Reforming International Investment Law for Climate Change Goals

Forthcoming in Brauch, Martin Dietrich. Reforming International Investment Law for Climate Change Goals. Research Handbook on Climate Finance and Investment. Edward Elgar Publishing Ltd. Available at SSRN: https://ssrn.com/abstract=3692450

35 Pages Posted: 3 Nov 2020

See all articles by Martin Dietrich Brauch

Martin Dietrich Brauch

Columbia University - Columbia Center on Sustainable Investment

Date Written: May 31, 2020

Abstract

To achieve global climate change mitigation and adaptation goals under the Paris Agreement, international investment law should enable and expedite the transition away from high-emission investment toward low-emission investment. Existing international investment agreements (IIAs) providing for investor–state dispute settlement (ISDS) fail to advance climate goals and can effectively hinder states’ climate action.

In this chapter, I discuss the implementation of two main policy options for climate-oriented reform of international investment law – termination of climate-unfriendly IIAs and negotiation of climate-friendly ones – at various governance levels, ranging from unilateral to multilateral action. Given the mounting risks and impacts of IIAs and ISDS, as well as the lack of evidence that they encourage foreign investment flows, terminating IIAs or withdrawing from them appears to be the most effective reform option. States seeking to conclude new climate-friendly treaties or to amend existing IIAs must ensure that the treaties legally distinguish between low-emission and high-emission investments. Climate-friendly IIAs must not hinder climate action (‘do no harm’), by denying treaty protections to high-emission investments, limiting their establishment and expansion, removing incentives such as fossil fuel subsidies, and requiring investments to be made responsibly.

In addition, IIAs should leverage the potential contribution of foreign investment to climate goals (‘do good’), by incentivising, promoting, facilitating, and protecting low-emission investments only, and by supporting a just transition to a low-emission world. In line with broader efforts to reform international investment law, climate-aligned IIAs should also exclude or circumscribe controversial provisions (fair and equitable treatment [FET], legitimate expectations, indirect expropriation, and most-favoured-nation [MFN], to name a few), prohibit treaty-based challenges to climate policy measures, and deny substantive rights and access to treaty-based dispute settlement mechanisms to high-emission investments. Climate-unfriendly investors would instead need to rely on substantive rights and procedural avenues based on domestic laws.

Keywords: IIA, ISDS, Paris Agreement, climate reform, climate action, international investment law, emissions investment

JEL Classification: K33, Q54

Suggested Citation

Dietrich Brauch, Martin, Reforming International Investment Law for Climate Change Goals (May 31, 2020). Forthcoming in Brauch, Martin Dietrich. Reforming International Investment Law for Climate Change Goals. Research Handbook on Climate Finance and Investment. Edward Elgar Publishing Ltd. Available at SSRN: https://ssrn.com/abstract=3692450, Available at SSRN: https://ssrn.com/abstract=3692450 or http://dx.doi.org/10.2139/ssrn.3692450

Martin Dietrich Brauch (Contact Author)

Columbia University - Columbia Center on Sustainable Investment ( email )

William C. Warren Hall, 1st floor
410 West 116th Street
New York, NY 10027
United States

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