Business Human Rights Journal | 3 March 2025
Investment treaties: Protecting transition investments, but are they just?
by Rafaella Monesi & Stephanie Triefus
Introduction
The urgent demand for critical minerals has led to the expansion of mining operations, often accompanied by significant human rights and environmental abuses that cause social unrest and spark disputes between states and foreign investors. From 2010 to 2022, 630 allegations of human rights abuses associated with critical minerals operations were recorded. These allegations include widespread violations of environmental, land, and Indigenous Peoples’ rights, labour rights violations—including worker deaths—and attacks against human rights and environmental defenders. That is the case of Cobre Panamá, one of the biggest copper mines in the world, located in Panama.
In 1997, Panama granted a 20-year mining concession to Petaquilla Minerals S.A for the exploitation of copper in Cobre Panamá mine. In 2014, the mine was sold to Minera Panamá, a subsidiary of the Canadian company First Quantum Minerals, and the contract was extended for an extra 20 years in 2017. Later that year, the Supreme Court declared unconstitutional the law that established the contract, due to a lack of a public tender process. After negotiations between the Panamanian government and Minera Panamá, a new agreement was reached in 2023, which granted exclusive rights to explore, extract and exploit copper in the Cobre Panamá mine until December 2041, with a possibility of a 20-year extension. However, in October 2023 deadly protests in Panama against copper mining operations in the country erupted, and in November 2023, the Panamanian Supreme Court declared unconstitutional the Law No. 406 that approved the new concession agreement.
Amidst social pressure and protests, the government has also imposed an indefinite moratorium on new mining operations, and now, Panama is facing several arbitrations initiated by Canadian mining companies that alleged the state breached the Free Trade Agreement with Canada. This post critically considers claims that investment arbitration plays a positive role in the transition from fossil fuels to renewable energy by protecting investments in the renewable energy value chain and argues that these claims obscure the harms of investment arbitration that are only heightened in cases concerning the extraction of critical minerals.
Cobre Panamá: The real costs of copper
“They say that they’re going to give us a health centre and a school, but I don’t want that from them […] how much destruction and pollution is there going to be?” said the indigenous leader Martin Rodriguez in 2012.
Cobre Panamá is an open pit mine located in the heart of the Mesoamerican Biological Corridor, an important land bridge for species that use it as a migration passage. In 2022, the mine accounted for 5% of Panama’s GDP and employed more than 2% of the country’s workforce. It is also one of the largest copper mines in the world and copper is one of the more readily available metals necessary for the energy transition. The mineral is used in almost every energy transition technology including solar photovoltaics, wind turbines, batteries and hydrogen electrolysers.
However, even with its economic relevance to the country, local communities believe the mine is an environmental disaster for Panama since it competes with the Panama Canal for water resources, which have been strained due to a severe drought in 2023 exacerbated by the climate crisis and El Niño. Moreover, due to the country’s history with the United States’ control of the Panama Canal Zone, Panamanians believe that the presence of foreign companies and their subsidiaries threatens the country’s sovereignty.
Only in 2023, Cobre Panamá recorded eight allegations of human rights violations. Over the years, Minera Panamá has been accused of environmental harms, including water contamination, air pollution and loss of biodiversity, and impacts on labour rights, such as the right to freedom of association and collective bargaining. According to trade unions, the company has discriminated against unions’ leaders, leading to their ‘unfair dismissal’.
After weeks of protests and social unrest, Law No. 406 was declared unconstitutional due to the lack of a public tender process and transparency. In its ruling, the Supreme Court of Panama also emphasized the right to life as a fundamental right intrinsically linked to the right to a healthy environment, free from pollution and contamination. The Court argued that Law No. 406 violated this right, underscoring the State of Panama’s duty to ensure a healthy environment for its population, as mandated by Article 118 of the Constitution.
Yet, even after the Supreme Court decision and the closure of the mine, indigenous peoples and local residents have raised concerns about human rights abuses involving Minera Panamá’s operations and private security. According to indigenous leaders, private security guards have evicted people, burned houses and threatened inhabitants. Locals have also reported environmental impacts in the region, including “unexplained mass deaths of fish and prawns”.
As Panama celebrates, it is hit with multiple investment arbitration claims
Following the Supreme Court’s decision and the mine’s closure, First Quantum Minerals and Minera Panamá are taking the State of Panama to international arbitration. Other companies affected by the disputes are also initiating arbitration cases, claiming that Panama has breached the Free Trade Agreement (FTA) with Canada, that came into force in 2013, totalling five arbitration cases filed by Canadian companies and their subsidiaries.
The FTA includes an Investor-State Dispute Settlement (ISDS) clause allowing foreign investors to claim compensation for treaty violations by suing states through arbitration rather than using domestic legal remedies in the host state. ISDS cases are typically decided by a panel of three arbitrators, who are appointed and paid by the parties involved in the dispute, with no general requirement for specific qualifications, such as expertise in public international law or human rights.
ISDS cases are also private processes that generally lack transparency and are more exclusionary compared to domestic legal systems, which tend to be more accessible to a broader range of stakeholders. ISDS tribunals and parties to the dispute have the discretion to accept or reject third party interventions, and it remains challenging for the public to participate in proceedings, even when the conflict affects third party rights, such as local communities’ access to land and clean water. Most successful claims are brought by large multinational corporations, and compensation amounts are growing exponentially.
The threat of such large ISDS awards can lead to regulatory chill, discouraging regulators from properly implementing measures in the interest of local communities and the environment. The prospect of losing sovereignty and facing significant payouts has led some resource-rich countries, such as Brazil, South Africa, and Indonesia, to either opt out of or step back from treaties and contracts with ISDS provisions.
Investment treaties: Protecting transition investments, but are they just?
It has recently been widely established that investment treaties pose a threat to the transition away from fossil fuels, causing EU member states to leave the Energy Charter Treaty (ECT) in droves. In response, some have argued that the protections afforded to foreign investors by investment treaties such as the ECT and access to ISDS are in fact an important facilitator of the just transition as they provide certainty and stability for those who invest in sustainable technologies and the minerals on which they rely, such as copper. However, there is no evidence that the ECT has had a positive impact on foreign domestic investment flows towards renewable energy projects, and scholars have shown that ISDS is in fact a roadblock that hinders progress towards renewable energy goals. The constantly evolving nature of renewable energy science requires flexibility and responsiveness in state policies and measures, whereas the ISDS regime condemns these same characteristics. For Columbia Center on Sustainable Investment (CCSI), “even the threat or the risk of ISDS claims undermines governments’ use of the very tools that are effective at promoting investments in renewable energy”, meaning that the cost of these treaties outweighs their questionable benefits.
Further, the asymmetrical nature of ISDS means that foreign investors have no obligations under the system and their conduct is not scrutinized even where there are allegations of human rights abuses, like in the Cobre Panamá case. Those affected by extractive projects are mostly invisible to arbitration proceedings, and foreign investors have won cases even where their contribution to human rights violations is acknowledged.
The Panama case highlights the tensions between investment protection and the energy transition. In this context, extra caution is warranted regarding claims that ISDS could have a positive influence on a just transition to renewable energy. Not only has it been debunked that investment law facilitates investment in the transition from fossil fuels, but the inclusion of the word ‘just’ in ‘just transition’ means that there should be no place for a dispute resolution system that undermines justice.
