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Investor-State Dispute Settlement

Many trade and investment agreements include investor-state dispute settlement (ISDS) clauses that allow international investors to sue states for compensation if regulations damage corporate profits. ISDS has been used to contest government decisions aimed at protecting rights and the environment.

Many trade and investment agreements include investor-state dispute settlement (ISDS) clauses. These give international investors the right to sue their ‘host’ states for vast sums of money if governments create new regulations that could limit the profits of corporations, even if those regulations are made in the public interest.

ISDS clauses have huge implications for the business and human rights agenda. They could be used by corporations to challenge new laws aimed at strengthening corporate accountability, such as the EU’s proposed human rights due diligence law. As such, ISDS clauses could undermine the ability of states to realise their duty to respect human rights, as laid out in the UN Guiding Principles. ISDS clauses are a threat to any just recovery from the COVID-19 pandemic: they could even be used by corporations to claim compensation for corporate profits lost during the pandemic because of lockdowns.

ISDS clauses have previously been used by tobacco giant Philip Morris to sue Australia for introducing plain packaging on cigarettes, Anglian Water to sue Argentina for guaranteeing affordable water for citizens, and German coal giant RWE to take the Dutch government to court for their decision to phase out fossil fuel consumption. These cases are heard by secretive arbitration panels created specifically for international investors, to which ordinary citizens and domestic businesses have no access.

The expense of fighting an ISDS claim and the huge awards that tribunals have made – which sometimes run into billions of dollars – provide a powerful disincentive for many countries to even consider protecting society by regulating the behaviour of international corporations. Countries in the global South, who are less likely to be able to afford to fight a case, let alone risk being hit by a huge financial penalty, are disproportionately affected by this ‘regulatory chill’.

Many countries are choosing to reject or modify ISDS clauses. However, ISDS continues to form part of major trade deals, including the Trans-Pacific Partnership (CPTPP).

ISDS in statistics

2800+

trade agreements containing ISDS

are currently in existence

61%

of ISDS cases

are won by the investor against the state

$125m

is the average award

won by corporations when they bring ISDS cases against states

35%

of trade deals signed in the last 5 years

have included ISDS - a significant decline