A Sustainability Toolkit for Trade Negotiators:

Trade and investment as vehicles for achieving the 2030 Sustainable Development Agenda

5.4.6 Umbrella Clause

Investment contracts between investors and government agencies, such as mine development agreements, often include detailed environment-related rights and obligations that complement domestic laws applicable to the investment. The parties typically also negotiate applicable law and forum clauses in such contracts. They will determine where and how disputes arising under the agreement should be resolved (for example, by the courts in the place of the investment, or through domestic or international arbitration).

Some investment treaties allow investors to circumvent or avoid what was agreed to in an investment contract or to initiate multiple claims, under treaty clauses commonly referred to as “umbrella clauses.” Their formulation varies but a typical umbrella clause reads: “Each state party shall observe any obligation it may have entered into with regard to investments of nationals of the other state party.” An umbrella clause could allow a foreign investor to assert state obligations from beyond the treaty itself—legislative, contractual and treaty-based—under the coverage of the treaty and its dispute settlement mechanisms. It could also allow the investor to forum shop or initiate proceedings before both the domestic courts of the host state and the treaty-based dispute settlement mechanism.

As a consequence of these problems, many countries do not include umbrella clauses in their investment agreements.33

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