Traditionally, investment arbitration and environmental protection existed in separate spheres, with the former primarily focused on protecting the rights of investors and the latter concerned with safeguarding the environment. However, this separation has blurred as environmental issues have gained prominence on the international stage. In recent years, the intersection of environmental concerns and investment arbitration has become a focal point, raising questions about the delicate balance between economic interests and environmental sustainability. As the global community grapples with escalating environmental challenges, the role of investment arbitration in addressing or overlooking these concerns has attracted more attention.
Evolving Inclusion of Environmental Provisions in Investment Treaties
One way environmental considerations enter the realm of investment arbitration is through the interpretation of investment treaties. Arbitral tribunals are increasingly called upon to interpret treaty provisions in light of evolving international environmental standards.
The inclusion of environmental language in modern treaties also reflects a growing awareness of the need to harmonise economic development with ecological preservation.
For example, the 2022 Japan-Bahrain BIT (Article 24) prohibits relaxing environmental standards to attract investment:
Each Contracting Party shall refrain from encouraging investment by investors of the other Contracting Party and of a non-Contracting Party by relaxing its health, safety or environmental measures, or by lowering its labour standards.
The 2022 Oman-Hungary BIT (Article 3) stresses the right of States to regulate, in a non-discriminatory manner, through measures necessary to achieve environmental protection:
The provisions of this Agreement shall not affect the right of the Contracting Parties to regulate in a non-discriminatory manner within their Territories through measures necessary to achieve legitimate policy objectives, such as the protection of public health, safety, environment and social or consumer protection.
The 2022 UK-New Zealand Free Trade Agreement (Article 14.18) emphasises the ability to adopt measures appropriate to ensure environmentally sensitive investment activity:
(1) Nothing in this Chapter shall be construed to prevent a Party from adopting, maintaining, or enforcing, in a manner consistent with this Chapter, any measure that it considers appropriate to ensure that investment activity in its territory is undertaken in a manner sensitive to environmental, health, or other regulatory objectives. (2) The Parties recognise the importance of environmental protection, including with respect to climate change mitigation and adaptation, and recall each Party’s rights and obligations relating to the protection of the environment provided for in this Agreement.
Exclusion of Environmental Provisions from Dispute Resolution Clauses
Despite the growing inclusion of environmental provisions in investment treaties, certain treaties nonetheless exclude such provisions from arbitration.
For example, the 2013 Benin-Canada BIT (Article 23) indicates the following:
An investor of a Contracting Party may submit to arbitration under this Chapter a claim that: a. the respondent Contracting Party has breached an obligation under Chapter II, other than an obligation under […] Article 15 (Health, Safety and Environmental Measures) […]; and b. the investor has incurred loss or damage by reason of, or arising out of, that breach.
The 2014 Colombia-France BIT (Article 3) (translated from French) similarly excludes disputes concerning certain measures related to the environment from arbitration:
This article applies to disputes between an investor of a contracting Party and the other contracting Party relating to the alleged breach of an obligation of this Agreement, with the exception of Article […] 10.2 (Measures relating to the environment, health and social rights), which has caused or resulted in damage to the investor.
Environmental Issues at the Origin of Investment Disputes
Environmental concerns are also integrated into the domain of investment arbitration by virtue of the types of conduct at issue in many investment disputes. On the one hand, investments often concern activities like resource extraction, which can significantly affect the environment. On the other hand, environmental protection can serve as the public purpose with which States justify expropriatory or discriminatory measures.
For instance, in Methanex Corporation v. United States of America, Award, 3 August 2005, an investor brought an indirect expropriation claim against the U.S. for banning a gasoline additive with the stated goal of protecting public health and the environment.
In Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No. ARB(AF)/09/1, Award, 22 September 2014, an investor brought various claims against Venezuela for declaring null a mining permit due to its effect on a forest reserve.
In Baggerwerken Decloedt En Zoon NV v. Republic of the Philippines, ICSID Case No. ARB/11/27, Award, 23 January 2017, an investor brought claims against the Philippines for unilaterally terminating a dredging contract in order to reduce flooding and improve the ecological condition of the area.
Arbitrating Investment Arbitrations Involving Environmental Concerns
In cases such as the ones described above, tribunals must carefully weigh the investor’s rights against the host State’s obligations to protect its environment. This process often demands a nuanced analysis of international law, contractual obligations, and scientific evidence. Arbitrators must consider whether the contested environmental measures fall within the host State’s legitimate regulatory powers to protect public health, safety, and the environment. Principles of international environmental law may be considered, especially if the treaty incorporates or refers to such principles (as seen above), and arbitrators may assess whether the contested measures align with internationally accepted environmental norms. Investors adhering to sustainable business practices and corporate social responsibility (CSR) principles may also find favour in the eyes of tribunals, showcasing a growing awareness of the broader societal impact of investment activities.
As environmental concerns continue to be dealt with in specific investment cases, this will reinforce the importance of these issues in investment arbitration as a whole. Arbitrators may consider previous decisions in similar cases involving environmental concerns to maintain consistency in their jurisprudence. This approach ensures predictability and coherence in the interpretation of investment treaty provisions.
Overcoming Challenges in Investment Arbitration with Environmental Concerns
Despite growing recognition, challenges persist in reconciling investment protection with environmental sustainability. The inherent tension between economic development and ecological preservation poses a significant challenge. Investors seek stable conditions and regulatory predictability, while States grapple with meeting environmental commitments without deterring foreign investments.
This evolving landscape thus necessitates reevaluating the procedural and substantive aspects of investment arbitration. Balancing the interests of investors and States with the imperative to protect the environment requires innovative solutions. Possible avenues include the establishment of specialised environmental chambers within arbitral institutions, enhanced public participation mechanisms, and clearer guidelines on the integration of environmental standards into investment treaties.
Conclusion: Toward a Delicate Balance
As environmental concerns increasingly permeate investment arbitration, the challenge lies in forging a harmonious relationship between economic development and environmental stewardship. The evolution of international norms, the interpretation of treaties, and the adaptation of procedural mechanisms will shape the future landscape of investment arbitration. Striking a delicate balance will not only safeguard investor rights and State sovereignty but also contribute to a sustainable and resilient global environment.