What Does the International Court of Justice Advisory Opinion on Climate Change Mean for International Investment Law?

International investment law provides foreign investors with protection against government measures through bilateral and plurilateral investment treaties, investor–state contracts, and domestic investment laws. These protections can grant investors access to ISDS, a mechanism that allows them to sue host states under international arbitral tribunals for actions that damage their investments, including those aimed at tackling climate change. 

The International Court of Justice (ICJ) has now confirmed that climate action constitutes a binding legal obligation under international law, not a discretionary policy choice. The court’s emphasis on systemic integration places climate obligations and investment law on the same legal footing. Failure to take appropriate measures may constitute an internationally wrongful act. This challenges the legal foundations of many recent ISDS claims where investors have argued that measures such as drilling bans or coal phase-outs constitute breaches of investment protection. 

Some of the most frequently used standards in ISDS claims against climate regulations, including fair and equitable treatment, protection against expropriation, and fair market value standards for compensation, can now be challenged in light of the ICJ Advisory Opinion on the Obligations of States in Respect of Climate Change. It makes clear that investment treaties cannot be read in isolation and that tribunals should interpret treaty protections in light of states' binding climate obligations. 

The implications of the ICJ’s ruling also extend beyond the court room, with potential to inform broader investment treaty reform efforts. This could include specific reform of treaty texts, a climate change carveout to exclude lawful climate measures from the scope of compensation claims, and restrictions on forward-looking damages. 

This brief is part of a five-part series that seeks to help states understand their legal obligations under the ICJ Advisory Opinion and what actions they can take to ensure compliance. Other areas covered include climate adaptation, environmental impact assessments, environmentally harmful subsidies, and multilateral environmental agreements.