Compensation and Damages in Investor-State Dispute Settlement

The report identifies several areas for reform in ISDS compensation, including the definition of compensable loss, the treatment of future profits, and the use of valuation techniques. It suggests that states can limit tribunal discretion by specifying protected interests, capping compensation at the amount invested, or excluding speculative income-based valuation methods like discounted cash flow (DCF). Additionally, it proposes incorporating balancing factors—such as the public interest or the respondent state's GDP—and reforming evidentiary processes to reduce bias from party-appointed experts. The report concludes that these reforms can be implemented through national model treaties, bilateral agreements, or multilateral forums like UNCITRAL Working Group III.

• To prevent excessive damages, policy-makers can more clearly define compensable loss by specifying which values or interests are protected under different standards, or by capping compensation at the amount invested.
• The report suggests limiting the compensation of future lost profits by requiring that they be 'legally consolidated' (based on a legal right rather than commercial expectation) or by tethering the rate of return to a reasonable metric or index.
• States can introduce balancing and equitable factors into damages assessments, such as weighing the public interest against the investor's interest, or limiting awards to the lesser of the investor's loss or the host state's gain.
• To avoid the 'crippling impact' of large awards and high national debt, the report proposes using a respondent state's GDP as an external reference point to cap damages.
• The report recommends reforming valuation techniques by excluding or limiting income-based methods like discounted cash flow (DCF), which are criticized for relying on 'inherently speculative elements'.
• To reduce the financial burden on states, the report suggests specifying that interest should be simple rather than compound and establishing that interest for non-expropriatory breaches begins only from the date of the award.
• To mitigate bias and 'expert shopping' during the quantum phase, the report proposes relying on tribunal-appointed experts, requiring joint reports from party-appointed experts, or using 'hot tubbing' (joint examination of testimony).
• The report notes a 'cognitive anchoring effect' where tribunals tend to award approximately 40% of the original claim; it suggests disincentivizing excessive claims by decreasing the final award if it is lower than 50% of the amount claimed.

APA

Atanasova, D., Beyer, V., & Ostransky, J. (2024). Compensation and Damages in Investor-State Dispute Settlement. International Institute for Sustainable Development. https://www.iisd.org/system/files/2024-09/compensation-damages-isds-reform.pdf

Chicago

Atanasova, Dafina, Vincent Beyer, and Josef Ostransky. Compensation and Damages in Investor-State Dispute Settlement. International Institute for Sustainable Development, 2024. https://www.iisd.org/system/files/2024-09/compensation-damages-isds-reform.pdf.

Wikipedia

{{cite report |last1=Atanasova |first1=Dafina |last2=Beyer |first2=Vincent |last3=Ostransky |first3=Josef |title=Compensation and Damages in Investor-State Dispute Settlement |publisher=International Institute for Sustainable Development |date=September 2024 |url=https://www.iisd.org/system/files/2024-09/compensation-damages-isds-reform.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{atanasova2024compensation, author = {Atanasova, Dafina and Beyer, Vincent and Ostransky, Josef}, title = {{Compensation and Damages in Investor-State Dispute Settlement}}, institution = {International Institute for Sustainable Development}, year = {2024}, month = sep, url = {https://www.iisd.org/system/files/2024-09/compensation-damages-isds-reform.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }