Towards a more diligent and sustainable system of investment protection

The document evaluates the EU's proposed Multilateral Investment Court (MIC) as a replacement for ad hoc investor-state dispute settlement (ISDS) mechanisms. ClientEarth argues that the MIC provides only cosmetic procedural improvements and fails to address systemic imbalances, such as the lack of investor obligations and the marginalization of domestic courts. The briefing provides six key recommendations for reform, including the requirement to exhaust local remedies, the inclusion of 'clean hands' and 'supremacy' clauses to protect public interest legislation, and the limitation of compensation to proven economic damages. Alternatively, the document suggests that states should withdraw consent from ISDS and terminate international investment agreements (IIAs) in favor of domestic judiciaries, political risk insurance, and state-to-state dispute settlement.

• The proposed Multilateral Investment Court (MIC) is viewed by ClientEarth as insufficient because it focuses on procedural issues like consistency and cost without addressing systemic flaws such as 'regulatory chill', the lack of investor obligations, and the 'asymmetry of the system'.
• ClientEarth recommends that any viable ISDS reform must require the 'exhaustion of local remedies' (ELR), meaning investors must seek redress in domestic courts before initiating international proceedings, aligning investment law with customary international law and human rights law.
• To prevent the system from protecting irresponsible investments, the briefing proposes a 'clean hands clause' to dismiss claims from investors who violate host state laws, a 'public interest carve-out' to protect health and environmental legislation from challenge, and a 'supremacy clause' ensuring international human rights and environmental agreements prevail over investment treaties.
• The current ISDS system is described as a 'historical accident' that creates a 'regulatory chill', where states are deterred from enacting public interest laws—such as tobacco control or nuclear phase-outs—due to the risk of expensive litigation by transnational corporations.
• The briefing argues for a more inclusive dispute settlement process that allows not only investors to bring claims, but also states to make counterclaims and affected third parties to have full standing, rather than limited 'amicus curiae' status.
• ClientEarth recommends that compensation for treaty breaches be limited to 'proven economic damages' and specifically exclude 'expected profits' to avoid placing an undue burden on state public finances.
• As a more viable alternative to the MIC, the document suggests that states should unilaterally or multilaterally withdraw consent from ISDS and terminate existing international investment agreements (IIAs).

APA

ClientEarth (2019). Towards a more diligent and sustainable system of investment protection. https://www.clientearth.org/media/aeykzgen/towards-a-more-diligent-and-sustainable-system-of-investment-protection-ce-en.pdf

Chicago

ClientEarth. Towards a more diligent and sustainable system of investment protection. 2019. https://www.clientearth.org/media/aeykzgen/towards-a-more-diligent-and-sustainable-system-of-investment-protection-ce-en.pdf.

Wikipedia

{{cite report |author=ClientEarth |title=Towards a more diligent and sustainable system of investment protection |date=22 March 2019 |url=https://www.clientearth.org/media/aeykzgen/towards-a-more-diligent-and-sustainable-system-of-investment-protection-ce-en.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{clientearth2019towards, author = {{ClientEarth}}, title = {{Towards a more diligent and sustainable system of investment protection}}, institution = {ClientEarth}, year = {2019}, month = mar, url = {https://www.clientearth.org/media/aeykzgen/towards-a-more-diligent-and-sustainable-system-of-investment-protection-ce-en.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }