Overhauling Investment Governance for a Just Zero-Carbon Future

As developing countries continue to be the most negatively affected by climate change and the energy transition, it is increasingly critical that they receive foreign direct investment and financial support to build climate resilience, adapt to climate impacts, avoid carbon lock-in and fossil fuel dependence, and leverage their rich endowments of renewable and extractive resources to prepare for the zero-carbon future. 

There is a disconnect and fundamental misalignment between international investment law and the international climate change regime, comprising the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement. Existing investment treaties—including their centerpiece, investor–state dispute settlement (ISDS)—are hostile to states’ ability to address the climate crisis and build a zero-carbon future. Investment treaties and ISDS will deter, delay or water down states’ climate-related measures, and increase their costs for states.

The January 2024 CCSI Working Paper An International Law Framework for Climate-Aligned Investment Governance outlines a framework—and invites and hopes to inspire further thinking, research, and discussion—on how to bridge gaps and build cohesion among various areas of international law relevant to investment in climate mitigation and adaptation. The working paper identifies areas of international law that are or could be relevant to investment governance, highlights points of inconsistency, and proposes a framework to reform and integrate international law with the objective of promoting and facilitating climate investment flows and achieving climate-aligned regulation of investment.

CCSI’s briefing International Investment Governance and Achieving a Just Zero-Carbon Future (also available in French), published in November 2022, details how attempts to “re-balance” the international investment regime by refining investment protection and arbitration provisions do not address the fundamental misalignment of investment treaties with both climate goals and the broader sustainable development agenda. States can design treaties that support their national and global goals, reinforcing investment governance in treaties that can: 

  • Promote specific climate-aligned investment, by identifying the barriers to such investment and fostering international support;
  • Strengthen governance of investment to minimize harms and leverage potential benefits; and 
  • Encourage and facilitate cooperation.

In the blog Climate Action Needs Investment Governance, Not Investment Protection and Arbitration, as well as its submission to the public consultation on investment treaties and climate change held by the Organisation for Economic Co-operation and Development (OECD), CCSI argues that, for international investment law to support climate goals, we need a wholly new regime for investment governance, not investment protection and arbitration.

Related to our research on the need for investment governance to achieve climate goals is our work on the Energy Charter Treaty (ECT). See “The Energy Charter Treaty: Assessing Amendment, Withdrawal, and Termination” drop-down menu on our Climate Change page. In particular, see How Can States Best Fill the Vacuum of the Flawed Energy Charter Treaty?, which discusses the potential role of multilateralism and international law for climate-aligned, sustainable investment in a just energy transition.