Investor-State Dispute Settlement (ISDS) Mechanisms and the Right to a Clean, Healthy, and Sustainable Environment

This joint submission by IISD, CIEL, and ClientEarth to the UN Special Rapporteur on Human Rights and the Environment argues that Investor-State Dispute Settlement (ISDS) mechanisms act as a major obstacle to climate and environmental action. The document details how ISDS is used by investors to challenge environmental regulations, creates a 'regulatory chill' that disincentivizes states from enacting green policies, and often ignores human rights and environmental obligations in favor of investment protections.

• ISDS claims are frequent and often target environmental protections, including the phase-out of coal-fired power plants, restrictions on oil and gas activities, and the termination of mining concessions due to environmental concerns. There are at least 175 treaty-based ISDS cases, whether closed or pending, linked to environmental measures.
• The ISDS process is characterized by a lack of transparency and public accessibility. It is typically private and bypasses domestic courts, leaving victims of environmental harm with only domestic recourse. Efforts by indigenous peoples and local communities to provide information via amicus briefs are often restricted by arbitrator discretion and rarely considered by tribunals.
• The threat of ISDS arbitration creates a 'regulatory chill,' where states avoid enacting climate or environmental policies to prevent costly lawsuits. Denmark and New Zealand have specifically admitted that the threat of such lawsuits hindered their climate policy ambitions.
• Attempts to 'modernize' investment treaties by adding policy exceptions have been largely ineffective because arbitral tribunals continue to rely on jurisprudence from older treaties. For example, in the Eco Oro v. Colombia case, the tribunal ignored an environmental exception in the Colombia-Canada FTA.
• Treaty termination is identified as the most effective way for states to reduce ISDS exposure. In the last five years, states have terminated at least 250 investment treaties. Notable examples include the withdrawal of South Africa and Ecuador from the ICSID Convention and eight EU member states announcing withdrawal from the Energy Charter Treaty (ECT).
• There is inconclusive evidence that investment treaties actually increase foreign direct investment (FDI), yet they impose significant costs on human rights and the environment. The system can effectively 'pay polluters' by compensating companies for the implementation of environmental regulations, reversing the 'polluter pays' principle.
• ISDS mechanisms disproportionately burden low- and middle-income countries, particularly those producing fossil fuels. The financial and legal risks associated with canceling projects to meet net-zero targets by 2040 could divert essential public funds away from climate mitigation and adaptation in these vulnerable regions.

APA

IISD,CIEL,ClientEarth, (2023). Investor-State Dispute Settlement (ISDS) Mechanisms and the Right to a Clean, Healthy, and Sustainable Environment. International Institute for Sustainable Development. https://www.iisd.org/publications/brief/iisd-ciel-clientearth-isds-sustainable-enivronment-submission-2023

Chicago

IISD,CIEL,ClientEarth,. Investor-State Dispute Settlement (ISDS) Mechanisms and the Right to a Clean, Healthy, and Sustainable Environment. International Institute for Sustainable Development, 2023. https://www.iisd.org/publications/brief/iisd-ciel-clientearth-isds-sustainable-enivronment-submission-2023.

Wikipedia

{{cite press release |last1=IISD,CIEL,ClientEarth, |title=Investor-State Dispute Settlement (ISDS) Mechanisms and the Right to a Clean, Healthy, and Sustainable Environment |publisher=International Institute for Sustainable Development |date=16 June 2023 |url=https://www.iisd.org/publications/brief/iisd-ciel-clientearth-isds-sustainable-enivronment-submission-2023 |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@misc{iisdcielclientearth2023investorstate, author = {IISD,CIEL,ClientEarth,}, title = {{Investor-State Dispute Settlement (ISDS) Mechanisms and the Right to a Clean, Healthy, and Sustainable Environment}}, publisher = {International Institute for Sustainable Development}, year = {2023}, month = jun, url = {https://www.iisd.org/publications/brief/iisd-ciel-clientearth-isds-sustainable-enivronment-submission-2023}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }