The Climate Change International Investment and Trade Disputes: Legal and Political Implications

Dear Colleagues,

Climate change is predicted to significantly impact investment, commercial, and trade disputes. There is a rise in international, European, and national regulatory rules mandating companies, foreign investors, and States to reduce greenhouse gas emissions and mitigate the effects of climate change. The EU and individual States are rapidly introducing rules for companies requiring them to comply with human rights by conducting due diligence and preparing reports on social and environmental risks. The lack of compliance with the environmental, social and governance (ESG) rules warrants legal action from regulators and stakeholders that may cause severe financial damage to a company. Furthermore, companies will be prone to suffer from reputational damage and a competitive disadvantage with other companies that already focus on sustainable business models and working on their environmental and human rights policies.

The COVID-19 pandemic intensified scrutiny of corporate conduct and investment behaviors, as well as accelerated the debate about ESG norm compliance. These developments will inevitably increase the number of commercial, investment and trade disputes. The critical issues related to climate change mitigation measures, e.g., supply chain disruption, transport costs and sustainable extraction of raw materials, are already and will be even more so in the future the subject of investment and trade disputes.

Furthermore, transitioning to a low-carbon economy will involve significant investments in new technologies and infrastructure. Companies that do not react to this transformation may face financial risks such as stranded assets or market value loss. According to this viewpoint, ESG-related criteria are becoming more widespread in long-term investment and commercial contracts, particularly in the energy, food, mining, and infrastructure industries. The new generation of IIAs, such as the 2019 Dutch Model Investment Agreement and the Australia-United Kingdom Free Trade Agreement of 2021, have also begun to include provisions relating to climate change action or sustainable investor’s conduct.

The examples such as Rockhopper Italia v. the Italian Republic and RWE v. the Netherlands show a growing trend for new sorts of lawsuits based on states’ climate change policies. Disputes over the state’s regulatory action to achieve climate change goals will only intensify in the future. Civil society placing pressure on their governments to minimise CO₂ reductions eventually affects the economic interests of companies, generating disputes. As a result, the issue of balance between the ability of the state to regulate in the interest of the public and investors’ economic interests will continue to dominate the ISDS agenda in the future.

Finally, climate change concerns should be examined in the context of national and European foreign investment screening mechanisms.

The current Special Issue’s goal is to address climate change in the context of investment and trade law. The Special Issue discusses the most urgent concerns related to ESG risks and their role in contracts and treaties; climate mitigation measures and trade and investment disputes; mandatory HRDD and its impact on investment arbitration; the role of national governments and other stakeholders in the proliferation of climate change disputes; and the screening mechanisms.

Possible (but not exclusive) topics for articles could be:

• Climate change investment law disputes;
• Renewable energy disputes;
• Climate change domestic law cases;
• ESG issues in the context of commercial arbitration;
• Strategic (national and international) litigation against States concerning the environmental and climate change commitments;
• Third party funders for environmental-related disputes
• HRDD - prevention of environmental and climate change disputes;
• Institutional investors and environmental responsibility in relation to FDI;
• Trade disputes and climate change;
• FTAs and trade agreements: climate change provisions;
• Foreign investment screening mechanisms and climate change risks.

Dr. Yulia Levashova
Dr. Sara Pugliese
Guest Editors

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