On May 10, 2022, the OECD held its seventh Annual Investment Treaty Conference on the nexus of investment treaties and climate change policy. The event took place following unprecedented warnings by the Intergovernmental Panel on Climate Change about the problematic role played by investment treaties as an obstacle to climate action.
In light of the limited time left to keep the world on a trajectory toward a warming of 1.5 °C above pre-industrial levels, the climate impact of investment treaties emerges as a key benchmark for reform. Discussants, including leading experts in the fields of finance, political science, and international law, highlighted two key issues that such a reform would have to address: How can governments retain the necessary policy space for climate action? And what is the role of investment treaties in aligning finance flows with the objectives of the Paris Agreement?
Regarding policy space, experts took particular concern with the fact that most investment treaties do not oblige arbitrators to take into account international agreements on climate change when adjudicating cases. Contributors also considered the current system for the appointment of arbitrators in investment disputes to be problematic and observed that arbitral jurisdiction had largely dispensed with the need for investors to carry out due diligence.
With regard to the alignment of finance flows, discussants observed that, as an indicator for climate policies, finance flows were easier to measure than greenhouse gas emissions. A new focus on financed or “insured” emissions was therefore required. For climate commitments, states should therefore also account for “foreign” emissions caused by investments protected under their treaties. Policy-makers were encouraged to draw inspiration from emissions standards developed in neighbouring fields such as export finance and to integrate finance flow alignment into their reform efforts.
Finally, discussants reiterated that investment treaties may shift stranded asset risks from fossil fuel investors onto states. The main policy options identified to address this concern were the termination of international investment treaties, an exclusion of fossil fuels from the substantive protection of these treaties, or a carveout of climate measures from the scope of investor–state dispute settlement.
For further information on the policy space discussion, please feel free to consult our recent joint submission to the OECD on the future of investment treaties.