Highlights

• 22 ISDS lawsuits in 2025 filed by fossil fuel and mining companies against governments over climate laws and fossil fuel phase-outs.
• Around half of ICSID cases now come from polluting industries, raising fears of regulatory chill as states delay or weaken green policies.
• Critics say the ISDS system favours investors, with billions awarded to corporations, often at the expense of climate action and taxpayers.

Fossil fuel and mining companies are increasingly using investor-state dispute settlement (ISDS) to challenge climate laws and green policies introduced by governments.

This system enables corporations to sue governments in private tribunals if they believe new regulations threaten their profits or investments. The main institution handling these cases is the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), based in Washington, D.C.

In 2025, these industries have already filed 22 lawsuits at the ICSID – the highest number ever in a single year. These claims account for 47% of the tribunal’s cases, compared to 38% in 2024.

Many of these lawsuits target fossil fuel phase-outs and environmental regulations, meaning governments risk paying billions in compensation if they continue with stronger climate action.

Read More: Swiss Council Pauses Climate Disclosure Revision

Critics warn of “regulatory chill” – where governments may weaken, delay, or scrap climate policies to avoid being sued. This is particularly worrying as international courts such as the International Court of Justice (ICJ) have confirmed that states are legally obliged to act on climate change. Yet, ISDS tribunals often focus on protecting investor profits rather than public interest or climate commitments.

The ISDS system was originally set up in the 1960s–70s to give investors from wealthy countries a way to protect their money in nations with weak court systems.

Supporters argue it provides a neutral forum for disputes and helps attract foreign investment. But critics say the system is biased, since corporations can influence tribunal panels, creating risks of conflicts of interest and unfair outcomes. About half of all cases handled by ICSID have been decided in favour of investors.

The financial stakes are huge. By December 2023, corporations had already won nearly $114 billion through ISDS cases. Fossil fuel companies are the biggest beneficiaries, with some of the largest payouts going directly to them.

Nobel laureate Joseph Stiglitz has described this system as “litigation terrorism”, since it discourages governments from passing strong climate rules.

It’s not only developing nations facing these pressures. European countries are also being targeted.

For example, France softened its plan to phase out fossil fuel extraction after the oil company Vermillion threatened legal action. Similarly, Denmark delayed setting an earlier deadline for ending fossil fuel exploration to avoid massive payouts.

In response, the European Union announced its withdrawal from the Energy Charter Treaty (ECT), which has been heavily used by fossil fuel companies to sue governments.

Reform efforts are underway. The EU’s Investment Court System (ICS), introduced in deals with countries like Canada, Mexico, and Vietnam, replaces ISDS tribunals with independent judges and an appeal process.

Also Read: European Union Plans Major Rollback in Climate Reporting Rules

Supporters say this reduces bias, but critics argue it still favours investors, since only corporations can bring claims – governments and citizens cannot. Analysts argue that the deeper problem lies in the thousands of old treaties that still allow such lawsuits.

Experts at UNCTAD and other global bodies recommend updating these treaties so they are aligned with climate goals and sustainable development. That way, investors would have less power to challenge governments that act in the public interest by implementing environmental or health policies.

Ends/

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Source: Follow the Money