Colombian Environment Minister Irene Vélez Torres has called for reform of international arbitration tribunals, saying they’re “one of the greatest obstacles” to the energy transition and favor corporate interests over sovereignty.
The investor–state dispute settlement system (ISDS), also called a “corporate court,” is an international trade mechanism that allows foreign investors, usually corporations, to sue a government for losses caused by its policies. Under this system, a nation can’t outlaw, or in some cases punish, existing extractive industries for environmental reasons without facing significant penalties.
“No government should have to choose between protecting nature and its people, and protecting itself from arbitrators,” Vélez said at the U.N. climate summit, COP30, in Belém, Brazil, in a session hosted by U.K.-based advocacy group Global Justice Now.
“This mechanism, that has been inherited from an era in which the priority was investment over sovereignty, allows corporations to sue the state for adopting legitimate environmental and climate policies,” Vélez added.
According to Global Justice Now, corporations have sued over environmental demands made by nations several times under the ISDS framework. These include U.K. mining giant Anglo American suing Colombia after a court there stopped the expansion of an open-cast coal mine, and Chevron, a U.S. oil company, suing Ecuador after the nation ordered compensation following a devastating oil spill in the Amazon.
Vélez said Colombia has historically been dependent on fossil fuels and their exports, and that these mechanisms force nations to continue supporting extractive industries that damage the environment and emit greenhouse gases. Any attempt to ban fossil fuel exploitation, thereby impacting existing operations, she said, could lead to harsh penalties.
“Multi-billion-dollar ISDS claims have become so common that the mere threat of arbitration may be enough to deter countries from taking critical environmental and public health measures,” Nikki Reisch, climate and energy program director at the Center for International Environmental Law (CIEL), told Mongabay by email.
“There is growing awareness that the ISDS system is incompatible with human rights and environmental obligations and should not just be reformed but terminated,” Reisch added.
A 2023 U.N. report called “Paying polluters” found that the ISDS, referred to as a “secretive international arbitration process,” had awarded more than $100 billion to fossil fuel and mining industries.
The report highlighted a case of three Australian mining corporations seeking $37 billion from the Republic of Congo for revoking their iron ore mining permits, citing project delays. The amount claimed is more than twice the nation’s annual GDP.
“We are calling for a global conversation to reform the investment regime in line with climate justice and with human rights,” Vélez said. “For a country such as Colombia, with significant foreign investment in oil, gas and coal, the ISDS has created a tangible financial risk that exposes, first of all, a clear inequality between north and south.”
Banner image: Boat on the Caquetá River in the eastern Colombian Amazon. Image courtesy of Víctor Galeano.
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