Investor protection blocking climate action
by Bart-Jaap Verbeek, Fernando Hernández
From 24-29 April 2026, Colombia and the Netherlands are co-hosting the First Conference on Transitioning Away from Fossil Fuels in Santa Marta. The goal is urgent and widely shared: to accelerate a just and orderly phase-out of coal, oil and gas. But while governments are under growing pressure to act on climate change, a less visible legal obstacle could undermine progress: investor-state dispute settlement (ISDS).
The hidden legal barrier to climate action
ISDS is a legal mechanism that allows foreign investors to sue states before international arbitration tribunals when public policies affect their investments. It appears in thousands of bilateral investment treaties (BITs), trade agreements and investment contracts.
This mechanism emerged after the Second World War and was promoted as a tool to protect investors from political risk in newly independent states. In practice, it has reflected the economic interests of former colonial powers, and today, ISDS has become a tool for companies to bypass domestic courts and challenge climate and energy policies, regulatory reforms, and even efforts to enforce accountability for social and environmental harm.
In the context of climate policy, this matters greatly. Closing coal plants, cancelling oil and gas licenses, or strengthening environmental regulations have all triggered ISDS claims worth billions in alleged lost future profits.
Such cases reveal a deeper structural power imbalance: while companies gain legal tools to defend their interests, governments face financial risk and political pressure when regulating in the public interest. The mere threat of billion-dollar claims can dilute or delay ambitious climate policies, a phenomenon widely described as “regulatory chill”.
In a world that urgently needs to move away from fossil fuels, this imbalance between private legal power and public interest policy is becoming increasingly untenable.
The Netherlands as a hub for the ISDS system
The Netherlands plays a central role in this system. It was the first country to include ISDS in an investment treaty in 1968, with its former colony, Indonesia. Today, it maintains one of the world’s largest treaty networks, with 70 active BITs containing ISDS. Dutch treaties are highly investor-friendly and widely exploited through “treaty shopping”, where investors channel investment through so-called “mailbox” companies with minimal activity in the Netherlands to benefit from tax advantages and access to the country’s extensive treaty network.
As shown in the newly launched Dutch ISDS Datahub, Dutch treaties have been used in at least 140 known ISDS cases, nearly 10 per cent of all cases worldwide, making the Netherlands second only to the United States. These cases have exposed governments worldwide to US$ 113 billion in claimed compensation, with around US$ 20 billion already paid out to investors. The financial pressure of billions in potential liability weighs on public budgets, especially in the Global South, diverting resources from the very policies needed to achieve a just energy transition.
