New deal allows for ICSID claims on fossil fuel investments until 2033

4 October 2022

Companies will no longer be able to claim compensation for losses to new fossil fuel investments under the Energy Charter Treaty (ECT) due to environmental protection measures effective August 2023, “with limited exceptions”, under a deal reached on 24 June through a renegotiation led by the EU and UK. Most of these lawsuits have been filed with the World Bank Group’s International Centre for the Settlement of Investor Disputes (ICSID) (see Inside the Institutions What is the World Bank’s International Center for the Settlement of Investment Disputes (ICSID)?). However, activists have strongly criticised a loophole that protects existing investments made by August 2023 for a further ten years.

The ECT, in force since 1998, has been criticised for violating the Paris Agreement by allowing businesses to sue over risks to their investments in fossil fuels stemming from environmental protections initiated by states. The number of cases brought to ICSID has increased significantly since 2015, with 97 percent coming from fossil fuel companies, and governments have been ordered to pay more than $52 billion in damages (see Observer Summer 2020).

In a recent staff note, the IMF acknowledged the potential damage that such investor-to-state dispute settlement cases may pose for mobilising private climate finance in developing countries (see Observer Autumn 2022).

In September, UK-based Ascent Resources PLC became the latest company to file a case with ICSID against a state under the ECT, demanding €500 million compensation from Slovenia because its Environmental Agency ruled it cannot start fracking without an environmental impact assessment. In contrast, the German government forced energy company Uniper to withdraw an ICSID case against the Netherlands over the early closure of a coal-fired power plant as part of the conditions for a  €15 billion bailout deal on the back of the company’s massive losses from reduced Russian gas supplies.