Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change

The submission contends that ISDS mechanisms allow foreign investors, particularly in the fossil fuel industry, to challenge climate policies and shift the financial risk of stranded assets onto taxpayers. It highlights a 'regulatory chill' effect where states may avoid implementing environmental rules to evade costly arbitration. The authors argue that the perceived benefits of investment treaties in attracting capital are unproven, while the costs—including massive compensation awards—are high. To resolve this, the document recommends that the OECD promote multilateral termination of treaties, the removal of protections for carbon-intensive investments, and the creation of 'climate carve-outs' to ensure that measures aligned with the Paris Agreement cannot be interpreted as treaty breaches.

• Investor-state dispute settlement (ISDS) mechanisms are being used by companies to shift the financial risk of stranded assets—which could reach USD 1.8 trillion in the power sector and up to USD 17 trillion in upstream oil and gas—onto taxpayers.
• There is a lack of evidence that international investment agreements (IIAs) or ISDS increase investment flows or provide benefits that outweigh their costs, including in the renewable energy sector where investment is primarily domestic.
• The broad interpretation of investment protection standards by arbitral tribunals creates a 'regulatory chill,' discouraging states from introducing or maintaining environmental regulations due to the threat of expensive litigation.
• The fossil fuel industry is the most litigious sector in the ISDS system, accounting for nearly 20% of all known cases, and uses these mechanisms to challenge climate-friendly policies.
• Systemic reform of the investment regime is obstructed by economic competition between states to attract investment, legal barriers such as 'sunset clauses' that extend treaty protections for 10 years or more after termination, and the complexity of modern treaty negotiations.
• The authors recommend several policy alternatives for the OECD, including a multilateral 'exit' agreement to terminate treaties, the exclusion of carbon-intensive investments from treaty protection, and the establishment of a 'climate carve-out' for measures linked to the UNFCCC.

APA

ClientEarth (2022). Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change. https://www.clientearth.org/media/1uxnavgs/investment-consultation-v3.pdf

Chicago

ClientEarth. Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change. 2022. https://www.clientearth.org/media/1uxnavgs/investment-consultation-v3.pdf.

Wikipedia

{{cite press release |author=ClientEarth |title=Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change |date=1 March 2022 |url=https://www.clientearth.org/media/1uxnavgs/investment-consultation-v3.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@misc{clientearth2022submission, author = {{ClientEarth}}, title = {{Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change}}, publisher = {ClientEarth}, year = {2022}, month = mar, url = {https://www.clientearth.org/media/1uxnavgs/investment-consultation-v3.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }