panel on Climate Change and the UN’s special rapporteur on human rights, David Boyd, have both recognized this issue. Joseph Stiglitz, a Nobel Prize-winning economist, has even termed ISDS as ‘legal terrorism.’

Colombia is currently dealing with 28 ISDS cases, 16 related to fossil fuel extraction, according to Louise Winstanley of AB Colombia. One notable case involves Glencore suing Colombia for $489 million after a court halted a coal mine expansion due to environmental and human rights concerns. These claims are valued at over 13% of Colombia’s annual budget, hindering its ability to limit fossil fuel activities. During COP30, Colombia announced a halt to future large-scale oil and gas projects in its Amazon region, which covers about 42% of its territory.

Burden

Despite making the Amazon off-limits to new fossil fuel projects, Colombia faces significant financial challenges in addressing over 200 existing initiatives due to potential lawsuits, says Environment Minister Irene Vélez Torres. She stated at COP30, “No government should have to choose between protecting nature and its people, and protecting itself from arbitrators.” According to Winstanley, ISDS payouts further strain Colombia’s budget, already pressured by COVID-19 impacts, Venezuelan migration, and reduced US aid. “The burden of addressing the climate crisis lies with biodiverse countries like Colombia, which are least responsible but bear the highest costs and have some of the least robust budgets,” she said. “ISDS is not only a barrier to climate action, but it also increases debt burdens.”

Signal

Colombian President Gustavo Petro’s recent announcement aligns with a call from economists, including Stiglitz, Ha-Joon Chang, and Thomas Piketty, for a multilateral exit from ISDS. They argue that ISDS allows corporations to contest public policies that affect profitability rather than discriminate against investors. Petro stated on social media, “I accept the invitation from 200 global economists to change the global investment regime.” The announcement was seen as a significant move ahead of Colombia’s Conference on Transitioning Away from Fossil Fuels in Santa Marta.

Discriminated

Although Petro’s announcement reiterated a prior pledge, campaigners hope for swift action, especially with a presidential election scheduled for 31 May. Tom Wills of the Trade Justice Movement noted, “If anything is going to happen, it’s going to have to happen really fast, and with the support of Colombia’s investment treaty partners, including the UK.” A spokesperson from the Foreign, Commonwealth and Development Office expressed commitment to helping UK and Colombian investors resolve disputes and improving the system with international partners.

Withdrawal

The number of ISDS cases concerning environmental protection has surged, with significant increases noted in Boyd’s report. Recent years have seen several countries withdraw from ISDS due to its conflict with climate objectives. Nations like Bolivia, Ecuador, India, Indonesia, and South Africa have taken steps to terminate their investment treaties, according to Bart-Jaap Verbeek of SOMO. Even traditional ISDS supporters in the Global North are reconsidering their stance, with Australia, the US, and Canada making changes to their agreements.

Investors

In 2024, the EU Council approved the bloc’s withdrawal from the Energy Charter Treaty (ECT), which has faced numerous ISDS claims from fossil fuel companies. Think tank E3G estimated that the treaty protects over 300 megatonnes of greenhouse gas emissions. Since then, several EU countries have exited the ECT, though some have adopted a revised version. The UK has also withdrawn, although it remains subject to the treaty’s sunset clause, exposing it to potential arbitration for 20 more years. The UK is currently facing lawsuits due to its decisions on fossil fuel projects and sanctions imposed during international conflicts.

Agenda

The conference in Colombia was organized after a COP30 proposal to phase out fossil fuels didn’t pass, despite support from over 80 countries. Colombia and the Netherlands are hosting the event to further discussions. While it won’t result in a new treaty, outcomes will contribute to COP31 discussions, with more than 45 countries and the EU attending. ISDS is a key theme of the conference, as it presents a legal obstacle to addressing climate change.

Attempts to address ISDS through venues like the OECD have been largely unsuccessful, according to Wills. “It’s really exciting to have an international forum that’s looking to engage with the ISDS system from the climate perspective,” he said.

Recalibrating

Cleodie Rickard from Global Justice Now suggests several outcomes for the summit, including governments committing to avoid future agreements with ISDS provisions and terminating existing ones. A multilateral termination treaty could offer a comprehensive solution, though it would require legal considerations. Lorenzo Cotula of the IIED sees the Santa Marta conference as a chance to address ISDS issues, acknowledging that previous efforts have fallen short.

Treaties

Cotula noted the complexity of renegotiating the approximately 2,500 bilateral treaties worldwide. “A coordinated approach is really helpful – instead of all these bilateral processes, states can develop one instrument that effects change in all of their treaties,” he explained. The OECD has used a similar approach for tax treaties.

Responsibility

Campaigners argue that developed nations’ support is crucial for the movement against ISDS to succeed. Most ISDS claims in the fossil fuel and mining sectors are filed by investors from the Global North against the Global South. A scorecard by the Trade Justice Movement ranked the UK as the worst in perpetuating ISDS harm, with Dutch investors following closely. Verbeek emphasized the Netherlands’ responsibility to lead, given its role in the EU’s withdrawal from the Energy Charter Treaty and its prominent position in the ISDS system.

Last year, the International Court of Justice’s Advisory Opinion supported reforming the investment treaty system to avoid promoting climate-harmful investments, as noted by Cotula. 

Inertia

The Netherlands was the first country to include ISDS in an investment treaty in 1968. It now has 70 active bilateral investment treaties, making it one of the largest networks globally. Dutch treaties are involved in nearly 10% of all cases worldwide, second only to the US. “The conference creates a unique political moment, and Colombia’s recent announcement that it intends to withdraw from ISDS puts additional pressure on the Dutch government to clarify its position,” said Cotula.

The UK’s involvement in the ISDS system stems from its imperial history and bureaucratic inertia, according to an investigation by Adam Ramsay for the Ecologist. 

Mechanism

While the UK has excluded ISDS from recent bilateral trade deals since leaving the EU, it remains a feature of newer agreements like the Comprehensive and Progressive Agreement for Trans-Pacific Partnership and a treaty with India. NGOs suspect that the presence of law firms and third-party funders in London may influence the government’s inaction. Winstanley believes this undermines the UK’s climate commitments, citing a speech by UK deputy permanent representative to the UN, Archie Young, who stressed the importance of climate goals and financial pledges. “You can’t make these statements and pledge money to support countries who are moving away from fossil fuels, but not actually remove a mechanism that allows your companies to sue governments for those very changes that you’ve been asking them to make – it doesn’t make any sense!” she argues.

This Author

Catherine Early is the chief reporter for The Ecologist and a freelance environmental journalist. Find her on Bluesky @catearly.bsky.social.