Abstract

The climate crisis brings into focus the urgent need for a transformation of international investment law, as its current framework is not aligned with global climate objectives. The existing regime, shaped by old-generation International Investment Agreements (IIAs), often lacks environmental considerations, perpetuates investments in fossil fuels, and inadvertently hinders progress on climate action. On the other hand, as the global community transitions to renewable energy, substantial foreign direct investment (FDI) is essential to support this shift. Consequently, developing a climate-responsive investment framework where IIAs contribute positively to the objectives of the Paris Agreement is a necessity for achieving sustainable development.

This paper critically examines how climate concerns can be better integrated within the current IIA framework and investor-state dispute settlement (ISDS) mechanisms. It assesses the limitations of the existing regime and suggests revised provisions to optimize the potential of IIAs in supporting global climate objectives. Through an analysis of arbitral decisions, the paper highlights the pivotal role of tribunals in interpreting climate-sensitive provisions and recognizing States' broader obligations, particularly concerning human rights. Despite recognizing the systemic flaws in the ISDS mechanism, the paper argues for its increasing relevance in the energy transition context. The discussion, once focused on disputes involving fossil fuel investors, now includes cases brought by green energy investors against States for failing to implement or maintain climate-related initiatives. Ultimately, the paper outlines the necessary steps for a comprehensive overhaul of IIAs, advocating their inclusion as essential tools within the broader climate policy framework.

This paper will be part of the fourth TDM Special Issue on "International Investment Arbitration - Environmental Protection and Climate Change Issues". More information here www.transnational-dispute-management.com/news.asp?key=1893