Urgency of climate action and the need for speed in investment treaty reform

05 Sep 2022

UNCTAD has released two publications analysing the interaction between international investment agreements (IIAs) and climate action. The IIA Issues Note No. 3 takes stock of IIA provisions relevant to climate action and presents policy options for climate-responsive IIA reform (download publication). A complementary publication, IIA Issues Note No. 4, looks at the many past investor–State dispute settlement (ISDS) cases related to measures or sectors of direct relevance to climate action (download publication).

The urgency of climate action has added attention to the need to reform the IIA regime. The current international investment regime can constrain States when implementing measures to combat climate change. The risk that ISDS be used to challenge climate policies is a major concern.

The IIA regime comprises about 3,300 treaties. Old-generation IIAs from the 1980s until the early 2010s were often concluded with little or no attention to host States’ regulatory flexibility for environmental protection and climate action. New-generation IIAs signed since 2010 fare relatively better in safeguarding the States’ right to regulate and in incorporating specific provisions on the protection of the environment, climate action and sustainable development. However, both old and recent IIAs lack pro-active provisions aimed at effectively supporting climate action.

IIAs generally cover investments across all sectors and typically offer high levels of protection. Existing IIAs have not distinguished between low-carbon and high-carbon investments. As old-generation IIAs significantly outnumber new-generation ones, it is critical to address the problems and risks posed by old-generation IIAs.

States have options and tools at their disposal to reform their existing IIAs, including based on UNCTAD’s IIA Reform Accelerator (2020), the IIA Reform Package (2018) and the Investment Policy Framework for Sustainable Development (2015). Considering the urgency of climate action, States may need to fast-track IIA reform to make it more aligned with climate action as well as other public policy imperatives. Two specific broad approaches can be considered:

  • Making individual IIAs climate-responsive by ensuring that only low-carbon and sustainable investments are covered and by safeguarding the right and duty of States to regulate in the public interest. This can be coupled with provisions aimed at promoting and facilitating sustainable investment.
  • Exploring the possibilities to reconceptualize the scope, purpose and design of the IIA regime through engagement in holistic IIA reform actions at the multilateral, regional, bilateral and national levels.

More immediate IIA reform steps are needed to alleviate ISDS risks. In the past, investor claimants have used IIAs as the legal basis to bring at least 175 ISDS cases related to environmental protection measures. Moreover, investors in the fossil fuel sector have been frequent ISDS claimants, initiating at least 192 ISDS cases against different types of State conduct. The last decade has also seen the emergence and proliferation of ISDS cases brought by investors in the renewable energy sector, with 80 known cases.

Download “The International Investment Treaty Regime and Climate action”

Download “Treaty-based Investor–State Dispute Settlement Cases and Climate Action”

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