Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change

The submission argues that current international investment agreements and the ISDS system create a 'regulatory chill' that discourages states from implementing urgent climate policies. It highlights the risk of fossil fuel companies using ISDS to secure massive payouts for 'stranded assets' and recommends that the OECD support multilateral termination of old treaties, the removal of protections for carbon-intensive investments, and the creation of climate-related carve-outs.

• International investment agreements (IIAs) and investor-state dispute settlement (ISDS) mechanisms are being used by the fossil fuel industry to challenge emissions-reduction policies and shift the financial risk of 'stranded assets' onto taxpayers. The value of stranded assets in the power sector could reach USD 1.8 trillion, while upstream oil and gas assets are estimated between USD 3 trillion and USD 17 trillion.
• There is a lack of evidence that IIAs or the Energy Charter Treaty (ECT) actually increase foreign direct investment in renewable energy. In contrast, data from 2013 to 2018 shows that an average of 75% of global renewable energy investment was domestic rather than foreign.
• The ISDS system creates a 'regulatory chill' where the threat of expensive arbitration encourages states to dilute or revoke environmental regulations. Arbitral tribunals often prioritize foreign investment protection over international environmental obligations and may award compensation based on hypothetical future losses, resulting in payouts of hundreds of millions or billions of euros.
• Systemic reform of the investment regime is hindered by several barriers: the prevalence of 'old-generation' treaties with broad 'fair and equitable treatment' (FET) clauses, 'sunset clauses' that protect investments for 10+ years after treaty termination, and intense economic competition between developing countries to attract investment via low regulation.
• The document recommends that the OECD explore specific alternatives to the current regime, including a multilateral 'exit' agreement to terminate IIAs and invalidate sunset clauses, a multilateral instrument to withdraw consent to ISDS, and the explicit exclusion of carbon-intensive investments (extraction, transport, and refining of coal, oil, and gas) from treaty protections.
• To protect the regulatory space for climate action, the authors propose a 'climate carve-out' for ISDS, which would prevent the use of arbitration to challenge measures linked to the UNFCCC, such as the removal of fossil fuel subsidies or the revocation of exploration permits.

APA

International Institute for Sustainable Development (2022). Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change. https://www.iisd.org/system/files/2022-03/investment-consultation-V3.pdf

Chicago

International Institute for Sustainable Development. Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change. 2022. https://www.iisd.org/system/files/2022-03/investment-consultation-V3.pdf.

Wikipedia

{{cite report |author=International Institute for Sustainable Development |title=Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change |date=1 March 2022 |url=https://www.iisd.org/system/files/2022-03/investment-consultation-V3.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{internationalinstituteforsustainabledevelopment2022submission, author = {{International Institute for Sustainable Development}}, title = {{Submission to the Organisation for Economic Co-operation and Development on Investment Agreements and Climate Change}}, institution = {International Institute for Sustainable Development}, year = {2022}, month = mar, url = {https://www.iisd.org/system/files/2022-03/investment-consultation-V3.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }