Ditch or Fix? The Role of International Investment Agreements in Reconciling ISDS With the Climate Emergency (2nd Essay Competition Prize Winners 2024)

This essay explores the complex relationship between investor-state dispute settlement (ISDS) mechanisms and climate change regulations. As climate change accelerates, states are increasingly implementing measures to transition to a low-carbon economy, often conflicting with commitments made to foreign investors under international investment agreements (IIAs). This has led to controversial arbitral awards against states, raising questions about the legitimacy and suitability of the ISDS system in addressing climate-related disputes. The authors argue for reforming rather than abandoning ISDS, suggesting that IIAs can be leveraged to promote environmental protection and pro-climate policies. They discuss the potential of new-generation treaties to balance investment protection with states’ right to regulate for climate goals. The essay also examines the European Union’s (EUs) efforts to integrate climate objectives into its investment policies, including its withdrawal from the Energy Charter Treaty (ECT) due to its incompatibility with EU climate goals.