International Investment Law and ISDS: Overcoming Legal Barriers to Effective Climate Action under the UNFCCC and the Paris Agreement

The document examines how ISDS allows foreign investors, particularly in the fossil fuel industry, to sue governments over climate regulations, leading to a 'chilling effect' where states delay or weaken policies to avoid costly awards. It argues that these protections act as a subsidy for GHG-intensive industries, contradicting Article 2.1(c) of the Paris Agreement. The brief concludes that fragmented procedural reforms are insufficient and advocates for a unified global approach, including the use of COP29 and Nationally Determined Contributions (NDCs) to coordinate ISDS withdrawals or carve-outs.

• Investor-State Dispute Settlement (ISDS) mechanisms act as a significant barrier to climate action by allowing foreign investors to sue governments over regulations that negatively impact their investments. This creates a 'chilling effect' where states delay or weaken climate policies to avoid high litigation costs and arbitration awards, which averaged $256 million between 2014 and 2023.
• The fossil fuel industry is the most frequent user of ISDS, with at least 231 known treaty-based claims. This system disproportionately impacts the Global South, as investors from the Global North typically bring claims against these states, reinforcing economic colonialism and extractivism.
• Investment treaty protections function as a subsidy for fossil fuel industries by offering risk coverage and compensation for losses without cost to the investor. This misalignment conflicts with Article 2.1(c) of the Paris Agreement, which requires the alignment of financial flows with low-greenhouse gas (GHG) pathways.
• Current reforms to ISDS and the Energy Charter Treaty (ECT) are fragmented and insufficient because they focus on procedural issues rather than the structural protection of GHG-intensive investments. While the EU and UK are withdrawing from the ECT by early 2025, the document argues that a coordinated global response is necessary rather than addressing treaties individually.

APA

De Anzizu, H. (2024). International Investment Law and ISDS: Overcoming Legal Barriers to Effective Climate Action under the UNFCCC and the Paris Agreement. Center for International Environmental Law. https://www.ciel.org/wp-content/uploads/2024/11/isds_climate_action_unfccc_paris_agreement_brief.pdf

Chicago

De Anzizu, Hélionor. International Investment Law and ISDS: Overcoming Legal Barriers to Effective Climate Action under the UNFCCC and the Paris Agreement. Center for International Environmental Law, 2024. https://www.ciel.org/wp-content/uploads/2024/11/isds_climate_action_unfccc_paris_agreement_brief.pdf.

Wikipedia

{{cite report |last1=De Anzizu |first1=Hélionor |title=International Investment Law and ISDS: Overcoming Legal Barriers to Effective Climate Action under the UNFCCC and the Paris Agreement |publisher=Center for International Environmental Law |date=November 2024 |url=https://www.ciel.org/wp-content/uploads/2024/11/isds_climate_action_unfccc_paris_agreement_brief.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{deanzizu2024international, author = {De Anzizu, Hélionor}, title = {{International Investment Law and ISDS: Overcoming Legal Barriers to Effective Climate Action under the UNFCCC and the Paris Agreement}}, institution = {Center for International Environmental Law}, year = {2024}, month = nov, url = {https://www.ciel.org/wp-content/uploads/2024/11/isds_climate_action_unfccc_paris_agreement_brief.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }