Reforming Investment Contracts

The document highlights a critical gap in investment governance: while international investment treaties have undergone significant reform, investor-state contracts remain largely marginalized and outdated. These contracts often contain stabilization clauses and tax incentives that restrict a state's regulatory space and can neutralize treaty-level safeguards. The brief also notes a rise in contract-based investor-state dispute settlement (ISDS), which is often more opaque than treaty-based arbitration. To address these risks, the authors recommend strengthening national institutional coordination, centralizing and assessing existing contracts, and developing national model contracts. Globally, they advocate for integrating contract reform into broader investment governance discussions and developing regional guidance to reduce negotiation asymmetries.

• Investment contracts can neutralize reforms made to international investment treaties because contractual commitments may bind a state to more restrictive obligations at the project level, effectively overriding modern safeguards introduced in treaties.
• Stabilization clauses in investment contracts pose systemic risks by shielding investors from legal or regulatory changes, which can discourage necessary reforms in human rights, environmental protection, and taxation, and may delay climate transitions.
• Tax incentives embedded in investment contracts often bypass national fiscal policy frameworks and parliamentary oversight, leading to revenue losses and a fragmented tax system where investors receive different advantages based on the negotiating agency.
• There is a growing trend of investors using contracts as the basis for international arbitration; in 2025, 21% of ICSID cases invoked contracts for consent to arbitration, compared to 6% the previous year.
• Contract-based investor-state dispute settlement (ISDS) is often more opaque than treaty-based ISDS because it is rarely subject to transparency requirements like the Mauritius Convention (2014).
• National governments can improve contract governance through three primary actions: establishing interministerial coordination mechanisms, centralizing and reviewing the existing stock of contracts, and creating national model contracts and clauses.

APA

Lago, J. D. R., Sarmiento, F., & Nikièma, S. H. (2026). Reforming Investment Contracts. International Institute for Sustainable Development. https://www.iisd.org/system/files/2026-03/reforming-investment-contracts.pdf

Chicago

Lago, Josefina del Rosario, Florencia Sarmiento, and Suzy H. Nikièma. Reforming Investment Contracts. International Institute for Sustainable Development, 2026. https://www.iisd.org/system/files/2026-03/reforming-investment-contracts.pdf.

Wikipedia

{{cite report |last1=Lago |first1=Josefina del Rosario |last2=Sarmiento |first2=Florencia |last3=Nikièma |first3=Suzy H. |title=Reforming Investment Contracts |publisher=International Institute for Sustainable Development |date=March 2026 |url=https://www.iisd.org/system/files/2026-03/reforming-investment-contracts.pdf |access-date=23 October 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{lago2026reforming, author = {Lago, Josefina del Rosario and Sarmiento, Florencia and Nikièma, Suzy H.}, title = {{Reforming Investment Contracts}}, institution = {International Institute for Sustainable Development}, year = {2026}, month = mar, url = {https://www.iisd.org/system/files/2026-03/reforming-investment-contracts.pdf}, urldate = {2026-10-23}, note = {Indexed by Climate Insights Directory} }