ClientEarth Says ISDS threatens climate action

August 13, 2019: In a submission to the UNCITRAL review of investor-state dispute settlement (ISDS), ClientEarth, an environmental law organisation, has detailed the threat that ISDS poses to action on climate change.

The submission refers to the 2018 Intergovernmental Panel on Climate Change report that stated that to address the climate crisis we must reduce global greenhouse gasses by 45% by 2030 and reach net zero emissions by 2050. ClientEarth argues that to achieve this, we must completely transform our energy systems.

However, they also estimate that there are USD1-4 trillion worth of assets in the energy sector that would be impacted by the reform of the energy sector. This risk should be borne by the companies that invest in fossil fuels. However, the submission argues that the inclusion of ISDS provisions in trade and investment agreement that enable corporations to sue governments for policy decisions that impact on their profit enables these companies to transfer their private risk to the public.

ISDS cases have already been brought against a range of environmental regulation including a nuclear power phase out, refusal of permits for environmental reasons and a moratorium on fracking. The awards are significant, sometimes running into the millions, and in some cases  companies are even awarded costs for ‘lost future profit’. Given this, the ISDS system could significantly increase the cost of the energy transition. It could also be used by companies to delay emission-reduction policies.

ClientEarth suggest two options could be taken to address the impact that ISDS could have on climate action:

  • Option 1: Terminating investment treaties and moving away from ISDS
  • Option 2: Adopting a legal tool-box that includes:
    • Carve-out all government measures taken in pursuit of international obligations under the Paris Agreement on climate change from challenge under ISDS
    • Require exhaustion of local remedies
    • Allow counterclaims and ensure full participation for affected third parties
    • Ban third party funding
    • Include climate change impacts in the calculation method for compensation

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