Environmental issues primarily have a bearing on biodiversity and ecosystem protection, treatment of waste and chemicals/hazardous substances, pollution and disaster prevention/remediation, management and efficient use of resources (energy, water and others), the protection of the atmosphere and reduction of greenhouse gases emissions.1
An evolving notion, the term “environment” is most commonly intertwined with the concept of sustainable development.2 As such, environmental issues touch as well upon matters such as health,3 food and water, local/global governance, cultural heritage, involuntary displacements, and indigenous peoples’ rights.4
For decades, investment arbitration has regularly dealt with environmental issues – bans on chemicals/products5 and mining techniques,6 denial/revocation of permits/authorizations for waste landfills7 and projects on cultural/natural heritage sites,8 oil contamination,9 expropriation for reserves,10 cost increases following environment impact assessments,11 and many others.12
Over the past few years, environment-related disputes have surged as Western States engaged in energy transition – with the revocation/alteration of incentives/tariff regimes for renewable energies,13 the phasing-out of nuclear and coal-fired power plants,14 and bans on oil, gas and shale-gas projects.15 As a result, at the time of writing Spain is only second to Argentina as the most frequent Respondent State, with 47 (out of total 52) Investor State Dispute Settlement (ISDS) cases on renewable energy projects.16 Similar claims have been submitted against Italy (9),17 the Czech Republic (7), Bulgaria (3), Canada (4),18 Romania (1), and Germany (1).19 In parallel, a notable number of ISDS cases have arisen out of local communities’ environmental concerns.20
In this context, ISDS is seen as an essential tool to attract the substantial amount of investment required in order to transition towards sustainable economies,21 as much as a risk for the environment. Foreign Direct Investment (FDI) and ISDS are depicted as being capable of furthering the so-called “pollution havens”, the “regulatory chilling effect” or the lower end of the “environmental Kuznets curve”.22
The Backlash in Investment Arbitration has spurred since 2012 a thorough reform of International Investment Agreements (IIA) under the auspices of the United Nations Commission on International Trade Law (UNCITRAL). According to the United Nations Conference on Trade and Development (UNCTAD) about 220 IIAs include references to the environment/sustainability in their preambles, and additional 208 in other treaty provisions.23 The vast majority of ISDS cases, however, are still being brought on the basis of “old-generation” IIAs entered into in the 1980s to early 2000s (with no, or limited, environmental language).24
III. Applicable laws
Principles and rules of domestic and international environmental law (the legal corpus of which comprises about 500 multilateral agreements and continues to expand)25 are taken into account in ISDS cases, either as part of the Applicable Law(s) to a given dispute,26 or as part of its factual background.27 As per treaty practice, preambles of IIA increasingly tend to mention, as general goals shared by the contracting parties, “sustainable development”/“environmental protection”28 as well as the strengthening and enforcement of environmental law.29 Additional clauses in the NAFTA30 and “new generation” IIAs31 underline (or purport to clarify) the relationship between their provisions on trade and/or investment and the contracting parties' obligations under environmental multilateral instruments.
IV. Jurisdiction and admissibility
Like any other investment, environmental projects are obliged to meet the “classical” requirements under the relevant Definition of Investment in order to qualify for treaty protection as covered investments.32
In turn, investments made in breach of environmental laws may be denied treaty protection at the jurisdictional stage33 (or at the merits stage).34 Taking a further step, one recent Bilateral Investment Treaty (BIT) expressly sets forth in its definition of investment that it shall contribute to sustainable development.35
In addition, the Respondent States’ ability to bring independent heads of Counterclaims based on environmental law, will greatly depend on the relevant instrument of consent (see also Consent to Arbitration).36 In this regard, a number of IIAs expressly shield their pro-environmental provisions from ISDS.37
In order to reduce the tribunals’ discretion, and secure the States’ regulatory space (see also Police Powers; State Regulatory Powers; Right to Regulate in the Public Interest) on such matters, at time of writing over 320 IIAs expressly provide:
VII. Procedural adaptations
Environment-related disputes have acted as a trigger for the intervention of non-disputing parties/amicus curiae50 and for enhanced transparency in ISDS since the early 2000s. Environmental matters have also led to the adoption of specialized procedural rules in IIAs and arbitral institutions51 (e.g., allowing interim measures to prevent “serious harm to the environment” or considering specialized arbitrators or experts). Reportedly, only a handful of cases have been filed to this date under arbitration rules specialized in environmental matters.
Levine, J. and Peart, N., Chapter 9: Procedural Issues and Innovations in Environment-Related Investor-State Disputes, in Miles, K. (ed.), Research Handbook on Environment and Investment Law, Edward Elgar Publishing, 2019.
Lahlou, Y., Willard, R., Craven, M. and Chaffetz, L., The Rise of Environmental Counterclaims in Mining Arbitration, in Fry, J. and Bret, L.A (eds.), The Guide to Mining Arbitrations - First Edition, Global Arbitration Review, 2019.
Viñuales, J.E., Foreign Investment and the Environment in International Law: The Current State of Play 2015, in Kate Miles, K. (ed.), Research Handbook on Environment and Investment Law, Cheltenham: Edward Elgar, 2016.
Olivia Danic, O., Chapitre 14 : Droits de l'homme, droit de l'environnement, in Leben, C. (ed.), Droit international des investissements et de l’arbitrage transnational, Pedone, 2015, pp. 531-577.
Dupuy, P.M. and Viñuales, J.E. (eds.), Harnessing Foreign Investment to Promote Environmental Protection, Incentives and Safeguards, Cambridge University Press, 2013.
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