Greening The Gilded Age: How Environmental Impact Assessments Nudge Investor-State Disputes Towards Justice-Based Arbitration

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By Jasmine Minato Williams

Investor-state dispute settlement (ISDS) threatens a more just, sustainable, and equitable transition from fossil fuels, preventing fair social-ecological outcomes for people, prosperity, planet, and protection. ISDS mechanisms are written into a number of international investment agreements, derailing narrowly formulated sustainable development goals such as no poverty and decent work. ISDS systematically favors foreign investors, extending legal privileges that small businesses and marginalized populations cannot access, often at the direct expense of environmental safeguards in the very communities most affected by the underlying investment. The right to a healthy environment is central to issue-spotting areas where ISDS fails to deliver adequate responses for SDG progress. In 2022, the Intergovernmental Panel on Climate Change (IPCC) Sixth Assessment Report raised international concerns that ISDS mechanisms could allow fossil-fuel companies to sue governments (referred to in this article as States) and block climate action (International Institute for Sustainable Development, 2022). In 2026, the International Centre for Settlement of Investment Disputes reported administering 60 new cases and globally 1,463 cases (International Centre for Settlement of Investment Disputes, 2026). New filings in South America stand at 22%, Eastern Europe & Central Asia stand at 20%, Sub-Saharan Africa stand at 20%, Western Europe stand at 13%, Middle East & North Africa stand at 10%, and North America stand at 7% (International Centre for Settlement of Investment Disputes, 2026). Corporations are bringing private tribunal claims against States over environmental measures, including denials of licenses for oil and gas exploration, permits for new basalt mines, restrictions on access to coal-fired power plants, and bans on deep-sea mining, among other environmental risks. Recognizing the importance of planetary boundaries to reduce greenhouse gas emissions, there are rising climate laws and international investment frameworks monitoring the process of extracted resources or, a project’s direct emissions and the implementation of products made from extracted resources or, a project’s downstream emissions. A relevant scoping mechanism for assessing damages from biodiversity to geodiversity in the Anthropocene era, Environmental Impact Assessments (EIAs) are capable outlines for tracing detrimental human impact from fossil fuel extraction. Public health risk to laborers and local community caused by groundwater or air pollution effects is increasingly used as evidence by States to prevent private investment in extractives (Girguis Laboratory, Harvard University, n.d.). As a result, EIAs are increasingly filling economic, cultural, and social apertures for State defenses in ISDS cases.

The International Court of Justice Advisory Opinion on Climate Change, European Court of Human Rights procedural obligation under Article 8, and Inter-American Court of Human Rights Advisory Opinion on Climate Emergency recently advised States to assess climate-related risk in EIAs for fossil fuel projects that recognize the global output of emissions (Blaylock, 2026). As Andreotti (2026) observes, state-led EIAs create new circumstances in which investor projects may be refused, reassessed, or subjected to additional conditions, producing disputes at different stages of project development (Andreotti, 2026). In hopes of slipping away from moral gravitas and incurring cost-bearing arbitration fees, investors lodge claims that span from the breach of NAFTA’s protection against expropriation to the violation of guarantee of a “minimum standard of treatment” whenever EIAs brought by the State include discovery and extraction methods such as monitoring polluting activities. In protection of geodiversity and preventing disruptions to the well-being of local communities, EIAs serve as front-line defenders of natural resources and human development.

Many investor claims in ISDS cases present evidence for violations of fair and equitable treatment (FET). Usually, at the point of unforeseeable climate-related regulatory change by the State thwarting continued development for investment projects. At first glance, non-binding instruments should strengthen environmental protections for State capacity to intervene on private investor activities that could cause latent harm. However, foreign investor protections remain structurally dominant over state environmental interests. In Vattenfall v. Germany I, a Swedish energy firm, launched a $1.4 billion investor-state case against Germany in 2009 under the Energy Charter Treaty (ECT) over permit delays for a coal-fired power plant (United Nations Conference on Trade and Development, n.d.). The State’s environmental ministry proposed clear requirements for the plan due to the IPCC reports informing the public of risks of climate change including local air quality. According to Vattenfall, the Swedish energy firm, the government delayed permits in collaboration with public opposition. The environmental hazards of prospective carbon emission and water pollution were in public opposition. The public response was supported by a local governing faction of the Green Party and further solidified by a coalition government with Christian Democrats after State-run elections in 2008. Greenpeace Germany filed complaints alleging that Vattenfall engaged in heavy lobbying to water down German environmental and consumer protection laws, in violation of the OECD Guidelines. The coalition government issued Vattenfall permits but added requirements to protect the Elbe River. Instead of complying with new requirements, Vattenfall claimed investor-state dispute against Germany, presenting expropriation and violation of FET. In 2010, the State settled, which resulted in removing additional environmental requirements and issuing permits for continuous development of the coal-powered power plant. The settlement waived earlier commitments on the Elbe River and Vattenfall opened the coal plant in 2014 (Mathiesen, 2014). According to OECD Watch (n.d.), “Vattenfall is particularly committed to renewable energy sources in Sweden, the company concentrates on generating environmentally harmful coal energy in Germany”.

Despite non-binding and binding mechanisms to reduce long-term impacts of resource extraction activities on the environment, some tribunals have negated the intention of EIAs. In Bilcon v. Canada, an American concrete company retaliated against the government of Canada for requiring environmental assessments prior to the development of a quarry mine in Nova Scotia (United Nations Conference on Trade and Development, n.d.). The government convened a review panel based on concerns of environmental risks of blasting, extracting, and shipping large quantities of basalt from the proposed 152-hectare project located in an endangered whale habitat. The State claimed the project threatened local communities’ core values reflecting a sense of culturally significant place, desire for self-reliance away from foreign direct investment (FDI), and need to respect their natural environment, resulting in the Government of Canada rejecting the project. The company sued for $7 million, claiming breach of national treatment, minimum standard treatment, and most-favored-nation obligations. As the tribunal found community values only arbitrary, it settled for a national treatment violation. The dissenting arbitrator considered the tribunal’s decision in favor of the majority as “departed in fundamental ways from the standard of evaluation required by the laws of Canada” (McRae, 2015).

A zero-sum testing ground for State and third-party interventions on private investment violations, closed-door tribunals are not effective stewards for environmental justice. It is often a lex ferenda (or law to be proposed) process that hinges on innovations in arbitration mechanisms to strengthen protective ecological outcomes. Tribunals that allow third-party evidence have a broader expansion of State defense for environmental security. In Odyssey v. Mexico, an extraction project on the Gulf of Ulloa request was denied by Mexico’s Ministry of Environment and Natural Resources as endangered species such as loggerhead sea turtles, were at risk due to lack of expertise in deep-sea mining by Odyssey Marine Exploration Inc (United Nations Conference on Trade and Development, n.d.). Odyssey petitioned the tribunal to decide if Mexico’s denial was illegitimate, but the state maintains the project was fairly denied due to proposed catastrophic impacts on the Gulf of Ulloa. The proposed catastrophic impact was presented through an assembled EIA by the state of Mexico. In 2021, the tribunal rejected an amicus curiae, which included facts from the environmental impact assessment, by the Center for International Environmental Law (CIEL) and the Puerto Chale Fishing Cooperative, whose fishing grounds would be devastated by the mining project (Center for International Environmental Law, 2022). In his dissenting opinion, arbitrator Philippe Sands criticized the tribunal majority for overlooking the public interest at stake in the case. He noted that the NAFTA Free Trade Commission's own statement on non-disputing party participation had already recognized that amicus curiae submissions contribute to the legitimacy of arbitral awards (International Institute for Sustainable Development, 2022). In September 2024, the International Centre for Settlement of Investment Disputes ruled in favor of Odyssey awarding $37.1 million plus interest (Odyssey Marine Exploration, Inc., 2024).

In a rare instance of the State winning, Lone Pine v. Canada involved a $109 million challenge by a U.S.-based oil and gas exploration company (United Nations Conference on Trade and Development, n.d.). The petitioner claimed NAFTA chapters challenging Quebec’s suspension of oil and gas exploration permits under the St. Lawrence River. As part of a sweeping moratorium on hydraulic fracturing, the State conducted an EIA (strategic environmental study) on the method for extraction which was found to leak chemicals and hazardous material into the air and groundwater (Global Affairs Canada, n.d.). The tribunal issued an award in 2022 finding Lone Pine’s investment failed to suffer from substantial deprivation and ruled out the minimum standard treatment claim. The arbitration decision resulted in split legal costs between the investor and State. While the investor issued a dissenting opinion concluding violations of minimum standard treatment under NAFTA, the State presented evidence of validating Canada's sovereign right to implement precautionary measures to safeguard its water. By centering the precautionary principle (an arbitration principle of sustainable development law) as the main indicator for asserting State action, the case rationale informs how the utility of public service trumps private extraction of natural resources (Fazeli, 2023).

The four cases expose an ecosocial structural tension between private commercial rights and state environmental authority. In every case, the premise of foreign investor protections arose from alleged violations of private commercial rights. The rise of impunity rewards investors, leaving behind detrimental anthropocentric risks. If sustainable development identifies tools for balancing tests, who gets to decide, by tribunal, whether a State’s measure of protection is appropriate or significant? Further, how should the State determine reasonableness and proportionality in defense of environmental safety when deciding to cancel private investment projects? According to Blaylock (ETJC 2026): “In its 2025 Advisory Opinion, the ICJ affirmed that investment treaties cannot be interpreted in isolation from international climate law, and that States hold obligations across multiple sources of international law to prevent, mitigate, and remedy the harms of climate change” (Blaylock, 2026). Clearly, a need for jurisgenesis on environmental protection in investor-state disputes could shift how States navigate private access to natural resources. Adhering to the International Convention on the Settlement of Investment Disputes and the UN Right to Development, let’s embrace rethinking the definitions of investment and investor in order to “deliver promises (not projects)” for shared prosperity towards a climate-resilient future (Saldinger, 2025). This posture adjustment could delegate the ICJ opinion as an interpretive canon in ISDS proceedings. This would reshape the outcomes of the aforementioned cases. On such occasions, EIAs should be made mandatory preconditions in IIAs and tribunals should be required to admit non-disputing party submissions. While it remains that most ISDS cases favor investors, EIAs are visible, innovative mechanisms for States to nudge tribunals towards justice-based arbitration. If the UN's 2030 Agenda for Sustainable Development is built on the principle of leaving no one behind, then protecting future generations begs the question of how to reform ISDS so that one day it may effectively safeguard both people and the planet. As UN Secretary-General Antonio Guterres stated in his final address to the UN General Assembly, “let the power of law prevail over the law of power” (United Nations, 2026).

Jasmine Minato Williams is a Master of Jurisprudence - Sustainable International Development candidate at the University of Washington School of Law. Jasmine is an alumna of the Democratizing Education for Global Sustainability and Justice program at the University of Cambridge. Her areas of specialization encompass multidimensional poverty, land economy, and transitional justice.