ISDS Reform and Climate Change

Could Investor State Dispute Settlement (ISDS) reform be used as a vehicle for change and climate change action? Given the investment needed to achieve climate change targets, we should carefully consider how ISDS reform might align with, and even advance, global climate change objectives.

It is high time that international investment law makes a serious effort to connect with climate change mitigation and adaptation efforts as spelled out in international climate change law, including Nationally Determined Contributions (NDCs) under the Paris Agreement. With global principles for dispute resolution and future investment agreements on the table, members states of the United Nations Commission of International Trade Law (UNCITRAL) have a unique position to contribute to climate efforts in a truly meaningful way. To bring down the walls between the silos of international investment law and international climate change law.

As an observer delegate of UNCITRAL’s Working Group III, currently addressing ISDS Reform, the SCC is closely following the discussions. It represents a golden opportunity for climate change mitigation and adaptation measures.

Most experts agree that large scale foreign direct investment constitutes a key component for climate change efforts. As stated by the Swedish Ambassador for Climate Change when visiting the SCC last year: “Aligning the international investment regime with the need for climate action is paramount in making the shift to a low carbon economy.”

Against this background, international investment agreements (IIA) hold a great potential as climate change instruments. They could play a role to accelerate domestic ambitions.

“But Working Group III does not address substance” experts might say. True. But overarching principles could be embedded in any instrument targeting future international investment agreements.

As pointed out by the Government of South Africa in its submission to the working group; “Any reform about the international investment regime needs to begin with the very purpose of the regime. Given the origin of IIAs, its principal purpose has been, and remains, to protect foreign investors and, more recently, to facilitate the operations of investors, seeking to encourage in this manner additional FDI flows. However, this purpose alone is no longer sufficient – it needs to be expanded. In particular, IIAs need to recognise, in addition, the need to promote sustainable development and FDI flows that support this objective.”

The next session of the Working Group, originally scheduled for New York in the week of 30 March 2020, has been postponed due to COVID-19. But this should not stop us in our tracks in addressing the issue of ISDS reform and climate change. We should use the time to further consider how ISDS reform might advance global climate change objectives.  And once the new dates for the 39th session of UNCITRAL WG III have been decided, the SCC and the Columbia Center on Sustainable Investment will offer the side event ISDS Reform; What Role for Climate Change? where precisely this topic will be explored.*

Personally, I am convinced that ambitious climate action could be transformed into legal obligations as the governments represented in UNCITRAL seek to advance the content of international investment law through innovative drafting.

By identifying the big picture, breaking down the walls between the silos, and recognizing that enforcement is an invaluable element of any efficient international regime, governments can use this golden opportunity of ISDS Reform to support climate change action.


Annette Magnusson
Secretary General

* More details about the event will be available once the new dates of the next Working Group III meeting have been confirmed.


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