As leaders set global climate priorities in the COP30 in Bélem, the widening investment gap needed to meet climate goals underscores the urgency of accelerating and deepening reforms to the international investment architecture, which is built on thousands of bilateral and regional investment agreements (IIAs). To reach net zero emissions by 2050, annual clean energy investment worldwide needs to more than triple to $4trillion by 2030. Yet investment fell by 11% in 2024, marking the second straight year of decline, UNCTAD reports.

The international investment framework needs to be modernized to accelerate clean energy investments without hindering national climate measures. As countries try to phase out their reliance on fossil fuels, oil and gas firms might use these treaties to challenge certain policy changes. Examples include fossil fuel-related cases against Australia (Zeph v. Australia (III) and Zeph v. Australia (IV)) and Germany (AET v. Germany).

"Governments and the international investment community should intensify their efforts to reform investment treaties in support of the achievement of net zero and to minimize risks of expensive legal disputes," says Nan Li Collins, UNCTAD’s Director of Investment and Enterprise.

The current international investment framework was designed for a different era – one in which climate considerations played little to no role – and today it can constrain countries’ ability to advance effective climate action.

IIAs which govern the treatment of cross-border investment, form a sprawling regime of more than 2,600 treaties currently in force. Most of these agreements were negotiated over three decades ago, with minimal attention to environmental protection or the imperative to channel investment toward sustainable development. As a result, the regime often lags behind the needs of countries seeking to align investment policy with their climate commitments.

IIAs generally contain protection standards for investors and investments, and grant broad access to investor–State dispute settlement (ISDS) in the form of binding international arbitration available directly to investors. These treaties were often concluded with little or no attention to host States’ regulatory flexibility for environmental protection and climate action. Outdated agreements from the 1990s and 2000s continue to dominate the regime and are behind almost all publicly known ISDS cases with significant financial consequences, according to UNCTAD data.

Newer agreements 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 most recent IIAs continue to lack targeted provisions aimed at effectively supporting climate action. Only a handful of recent IIAs are beginning to distinguish between low-carbon and high-carbon investments or contain provisions aimed at effectively supporting climate action.

Fossil fuel, renewable energy and critical minerals cases – a risk for climate action policies

The current IIA regime can constrain States when implementing measures to combat climate change. The ISDS mechanism in IIAs was designed to protect foreign investors from “excessive” government action. But it is also limiting countries’ abilities to regulate, even when pursuing legitimate public policy objectives, such as climate action. And the financial consequences of ISDS disputes may be significant – in the past decade successful ISDS claimants were awarded about $230 million on average. At the same time, the average amount claimed rose to almost $1 billion.

ISDS cases based on IIAs can create tensions with climate action, the implementation of the sustainable energy transition and national critical minerals strategies, creating additional challenges and raising the cost for governments trying to fulfill their international obligations on climate.

In the period 1987–2024, investors have filed at least 249 treaty-based ISDS cases related to fossil fuel activities making the sector the most litigious within the ISDS system, and 129 cases concerning renewable energy investments (figure 1). At least 139 ISDS cases – about 10 per cent of all cases – related to different categories of critical minerals, including 51 cases relating to critical minerals required for the energy transition. For the year 2024, the share of new disputes arising from mining, oil, gas and coal extraction doubled.

The volume of past ISDS cases as well as several high-profile disputes related to fossil fuel activities, renewable energy and critical minerals investments illustrate the risks of potential future investor claims challenging fossil fuel phase-outs, changes to policy and legal frameworks for renewable energy and critical minerals.

Climate action calls for faster and comprehensive investment treaty reforms

“While IIA reform is underway in many countries, a lot remains to be done to move from a framework that limits the capacity of countries in implementing measures needed for climate action to one that effectively promotes sustainable investments” says Hamed El Kady, UNCTAD’s Chief of the International Investment Agreements Section. The narrow time window available to keep warming within 1.5°C, and the unprecedented aggregate scale of potential investor–State claims that may be associated with climate measures such as fossil fuels phase-outs, call for States to both deepen and accelerate reform processes.

Intergovernmental and multistakeholder dialogue can play a role in identifying and devising IIAs that promote and facilitate sustainable investments, in support of climate action. UNCTAD recommends three approaches to be considered in parallel:

• Making individual IIAs climate-responsive by, for example, excluding fossil-fuel investments from treaty protection and incorporating provisions that actively promote and facilitate sustainable and responsible energy investment, including technology transfer and diffusion on mutually agreed terms.
• Minimizing the risk of ISDS claims against climate action by safeguarding States’ right and duty to regulate for environmental protection by refining investment protection standards.
• Prioritizing the reform of the IIA regime by addressing outdated agreements through renegotiation, amendment, or termination, pursued via multilateral, regional, and bilateral initiatives.

In its IIA toolbox on sustainable energy and climate friendly investment, UNCTAD offers more specific policy options to align the IIA regime with climate action.

For further reading

United Nations (2025). Seizing the moment of opportunity: Supercharging the new energy era of renewables, efficiency, and electrification (New York).

UNFCCC (2025). Report on the Baku to Belém Roadmapto 1.3T.

UNCTAD (2025). Investment policies to advance national climate plans (United Nations, Geneva and New York).

UNCTAD (2025). Recent trends in investor–State arbitration cases. IIA Issues Note No. 2, September.

UNCTAD (2025). World Investment Report 2025: International investment in the digital economy (United Nations, Geneva and New York).

UNCTAD (2024). Trade and investment policies to advance national climate plans: Investment guide for policymakers ZERO DRAFT.

UNCTAD (2023). Trends in the Investment Treaty Regime and a Reform Toolbox for the Energy Transition. IIA Issues Note No. 2, August.

UNCTAD (2022). "The international investment treaty regime and climate action". IIA Issues Note No. 3, September.

The Sharm El Sheikh guidebook for just financing (2022). Chapter 2: An enabling an environment for climate investment.

Photo by Nathan Forbes on Unsplash