Investor state dispute settlement mechanisms: implications for the climate transition

Bulletin No. 263, article 1. In order to combat climate change, states must reduce their use of fossil fuels. This may push them to terminate certain contracts already agreed with fossil fuel sector companies. However, some foreign investors may benefit from legal protections, meaning that when a contract is terminated, they can claim compensation before an arbitration tribunal. A financial risk of this kind may hinder the implementation of policies to combat climate change: a phenomenon known as “regulatory chill”.