To address the threat of climate change, international negotiators will meet in Glasgow, Scotland. One major obstacle to global sustainability will not be discussed: the investor-state dispute resolution (ISDS) system.
This system gives transnational corporations the power to sue governments over actions — including policies to address climate change — that reduce the value of their foreign investments. This power could be used to undermine any agreements reached in Glasgow.
How does this system work Clauses in more than 2,600 Free Trade Agreements (FTAs) and Bilateral Investment Treaties (BITs) allow foreign investors to bypass domestic courts and sue sovereign states in international tribunals for millions — and even billions — of dollars.
The World Bank´s International Centre for Settlement of Investment Disputes (ICSID) is the most commonly used of these arbitration tribunals, followed by the United Nations Commission on International Trade Law (UNCITRAL). These tribunals, made up of three-person panels comprised of corporate lawyers and highly paid individuals, should not be mistaken as courts of law. This privatized system does not respect precedent, truth, and justice.
ISDS is best for companies working in the highly lucrative sector of natural resource extraction. Petroleum, mining, and oil companies have filed approximately 25% of all claims to date and 29% of all ICSID claims for fiscal year 2021.
The number of lawsuits brought by extractive industries is on the rise. Since 1995, when the first extractive industry case was brought under an international agreement they have won awards in excess of $73.2 billion. These figures are based off data from UNCTAD/ICSID. Other arbitration tribunals do no publish information about cases or awards.
Companies involved in extractives not only use ISDS the most but also receive the largest monetary rewards. 11 of the 14 awards totaling more than $1B are for oil, gas, and mining.
There are at most 82 ISDS cases that have been filed by extractive industries. The 42 cases where information is available are worth $99.1 billion ($71.1 million for mining companies, $28.1 billion for oil and gas companies).
There are 40 pending cases in which the amounts being claimed are not yet available. These numbers are only partial. There are at most 14 cases pending for more than $1Billion, including absurd suits against Congo for $27Billion and Colombia for $16.5Billion. Another case in which a corporation demands $16 billionTC v. USA, for the cancelation of the controversial Keystone pipeline by the Biden´s administration, is not included in the table below because it has not yet been registered at ICSID. Source: ICSID And(*() UNCTADIn their lawsuits, corporations most often cite protections in FTAs and BITs against “indirect expropriation.” This is interpreted to mean regulations and other government actions that reduce the value of an investment. Corporations can sue governments for the enforcement of environmental, public interest, or other measures arising out of democratic or judicial processes. While investment tribunals cannot force a government to repeal laws and regulations, time-consuming, costly litigation and the threat of massive awards for damages often put a “chilling effect” on responsible policy-making.
These excessive corporate powers have been challenged in recent years. There has been some progress. The European Court of Justice is one example.
Energy Charter Treaty, (ECT) will not allow the United States to sue EU countries. The U.S.-Mexico–Canada Agreement, which replaced NAFTA, eliminates ISDS between Canada & the United States. ruled that European Union energy companies However, most international agreements that allow corporations to be headquartered in rich nations to continue to wield the weapon against developing country governments are still in force, strengthening neocolonial North-South relations.
Already, the inequalities in who uses the system is quite stark. Most extractive companies who have used ISDS come from Western Europe, the United States, Canada, Australia, or other countries. The countries in the Global South, however, are most frequently sued.
Companies based in five countries have brought the majority of extractives-related ISDS lawsuits. Companies from the United States have filed 53 of the total 194 oil, mining, or gas cases.
The Institute for Policy Studies reports
notes that for transnational extractive industries that pollute the planet and contribute to climate change, ISDS is “yet another opportunity to strike it rich through reckless, casino-style gambling, given the recourse they have to bring suits within a system in which the deck is heavily stacked in their favor, and produce a chilling effect on regulations and policies that address climate change.” Extraction Casino To effectively combat climate change, governments around the world will need the flexibility to pursue a wide range of actions — without the threat of provoking expensive corporate lawsuits. The ISDS system shouldn’t stand in the way responsible policies to address this existential threat.
Glasgow should consider eliminating the ISDS system. Negotiators should agree to independent audits on international investment treaties that contain ISDS clauses. This should include meaningful public participation. On the basis of these audits, these agreements should either be cancelled or rewritten in terms that put people’s rights and the environment first.
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