POTENTIAL SOLUTIONS FOR PHASE 3: ALIGNING THE OBJECTIVES OF UNCITRAL WORKING GROUP III WITH STATES’ INTERNATIONAL OBLIGATIONS TO COMBAT CLIMATE CHANGE

The document argues that ISDS creates a 'regulatory chill' that discourages states from implementing climate policies due to the risk of expensive arbitration and compensation for 'stranded assets' in the fossil fuel sector. It suggests two main paths for reform: either terminating investment treaties and moving toward domestic courts and state-state dispute settlement, or adopting a 'legal tool-box' of procedural changes. These changes include a 'climate carve-out' to dismiss claims against good-faith climate measures, requiring the exhaustion of local remedies, allowing state counterclaims, banning third-party funding, and adjusting compensation calculations to account for public interest and climate impacts.

• Investor-state dispute settlement (ISDS) poses a significant threat to climate action by creating a 'regulatory chill' where governments may be discouraged from introducing or may dilute environmental regulations to avoid costly legal action from foreign investors.
• The energy transition risks creating 'stranded assets'—estimated at USD 1-4 trillion in the energy sector before 2050—which firms may attempt to shift onto states using investment treaty protections to claim 'lost future profits'.
• Developing countries are disproportionately affected by ISDS, as they have fewer resources to fight expensive cases and are more vulnerable to climate impacts that may trigger disputes, such as requirements for investors to relocate facilities due to sea-level rise.
• ClientEarth proposes a 'climate carve-out' mechanism that would require the dismissal of any ISDS claim challenging a good-faith climate mitigation or adaptation measure, as determined by an independent panel of experts.
• To rebalance the system, the briefing recommends requiring investors to exhaust local remedies in domestic courts before initiating ISDS and allowing states to bring counterclaims regarding investors' environmental impacts.
• The document suggests banning third-party funding to reduce the incentive for speculative investors to encourage suits against governments, particularly in the fossil fuel sector where payouts can be large.
• Compensation for expropriated assets should be reformed to move away from 'fair market value' and instead consider the public interest in climate measures and the investor's own role in delaying climate action.

APA

ClientEarth (n.d.). POTENTIAL SOLUTIONS FOR PHASE 3: ALIGNING THE OBJECTIVES OF UNCITRAL WORKING GROUP III WITH STATES’ INTERNATIONAL OBLIGATIONS TO COMBAT CLIMATE CHANGE. https://www.clientearth.org/media/h15fylit/july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf

Chicago

ClientEarth. POTENTIAL SOLUTIONS FOR PHASE 3: ALIGNING THE OBJECTIVES OF UNCITRAL WORKING GROUP III WITH STATES’ INTERNATIONAL OBLIGATIONS TO COMBAT CLIMATE CHANGE. n.d. https://www.clientearth.org/media/h15fylit/july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf.

Wikipedia

{{cite report |author=ClientEarth |title=POTENTIAL SOLUTIONS FOR PHASE 3: ALIGNING THE OBJECTIVES OF UNCITRAL WORKING GROUP III WITH STATES’ INTERNATIONAL OBLIGATIONS TO COMBAT CLIMATE CHANGE |url=https://www.clientearth.org/media/h15fylit/july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clientearthndpotential, author = {{ClientEarth}}, title = {{POTENTIAL SOLUTIONS FOR PHASE 3: ALIGNING THE OBJECTIVES OF UNCITRAL WORKING GROUP III WITH STATES’ INTERNATIONAL OBLIGATIONS TO COMBAT CLIMATE CHANGE}}, institution = {ClientEarth}, url = {https://www.clientearth.org/media/h15fylit/july-clientearth-uncitral-aligning-phase-3-with-ciimate-change-efforts2.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }