AFTINET | 10 July 2023

Report to the UN shows the threat of ISDS provisions to human rights and the environment

In response to a call from the UN, legal experts from the Centre for International Environmental Law, International Institute for Sustainable Development and ClientEarth have released a submission outlining the dangers of Investor-State Dispute Settlement (ISDS) on the right to a clean, healthy and sustainable environment.

The report finds that ISDS has a negligible positive impact on foreign investment but is responsible for disproportionate negative impacts on human rights and the environment. Indiscriminate investment protection gives equal protection and compensation to both activities that damage and those that protect the environment, undermining the polluter pays principle.

Moreover, the threat of ISDS claims disincentivises countries from adopting regulation to protect the environment. This, alongside ISDS tribunals’ focus on investor protections sidelines countries’ obligations to protect human rights and the environment, weakening implementation of international requirements.

The constraints ISDS has on environmental regulation are particularly clear in countries attempting to transition to low carbon economies, exacerbating inequalities between the Global North and South.

The report outlines four themes in the experiences of countries and public in challenging ISDS claims which undermine access to the right to a clean, healthy and sustainable environment.

1. ISDS claims are numerous, often opaque, and largely inaccessible to the public. The use of ISDS enabled investors to bypass domestic courts, which meant the cases could remain, for the most part, private and shut out local communities from participating. Local communities were often denied admission to the case, when their evidence was allowed, environment and human rights considerations were restricted or given inadequate weighting. Moreover, their evidence did not have to be considered by the tribunal, and so for the most part, was not.
2. ISDS is a powerful investor lobbying tool to prevent and delay government regulation. The threat of ISDS claims alone are often enough to prevent the government from enacting or maintaining policy measures. Compensation claims for lost future profits can be billions of dollars and cost millions in legal fees to defend. Indeed, both Denmark and New Zealand have stated that the threat of ISDS has hindered their climate policy ambitions.
3. Countries are resorting to termination of treaties with ISDS provisions and excluding such provisions from broader trade agreements as other efforts to protect against future claims have mixed success. Governments have attempted to limit the ways ISDS claims can be brought against them by reforming ISDS provisions. However, this has had mixed results, as ISDS tribunals are not obligated to refer to the reformed provisions. For example, in the Eco Oro v. Colombia decision the tribunal disregarded an environmental exception in the Colombia-Canada FTA with far-reaching impacts for the 116 treaties with similar exceptions. The termination of investment treaties with ISDS provisions has proved the most effective way to protect against future claims. Already eight EU countries have announced their withdrawal from the Energy Charter Treaty amid concerns over ISDS, and the EU parliament and Commission have recommended that all EU countries withdraw from it .
4. There are numerous obstacles to ISDS reform. While countries are engaged in initiatives at various levels to reform international investment policy, it remains low on the political agenda for several reasons, including the lack of a coordinated approach, the complex structure of investment rules and the complexity of negotiations, especially for low-income countries.

You can read the full submission here.