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

The document asserts that ISDS mechanisms act as a major barrier to environmental and climate policies by allowing foreign investors to challenge state regulations. It highlights a lack of transparency, the phenomenon of 'regulatory chill' where states avoid policy for fear of arbitration, and the failure of 'modernized' treaties to limit risks. The authors argue that investment treaties do not significantly increase foreign direct investment but do impose high costs on states, particularly in the Global South. They recommend that states terminate old treaties, carve out climate measures from ISDS scope, and shift dispute resolution to domestic judicial systems.

• ISDS claims are widespread 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 tied to environmental measures.
• The threat of ISDS arbitration creates a 'regulatory chill' that discourages states from implementing climate policies. For example, Denmark and New Zealand have acknowledged that the threat of such lawsuits hindered their climate policy ambitions.
• Efforts to 'modernize' investment treaties by adding policy exceptions have been largely ineffective because arbitral tribunals continue to rely on jurisprudence from older treaties. This was evidenced in the Eco Oro v. Colombia decision, where a tribunal ignored an environmental exception in the Colombia-Canada FTA.
• Terminating investment treaties 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, and since 2017, terminations have outnumbered new treaties entering into force.
• There is no conclusive evidence that investment treaties significantly increase foreign direct investment (FDI) flows, yet they create disproportionate negative impacts on human rights and the environment by effectively 'paying polluters' through compensation for environmental regulations.
• ISDS mechanisms exacerbate inequalities between the Global North and Global South, as the financial risks of cancelling fossil fuel projects to reach net-zero by 2040 fall primarily on low- and middle-income countries, potentially draining public funds needed for climate adaptation.

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} }