Investor-State Dispute Settlement and Climate Action.

• Author: Lark, David
• Position: Special Report Globalization

The recent 2019 United Nations Climate Action Summit brought worldwide attention to the need for countries (or 'states') to take immediate action on climate change. The Summit was aimed at bringing world leaders together to discuss transformative action plans for addressing the potentially catastrophic influences of climate change. During these meetings, there was a growing consensus that governments can no longer pursue "business as usual" if they want to meet international climate targets.

However, governments that are motivated to pursue bold and progressive policies to target climate change may have to grapple with competing obligations. Many governments have signed international trade and investment agreements that give foreign investors certain rights and protections that can be enforced through an investor-state dispute settlement (ISDS) clause. ISDS can impact a state's ability to make policies on climate change, leaving governments to manage competing investment and environmental obligations. This article will look at what ISDS is, as well as Canada's recent experience under the North American Free Trade Agreement (NAFTA).

What is Investor-State Dispute Settlement (ISDS)?

Investor-state dispute settlement (ISDS) is a legal provision included in over 90% of the 2,667 international trade and investment agreements in force today. In short, ISDS enables foreign investors to sue states whenever the state's laws infringe on the investor's rights set out in these agreements. These claims are then decided within private transnational arbitral tribunals.

ISDS was initially aimed at protecting foreign investors from host governments directly expropriating foreign-funded projects. However, foreign investors are increasingly using ISDS whenever a diverse range of domestic policies conflict with their ability to realize actual (or potential) profits from their investments. This significant broadening of scope is leading to a rising number of controversial ISDS claims. For example, legislation relating to human rights, public health, pollution and climate change have all led to host governments paying legal awards worth millions (and potentially billions) of dollars to foreign investors. These cases should raise questions as to how ISDS might intersect with a state's objective in pursuing climate action.

How has ISDS impacted Canadians to date?

To date, Canada has responded to a number of ISDS claims, most of which have taken place under NAFTA's...