By late August 2025, fossil fuel and mining companies had already filed 22 investor-state dispute settlement (ISDS) claims at the World Bank’s International Centre for Settlement of Investment Disputes (ICSID). This figure surpasses the 21 claims lodged in 2024, with these sectors now representing nearly half—47 percent—of ICSID’s total caseload. The acceleration highlights how corporations are increasingly leveraging arbitration mechanisms to contest climate-related policies that threaten asset values, particularly fossil fuel phase-out laws.
This surge comes as international courts, including the International Court of Justice, affirm states’ legal obligations to mitigate climate change. Yet ISDS tribunals, operating under bilateral and multilateral investment treaties, continue to prioritize investor rights and expected earnings. As Essex Law School’s Anil Yilmaz Vastardis notes, the process rarely integrates public interest concerns or climate obligations, underscoring a structural imbalance.
The financial stakes are substantial. Globally, ISDS tribunals have awarded nearly $114 billion to investors by the end of 2023, with fossil fuel companies among the most frequent winners. For governments, particularly in developing economies, these payouts risk triggering “regulatory chill”—a dynamic where environmental policies are watered down or abandoned to avoid litigation costs. The phenomenon has already been documented in Europe: France diluted its 2017 fossil fuel phase-out law after Canadian producer Vermillion threatened a claim, while Denmark set a distant 2050 deadline for ending exploration to sidestep “incredibly expensive” compensation obligations.
Even within the European Union, where the rule of law is stronger, ISDS has provoked significant backlash. ExxonMobil’s pending case against the Netherlands, filed through a Belgian subsidiary under the Energy Charter Treaty (ECT), exemplifies how multinational firms exploit treaty networks to challenge domestic climate action. The EU has since announced withdrawal from the ECT, citing its incompatibility with climate goals, though ongoing disputes continue under legacy provisions.
Criticism of ISDS is not confined to policymakers. Economists such as Joseph Stiglitz have characterized the system as “litigation terrorism,” emphasizing how the threat of billion-dollar claims distorts policy-making in ways that obstruct climate regulation. A 2023 UN report also warned of systemic risks of bias, given that investors influence tribunal panel formation and cases are dominated by elite law firms and arbitrators with commercial backgrounds.
Efforts at reform have emerged, notably the European Commission’s Investment Court System (ICS), embedded in trade deals with Canada, Singapore, and Vietnam. Unlike ISDS tribunals, the ICS introduces independent judges and an appellate body. Still, scholars argue that these reforms retain the core asymmetry: investors can sue states, but not the reverse. Erasmus University’s Alessandra Arcuri likens the system to a football match where “only one team is allowed to score,” with ICS merely improving the referee through mechanisms akin to VAR.
The root issue lies deeper. More than 1,700 investment treaties worldwide still embed ISDS provisions, creating a structural framework that facilitates investor dominance. UNCTAD’s Hamed El Kady has urged states to realign these treaties with sustainable development objectives, reducing the ability of corporations to weaponize arbitration against climate policy. Without this treaty-level overhaul, even reformed systems risk perpetuating the same imbalance: governments facing billion-dollar penalties for measures that serve the public interest, while investors retain an exclusive right to challenge.
