Climate Change and International Investment Agreements: Obstacles or opportunities?

The paper examines the tension between international investment law and climate action, arguing that common investor protections can hinder environmental regulation. It suggests specific drafting changes to IIAs to preserve policy space and explores using the Kyoto Protocol's Clean Development Mechanism as a model for promoting green investment.

• International investment agreements (IIAs) can obstruct climate action because there is no doctrine of precedent in investor-State arbitration, leading to inconsistent interpretations of investor protections that may discourage host states from pursuing public welfare regulations.
• Common IIA protections such as national treatment and most favoured nation (MFN) treatment can be used to challenge climate measures if tribunals define 'like circumstances' based on market competition rather than public policy objectives.
• The 'fair and equitable treatment' standard is particularly risky for host states because it often protects the 'legitimate expectations' of investors, which some tribunals interpret as a right to be free from unforeseen regulatory changes without compensation.
• Measures to address climate change may be viewed as indirect expropriation if they result in 'substantial deprivation' of the investment's value, depending on whether the tribunal applies the 'sole effects doctrine' or considers the public purpose of the measure.
• Stabilization clauses in investment contracts, often found in high-carbon extractive and infrastructure sectors, can effectively override climate regulations by guaranteeing that laws will not change, often reaching the level of treaty obligations via 'umbrella clauses' in IIAs.
• The defence of necessity is difficult to invoke for climate mitigation because it requires proving the measure was the 'only way' to avoid peril, which is hard for individual states given that mitigation is a global requirement; however, it may be more successful for urgent adaptation measures.
• To protect policy space, future IIAs should include explicit carve-outs for public welfare, link protections to compliance with domestic environmental laws, and use a 'designed and applied to protect' standard for general exceptions rather than a 'necessity' test.
• The Kyoto Protocol's Clean Development Mechanism (CDM) could serve as a model for a 'new generation' of IIAs that specifically promote climate-friendly investment by linking investment protections and incentives to certified emission reduction criteria.

APA

Marshall, F., Cosbey, A., & Murphy, D. (2010). Climate Change and International Investment Agreements: Obstacles or opportunities? International Institute for Sustainable Development. https://www.iisd.org/system/files/publications/bali_2_copenhagen_iias.pdf

Chicago

Marshall, Fiona, Aaron Cosbey, and Deborah Murphy. Climate Change and International Investment Agreements: Obstacles or opportunities? International Institute for Sustainable Development, 2010. https://www.iisd.org/system/files/publications/bali_2_copenhagen_iias.pdf.

Wikipedia

{{cite report |last1=Marshall |first1=Fiona |last2=Cosbey |first2=Aaron |last3=Murphy |first3=Deborah |title=Climate Change and International Investment Agreements: Obstacles or opportunities? |publisher=International Institute for Sustainable Development |date=March 2010 |url=https://www.iisd.org/system/files/publications/bali_2_copenhagen_iias.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{marshall2010climate, author = {Marshall, Fiona and Cosbey, Aaron and Murphy, Deborah}, title = {{Climate Change and International Investment Agreements: Obstacles or opportunities?}}, institution = {International Institute for Sustainable Development}, year = {2010}, month = mar, url = {https://www.iisd.org/system/files/publications/bali_2_copenhagen_iias.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }