The climate emergency poses serious threats to the enjoyment, realization, and protection of the entire catalogue of human rights.^[1] The size and scale of economic and social transformation required to mitigate and avert the impacts of climate change are extensive. Delay in the implementation of climate policies poses grave dangers to the most vulnerable segments of society. Such an extensive and complex transformation in a deeply unequal world requires policy-making and law to centre the rights and interests of those most vulnerable to the harshest impacts to achieve a just and equitable transition.

There is a growing recognition and articulation of state obligations under international human rights law to prevent violations of human rights in the context of the climate emergency.^[2] In its first climate change ruling finding a breach, the European Court of Human Rights emphasized the polycentric nature of climate change and the need for a comprehensive and profound transformation of various sectors to achieve decarbonization of economies and ways of life.^[3] According to the court:

Such “green transitions” necessarily require a very complex and wide-ranging set of coordinated actions, policies and investments involving both the public and the private sectors. Individuals themselves will be called upon to assume a share of responsibilities and burdens as well. Therefore, policies to combat climate change inevitably involve issues of social accommodation and intergenerational burden-sharing, both in regard to different generations of those currently living and in regard to future generations.^[4]

As acknowledged in the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement, a significant reduction in carbon emissions (UNFCCC Article 4 and the Kyoto Protocol Article 2; Paris Agreement Article 4) and prevention of deforestation (Paris Agreement Article 5(2)) are essential to mitigating the climate emergency. State obligations drawn from international human rights law and climate law together can be understood as requiring states, among other measures, to take steps to halt deforestation, significantly reduce reliance on fossil fuels, and rapidly increase renewable energy capacity and infrastructure. The question remains whether, as Chris Shaw put it in an interview with the Break Down Radio, the current approaches to climate action are going to “reproduce this world, minus the emissions.” In other words, are the policies and prescriptions presently driving climate action capable of achieving a just and equitable green transition, and what is standing in the way? In this post, I will discuss how investment treaties relate to climate action and the goal of just and equitable transition, with a focus on how they relate to the necessity of burden sharing emphasized in KlimaSeniorinnen, as well as in other key international human rights law decisions and resolutions.^[5]

Decarbonization of the energy sector, and therefore, all other aspects of the economy and life that rely on energy, is at the forefront of domestic and international climate policies. This transformation is practically, financially, and politically a mammoth task. Financially, it is estimated that enhancing renewable energy capacity to sufficient levels requires annual financing of USD 1.55 trillion to invest in power generation and USD 720 billion to invest in and upgrade power grids until 2030.^[6] A 2021 analysis by the UNFCCC Standing Committee on Finance estimates the financing needed for developing countries to implement the Convention and the Paris Agreement goals is between USD 5.9 trillion and 11.5 trillion until 2030. Among the many factors that will shape this transformation is the commitment of states to international investment law. With the energy sector being amongst the most powerful and litigious industries in the face of public policy reforms and investment treaties providing strong protection from policy shifts detrimental to profit margins, international investment law is emerging as a battlefield where tribunals will settle some important distributional consequences of climate policies.^[7] Policies impacting fossil fuel investors are already giving rise to a wave of investment treaty claims and raising the cost of climate action.^[8] A claim filed in 2023 by Singapore-incorporated mining company Zeph Investments against Australia under the ASEAN–Australia–New Zealand FTA provides a helpful illustration of the challenge. The claim arose from Australian authorities’ refusal to grant a coal mining lease after a court in Queensland found that an environmental permit should not be granted to the project due to, inter alia, evidence of the climate change and human rights impacts of the project. The investor claims damages of AUD 41.3 billion. A 2022 publication by Tienhaara et al. estimated that the additional financial burden placed on oil and gas-producing states will be tremendous for prematurely phasing out projects that are covered by investment treaties, with “Mozambique ($7–31 billion), Guyana ($5–21 billion), Venezuela ($3–21 billion), Russia ($2–16 billion), and the United Kingdom ($3–14 billion)” suffering the greatest losses.

The magnitude and uncertainties of climate policy-making, the need for regulatory experimentation to respond to unforeseen or unintended impacts of policies (including policy shifts in response to instances of irresponsible investor conduct) in sectors critical to climate action make fertile ground for investment disputes, both in relation to the phasing out of fossil fuels and in relation to promoting investments crucial to decarbonization goals. Given investment treaties’ indifference to the rights, interests, or obligations beyond the investor and the state, resolving major investment disputes concerning climate action, be it a fossil fuel or a “green” investment, within the narrow confines of investment law is antithetical to a just and equitable transition. How do we tackle this challenge and build a system of investment governance that is compatible with a just and equitable transition?

The enormity and complexity of energy transition—and of climate action more broadly—often drive us to focus on the “art of the possible” rather than giving a chance to the “possibilities of the art.”^[9] In the “art of the possible” category, we can find valuable reform initiatives to make the existing system of investment treaties more compatible with climate action. We can find this most clearly in the work of the OECD’s Future of Investment Treaties Track 1, which focuses on aligning investment treaties with the Paris Agreement and net-zero ambitions. In the same category, we can also locate important scholarly work focusing on climate-aligned interpretations of investment treaty standards and questions around assessment of damages.^[10] Due to the seriousness of the threat posed by the protection of fossil fuel investments, much of this work focuses on the protections offered to that sector, but there is also a growing emphasis on how investment treaties catalyze green investments. The key common feature of this “art of the possible” category is that the proposals largely focus on improving the existing system by offering relatively pragmatic solutions without changing its fundamental features. While these approaches may offer a quicker response to the most severe impacts investment treaties may have on climate action, if not questioning the fundamental features of the system, they risk reproducing an investment protection that is unjust and inequitable for communities, even if the system is recalibrated to align with a “green” agenda. Most worryingly, if the greening of investment treaties remains loyal to the state–investor binary without fully recognizing and integrating the rights and entitlements of rightsholder groups adversely impacted by investment activities, they will simply continue contributing to the reproduction of inequalities.

In a forthcoming chapter, I review the role of investment treaties in the context of climate action, both their potential to hinder phasing out fossil fuels and their potential as a catalyst for climate-friendly investments to assess whether, as currently configured, investment treaties are compatible with just transition objectives. I find that besides hindering the regulation of fossil fuels in line with climate goals, the risks investment treaties pose to the implementation of a just and equitable transition outweigh the potential benefits of relying on investment treaties to attract climate-friendly investments. Studies find no evidence that investors in clean energy sectors take investment treaties into account when making investment decisions.^[11] If the idea behind promoting IIAs is to attract and scale up climate-friendly investments, evidence from studies does not seem to support that IIAs make a meaningful contribution to this goal. The uncertainty over the purported benefits of investment treaties to attract climate-friendly investments becomes a cause of concern for just transition objectives when one considers their stabilization features that undermine legitimate regulatory experimentation and their indifference to the rights of local communities and Indigenous Peoples and to the realization of human rights. Investment treaties do not make room for burden sharing.

The necessity of rapidly scaling up climate-friendly investments, especially in the developing world, is unquestionable. However, this necessity cannot be viewed in isolation from the broader socio-economic context in which these investments operate. It is important to bear in mind that climate-friendly investments can and do cause environmental and human rights harm. Formulating an investment governance system for a just and equitable transition requires us to move beyond the “art of the possible” and seriously explore the “possibilities of the art.” What is needed is an inclusive and integrated investment governance framework that does not insularly protect and privilege investor rights at the expense of the rights and well-being of other segments of society. This also requires a framework that allows sufficient flexibility for governments to implement reasonable and non-discriminatory adaptation of policies in light of evolving local and global realities, including for climate-friendly investments. In thinking beyond the “art of the possible,” we can question seriously whether investment treaties are the right instruments to support a just and equitable transition or whether we need a new vision altogether that governs investment rather than solely protecting it, taking our cue from the New International Economic Order (NIEO) and rethinking it within present realities.^[12] We may, for instance, reconsider whether investment governance belongs in international law or embed enforceable obligations into treaties for investors to respect human rights and the environment; we could also give standing to rightsholders to hold both the state and the investor accountable for failings. We can also consider whether investment governance can be made compatible with ideas of post-growth or de-growth. Or, as Ostřanský and Bonnitcha did in a recent publication, we can focus on the question of how we would design investment treaties if we were to develop investment treaties from the ground up today.

Author

Anil Yilmaz Vastardis is a senior lecturer at Essex Law School.

^[1] Resolution adopted by the Human Rights Council on 12 July 2019, Human Rights and Climate Change, A/HRC/RES/41/21, 23 July 2019; Understanding Human Rights and Climate Change. Submission of the Office of the High Commissioner for Human Rights to the 21st Conference of the Parties to the United Nations Framework Convention on Climate Change, Office of the United Nations High Commissioner for Human Rights.

^[2] See, e.g., Verein KlimaSeniorinnen Schweiz and Others v Switzerland [Grand Chamber] 53600/20 Judgment 09 April 2024; Inter-American Commission on Human Rights and REDESCA, Resolution 3/2021 on Climate Emergency: Scope of Inter-American Human Rights Obligations; Resolution adopted by the Human Rights Council on 12 July 2019, Human Rights and Climate Change, A/HRC/RES/41/21, 23 July 2019.

^[3] Verein KlimaSeniorinnen Schweiz and Others v Switzerland para. 419.

^[4] Ibid.

^[5] Inter-American Commission on Human Rights and REDESCA, Resolution 3/2021, paras 16–20 and 42-57.

^[6] International Renewable Energy Agency. (2024). Tracking COP28 outcomes: Tripling renewable power capacity by 2030. https://www.irena.org/-/media/Files/IRENA/Agency/Publication/2024/Mar/IRENA_Tracking_COP28_outcomes_2024.pdf

^[7] See Cotula, L. (2023). International investment law and climate change: Reframing the ISDS reform agenda. The Journal of World Investment & Trade, 24, 770–71. https://brill.com/view/journals/jwit/24/4-5/article-p766_9.xml

^[8] Westmoreland Coal Company v Canada ICSID Case no. UNTC/20/3; Glencore International A.G. v. Republic of Colombia, ICSID, Case No. ARB/21/30; TransCanada v USA (2016); TC Energy v USA; Uniper v Netherlands; RWE v Netherlands; Discovery Global LLC v Slovak Republic; Alberta PMC v USA; Ruby River Capital LLC v Canada; See Tienhaara, K., & Cotula, L. (2020). Raising the cost of climate action? Investor–state dispute settlement and compensation for stranded fossil fuel assets. 2020 IIED Land, Investment and Rights Series. International Institute for Environment and Development. https://www.iied.org/17660iied

^[9] The quoted terms are borrowed from Staggs Kelsall, M. (forthcoming), Capitalising human rights: A genealogy of business and human rights (OUP).

^[10] Zheng, Y. (2024). Rethinking the “full reparation” standard in energy investment arbitration: How to take climate change into account. Journal of International Economic Law, 27(3), 500–520. https://academic.oup.com/jiel/article/27/3/500/7753536

^[11] Mehranvar, L., & Sasmal, S. (2022). The role of investment treaties and investor–state dispute settlement (ISDS) in renewable energy investments. Columbia Center on Sustainable Investment. https://scholarship.law.columbia.edu/sustainable_investment/5; Tienhaara, K., & Downie, C. (2018). Risky business? The Energy Charter Treaty, renewable energy, and investor–state disputes. Global Governance: A Review of Multilateralism and International Organizations, 24(3), 451–471; Wall, R., Garafakos, S., Gianoli, A., & Stavropoulos, S. (2019). Which policy instruments attract foreign direct investments in renewable energy? Climate Policy, 19(1) 59-72.

^[12] See for example, Perrone, N. M., & Schneiderman, D. (2023). Lost to history? Latin America and the Charter of Economic Rights and Duties of States. In L. O. Tarazona (Ed.) The Oxford Handbook of International Law and the Americas (online edition, Oxford Academic, Feb. 23, 2023).