Fossil energy giants use ICSID tribunal against green transition

The International Center for Settlement of Foreign Investment Disputes (ICSID), the so-called ICSID tribunal in Washington, attached to the World Bank, has in recent years become the preferred tool of fossil energy giants through which they block the green transition policies of the European Union member states, say journalists from the European investigative website Follow The Money in an investigation published yesterday.

According to the cited source, behind the closed doors of the Washington institution, corporations dispute with states their right to future profits threatened by environmental measures, using private arbitration procedures that allow them to avoid national courts. The investigation carried out by journalists from the cited source shows that in 2025 the most cases of this type were registered. Thus, by August 28, major companies in the oil, gas and mining industries had filed 22 claims against states, exceeding the total of 21 in 2024 and representing 47% of the total ICSID case file so far, compared to 38% last year.

The stakes in these lawsuits are huge, and tens, perhaps hundreds of billions of dollars of public money are at stake. By December 2023 alone, almost $114 billion had already been awarded to investors, with the largest payments going to fossil fuel companies, according to the investigation published by the website Follow The Money.

The journalists of the cited source claim that the explosive increase in litigation is taking place precisely at a time when global courts such as the International Court of Justice have clearly established that states have a legal obligation to combat climate change and reduce greenhouse gas emissions. In this context, it remains to be seen "whether ICSID will recognize these obligations when deciding on investor complaints,” Anil Yilmaz Vastardis, a senior lecturer at Essex Law School in the UK and an expert in investment law and human rights, told the cited source, highlighting the risk that arbitrations ignore public interests. Experts consulted by Follow The Money warn that this international mechanism has led to a "regulatory cold”, a phenomenon whereby governments abandon, dilute or postpone environmental policies for fear of costly lawsuits. The fear is not limited to developing countries, but also affects European Union member states. France, for example, announced in 2017 the gradual elimination of fossil fuel extraction by 2040, but was threatened with a complaint to ICSID by the Canadian company Vermillion, a major oil producer. Ultimately, the provisions of the bill were watered down in favor of fossil fuel companies. Another example is Denmark, which in 2020 set a deadline of 2050 to phase out fossil fuels, explaining that a closer date would have resulted in "incredibly expensive” compensation for corporations.

• ICS - a cosmeticized form of ICSID

Such pressures led the European Union to withdraw last year from the Energy Charter Treaty (ECT), an international agreement from the 1990s, after several states were targeted by billions of dollars in lawsuits. The Netherlands, which has a vast network of trade and investment agreements favorable to companies, announced in 2022 that it was withdrawing from the ECT, citing its lack of alignment with global climate goals.

However, this did not prevent the US giant ExxonMobil from suing the Dutch government through a Belgian subsidiary, invoking the treaty and using the services of the prestigious law firm Freshfields, in a case related to the cessation of gas production in the province of Groningen.

Experts contacted by the cited source point out that investment arbitration has become a veritable industry, dominated by large international law firms and a small elite of arbitrators, who focus primarily on protecting investors' profits.

"The courts focus primarily on protecting investors' rights and expected future profits,” said Anil Yilmaz Vastardis, warning that they often ignore states' broader legal obligations, including their commitments to climate policy and the public interest. Nobel laureate economist Joseph Stiglitz described the phenomenon as "litigious terrorism,” explaining that these lawsuits instill fear among governments when it comes to adopting climate regulations because "it will be expensive.”

Defenders of the ICSID system, such as Professor Stephan Schill of the Amsterdam Center for International Law, argue, however, that these mechanisms are neutral courts for resolving disputes, especially in countries with weak judicial systems, and are essential for attracting foreign investment. However, he says that even in developed economies like the US, unpredictable developments can occur, reinforcing the need for an international legal framework. The problem is that investors can influence their arbitration panels, which raises risks of bias, conflicts of interest and abuse of power, as a 2023 UN report warned.

Since its creation in 1966, ICSID has registered more than 1,060 cases, with almost half of the disputes won by investors, but the rest are not necessarily victories for states, but simply the lack of direct convictions. Many of these cases have involved countries in Africa and Latin America, highlighting the imbalance between corporations in rich countries and governments in vulnerable economies. There are currently around 1,730 international investment treaties that contain ICSID clauses, meaning the potential for litigation remains huge.

There has been no shortage of attempts at reform. The European Union has developed an Investment Court System (ICS) in trade agreements with Canada, Mexico, Singapore and Vietnam, designed to reduce the risk of bias and introduce an appeals body. Professor Stephan Schill told the cited source that this reform is necessary and stresses that investors in the green economy also need long-term protection. But other experts, such as Alessandra Arcuri, a professor at Erasmus University Rotterdam, warn that the system remains "deeply asymmetric”, comparing it to a football match in which only one team is allowed to score. In her view, the ICS is just a "cosmetic” version of ICSID, which does not change the fundamental imbalance.

For Hamed El Kady, the chief coordinator of international investment agreements at UNCTAD, the real problem is not just ICSID, but the vast network of international treaties concluded over the past decades. "Instead of focusing on peripheral issues, we should address the root cause: the thousands of agreements concluded decades ago that make this system possible,” he told Follow The Money, calling on states to align their treaties with the Sustainable Development Goals and national policy priorities. Without these fundamental changes, investors will continue to be able to block or tax climate policies, even when they are essential for the survival of the planet.

Thus, what began in the 1960s as a mechanism to ensure the stability of international investment has become a major brake on global climate action. Between investors' rights and people's right to a secure future, the balance still seems to tip in favor of capital, leaving states to pay the price in public money and societies to bear the consequences of an increasingly difficult-to-control climate crisis.

• Roşia Montană - the exception to the picture outlined in the journalistic investigation by Follow The Money

While recent ICSID cases highlight the enormous pressures exerted by large corporations on states that undertake ambitious climate policies, Romania itself was the scene of one of the most resounding trials of this type: the Roşia Montană case. This litigation, also conducted in Washington, showed how investment arbitration mechanisms can test not only a state's environmental and cultural heritage decisions, but also its sovereignty in the face of private capital.

The Roşia Montană gold mining project, promoted by the Canadian company Gabriel Resources through its subsidiary Roşia Montană Gold Corporation, has been challenged for years by civil society, experts and international organizations due to its devastating impact on the environment, archaeological heritage and local communities. In 2015, after the Romanian government officially blocked the project and after the site was proposed for inclusion on the UNESCO World Heritage List, Gabriel Resources initiated international arbitration at ICSID, seeking compensation initially estimated at billions of dollars for alleged losses and violations of bilateral investment treaties signed by Romania with Canada and the United Kingdom.

The Roşia Montană case followed the pattern of complex litigation at ICSID, where investors accuse governments of affecting their profits through decisions considered "arbitrary” or "discriminatory”. As is now happening with major oil and mining companies challenging climate measures, Gabriel Resources tried to demonstrate that Romania violated international obligations assumed in investment protection treaties. The difference, however, was that in this case it opposed not only a specific economic policy, but also an entire movement to protect the environment and national heritage, recognized at the international level. The process lasted for years and was closely followed by public opinion. In March 2024, the ICSID tribunal ruled in Romania's favor, rejecting the Canadian company's claim and thus confirming the state's right to block a mining project considered harmful to the environment and heritage. This decision was seen as a victory not only for Romania, but also for the international movement for the protection of the environment and cultural heritage, demonstrating that, although investors have strong legal mechanisms at their disposal, states can still win when there are solid arguments and a firm will to defend their public interest.

The Roşia Montană case thus becomes an essential landmark in the context of the current avalanche of climate litigation at ICSID. It shows that these processes do not only target emission reduction policies or the energy transition, but can affect any decision of a government that conflicts with the interests of private companies. At the same time, the decision in Romania's favor sends an important signal: arbitration mechanisms, although heavily criticized for their opacity and imbalances, do not automatically guarantee victory for corporations, and states can defend their environmental and heritage policies when they are substantiated and supported by the international community.