Reforming Investment Contracts
Why policy-makers must act now—and how
Investment contracts are a central but often overlooked component of investment governance. This brief explains why reforming them is essential to ensure coherence with treaties and domestic laws, reduce risks for governments, and better align investment with sustainable development.
Key Messages
-
Investment contracts are a critical but overlooked pillar of investment governance, and failing to reform them risks undermining progress made in treaty and domestic law reform.
-
Outdated and poorly coordinated contractual provisions, especially stabilization clauses and tax incentives, can constrain policy space, reduce public revenues, and weaken sustainable development outcomes.
-
Governments can act now by strengthening coordination, reviewing existing contracts, and developing model clauses to ensure contracts support, rather than contradict, broader policy objectives.
Recent efforts to reform investment governance have focused primarily on international investment treaties, with the aim of aligning them more closely with sustainable development objectives. However, investor–state contracts, which define the specific terms under which individual investment projects operate, have largely remained outside these reform discussions. This gap is significant, as contracts play a central role in shaping how investment policies are implemented in practice, particularly in sectors such as energy, extractives, infrastructure, and agriculture.
This policy brief argues that ignoring investment contracts risks undermining broader reform efforts. Contracts often interact with treaties and domestic laws, yet outdated or poorly coordinated provisions can create inconsistencies, constrain regulatory space, and expose states to financial and legal risks. To address these challenges, the brief outlines practical steps for policy-makers to integrate contracts into the investment reform agenda, strengthen governance at the national level, and enhance coherence across international processes.
You might also be interested in
Unpacking National Investment Laws
This report explores how national investment laws regulate dispute settlement and suggests how to reform them to align with sustainable development and 21st-century policy objectives.
Navigating the New Belt and Road Initiative: Why host-country agency is the key to success
As the Belt and Road Initiative, China’s global development drive, shifts focus to more renewables, technology, and small-scale projects, IISD sets out how policy-makers in host countries should adapt their approach.
Compensation and Damages in Investor-State Dispute Settlement
This report provides policy reform options to address the growing issue of damages awards in investor-state dispute settlement (ISDS).
Decoding the Belt and Road Initiative’s Legal Architecture
This article unpacks the Belt and Road Initiative's legal architecture—covering hard law (such as treaties and contracts), soft law (such as memoranda of understanding), and the unique role of China's state-owned enterprises—and sets out recommendations for host country policy-makers on how to navigate this hybrid legal environment.