Overcoming International Investment Agreements as a Barrier to Climate Action

The document argues that international investment agreements (IIAs) and the ISDS mechanism act as legal barriers to climate action by allowing fossil fuel companies to sue governments for compensation when regulations impact their returns. It outlines a three-part framework for States: removing risk through treaty termination, carveouts, or removal of ISDS clauses; reducing risk via the adoption of 'right to regulate' provisions, interpretative statements, and the careful design of climate measures; and responding to active claims using jurisdictional challenges, the 'necessity defense', and arguments against the 'legitimate expectations' of investors. The toolkit emphasizes that the urgent need to limit warming to 1.5°C may justify the termination of treaties like the Energy Charter Treaty (ECT) based on a fundamental change of circumstances.

• States can eliminate ISDS risks by terminating or withdrawing from investment treaties, a practice that is becoming more common; for instance, in 2022, 84 treaties were terminated compared to 15 new IIAs concluded.
• The Energy Charter Treaty (ECT) is specifically highlighted as being inconsistent with climate goals, leading several EU Member States to announce their intention to withdraw.
• A 'fundamental change of circumstances' under Article 62 of the Vienna Convention on the Law of Treaties (VCLT) could be a legal basis for terminating IIAs, as the current scientific understanding of the incompatibility of fossil fuels with a safe climate was not foreseen when many treaties were signed.
• Treaty carveouts can be used to exclude specific sectors, such as fossil fuels, or specific purpose-based measures, such as greenhouse gas regulations, from the scope of an agreement, thereby preventing ISDS tribunals from having jurisdiction.
• To mitigate risk without full termination, States can use interpretative statements to clarify that non-discriminatory climate measures do not constitute indirect expropriation.
• States can challenge the 'legitimate expectations' of fossil fuel investors by arguing that the need for climate-related regulatory changes was foreseeable and known to the industry for decades.
• When calculating compensation, States should argue against 'business-as-usual' projections and instead deduct the externalized costs of environmental and health impacts caused by fossil fuels.
• The 'necessity defense' under international customary law can be invoked by arguing that the climate crisis constitutes a 'grave and imminent peril' to an essential State interest, such as the right to life and a healthy environment.
• Non-disputing State Parties (NDSPs) and non-State actors (such as civil society) can intervene in ISDS proceedings to provide specialized knowledge and influence the interpretation of treaties to favor public interest over investor profit.

APA

de Anzizu, H., & Reisch, N. (2024). Overcoming International Investment Agreements as a Barrier to Climate Action. Center for International Environmental Law. https://www.ciel.org/wp-content/uploads/2024/02/Overcoming-International-Investment-Agreements-as-a-Barrier-to-Climate-Action.pdf

Chicago

de Anzizu, Helionor, and Nikki Reisch. Overcoming International Investment Agreements as a Barrier to Climate Action. Center for International Environmental Law, 2024. https://www.ciel.org/wp-content/uploads/2024/02/Overcoming-International-Investment-Agreements-as-a-Barrier-to-Climate-Action.pdf.

Wikipedia

{{cite report |last1=de Anzizu |first1=Helionor |last2=Reisch |first2=Nikki |title=Overcoming International Investment Agreements as a Barrier to Climate Action |publisher=Center for International Environmental Law |date=January 2024 |url=https://www.ciel.org/wp-content/uploads/2024/02/Overcoming-International-Investment-Agreements-as-a-Barrier-to-Climate-Action.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{deanzizu2024overcoming, author = {de Anzizu, Helionor and Reisch, Nikki}, title = {{Overcoming International Investment Agreements as a Barrier to Climate Action}}, institution = {Center for International Environmental Law}, year = {2024}, month = jan, url = {https://www.ciel.org/wp-content/uploads/2024/02/Overcoming-International-Investment-Agreements-as-a-Barrier-to-Climate-Action.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }