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Over the last few years, growing environmental concerns, technological advances, and economic incentives have spurred global efforts to move away from fossil fuels toward sustainable energy sources.


Over the last few years, growing environmental concerns, technological advances, and economic incentives have spurred global efforts to move away from fossil fuels toward sustainable energy sources. Formerly considered a marginal market, renewable energy is now one of the primary instruments in international energy strategies, experiencing huge private and governmental investments on a global scale. However, this financial opportunity does not come without a complex web of regulatory frameworks, geopolitical risks, and legal uncertainties, which can result in a lack of confidence from investors and the failure of energy projects.[1] The Investor-State Dispute Settlement is a mechanism created in international law to prevent governments from discriminating against foreign investors when imposing taxes and ensure they are not subject to discriminatory practices. This blog takes on ISDS trade in conflict of investment in renewable energy; it looks into the vitality of including ISDS in the material, investor 7 influenced by it, how it affects project development, and what it implies to global energy transition goals.


It is a legal space for settling host state-investor claims where investors argue that rights granted by international treaties or investment agreements have been breached. ISDS allows investors to seek compensation directly from states at a global level through arbitration typically held under the auspices of institutions such as the International Centre for Settlement of Investment Disputes (ICSID) or ad hoc tribunals.[2] Impartial arbitrators sitting on these tribunals scrutinise the claims using established legal principles, carrying out proceedings with greater transparency and in line with the standards of fairness and equity agreed upon.

Historically, ISDS has developed parallel to the global economy’s development and has been particularly important in sectors such as renewable energy, which involves significant long-term investment. It is based on the principles of non-discrimination, fair and equitable treatment, and compensation mechanisms for expropriation. For investments in renewable energy, ISDS is an investment policy tool that reduces the risk of regulatory uncertainties and political instability, thereby assisting in creating an environment that attracts foreign investments. ISDS facilitates investors to invest in renewable energy projects that are key to achieving sustainable development goals at the global level, and it is done by providing a predictable and enforceable dispute resolution mechanism that ensures that investments are more secure compared to other regimes.


Investments in renewable energy are regarded as one of the most prominent elements of the global strategy to fight climate change and meet sustainable development goals. Considering the alarming rates of environmental degradation and the increasingly evident imperfection of fossil fuels, solar, wind, hydro, and geothermal power are likely to be a perfect energy source. However, renewable energy appears to be economically feasible beyond the environmental advantages. Specifically, it increases employment opportunities due to the increased need to construct and maintain new types of power plants.[3] Current investments trigger innovation and can improve energy security, increasing the overall amount of energy sources. Socially, renewable energy projects in rural and other less advantaged areas contribute to local people’s satisfaction with their immediate electricity needs.


Numerous multi-faceted challenges are accountable for hampering renewable energy investments, limiting their massive proliferation and scalability. One of the critical challenges is called regulatory uncertainty since it implies certain risks imposed on investors because of inconsistent or changing policies. Governments of different jurisdictions introduce their renewable energy targets and subsidy programs, and due to subsequent changes, the economics of particular projects may be compromised. At the same time, investor confidence may be lost partially. Moreover, it is necessary to follow complex permitting processes to follow the appropriate and current regulatory framework. Still, other challenges are related to the political and economic instability in countries or regions where investments are made.

Apart from those previously mentioned, renewable energy investments are also complicated by financial obstacles. Although the costs faced by investors in terms of renewable technologies are constantly dropping, considerable capital is needed upfront, especially for large projects. The need to finance a venture can be immense because of the artificial stigma associated with the risks linked to the use of new technologies, the longevity of a project, and the inevitability of income. Even when financing is available, a decision must be made whether it is cheaper and suited to the project’s life cycle. These factors are aggravated by the need to implement solid risk-management measures to address operational, technological, and market risks inevitable in renewable energy.


Investor-State Dispute Settlement is significant in mitigating the risks of investing in renewable energy, making it a reliable instrument for investors to resist unfair conditions or insufficient legal protection in the host country. In this way, ISDS provides a certain degree of protection to investors in renewable energy against arbitrary, discriminatory, and expropriation without compensation. Renewable energy investments may critically depend on given ISDS provisions as such projects presuppose a long payback period requiring significant investments in short periods. Thus, the ISDS contributes to the stability of implementation conditions that can prevent risks associated with unpredictable legal changes and political conditions.[4] Moreover, as the ISDS establishes the arbitration between investors and the state, it can be regulated by well-known international conventions, such as ICSID and UNCITRAL, which implies a significant degree of protection.

It is also necessary to mention that the enforceability of ISDS decisions provides an additional security guarantee for investors. Thus, host countries are prevented from violating their obligations under international law and investment agreements. This enforcement mechanism also helps safeguard investors’ confidence, as a drop in FDI inflows could negatively affect the renewable energy sector in developing and low-income countries. Therefore, to achieve sustainable development and successfully migrate to low-carbon economies, ISDS becomes a vital support mechanism to help build a stable investment environment for financing, developing, and using renewable energy technologies to address climate change and security concerns.[5]


ISDS has been controversial. One such point is a lack of transparency in ISDS procedures. Often, such decisions are held in secret without attracting media interest. As a result, the public may not be aware of this dispute or related decisions. In addition, the parties are exposed to private international law, which is not bound by domestic rules of procedure and ensures the process’s publicity. In many respects, these procedures and courts contradict democratic norms and can lead to conflicting decisions. Lundgren argues that the practice of the ISDS has led to the so-called regulatory chill in getting permission.[6] This means that governments limit the introduction of public policy in environmental and health protection when they fear they will have to pay the costs of these changes. This disadvantage has led to many claims that the ISDS system should be fully configured as the meaning of public policy.


As for the future, the effectiveness and legitimacy of ISDS mechanisms should be enhanced to protect the investment climate and unlock the potential of sustainable development, especially in the alternative energy sector. To achieve this goal, one of the recommendations can include increasing the transparency associated with providing arbitral awards and using primary documents in public. Such an initiative will unite all the parties involved with the public and governmental changes and address the problem and widespread tendency toward concerns associated with a lack of accountability. Finally, enhancing rules is also meaningful because it can help focus on particular abuses and perceptions of rhetorical chilling to regulations.[7] Alternative resolution should be promoted by considering specific standards and a more precise scope of investors’ rights, and claims should be settled after negotiations have failed with the usage of mediation.

In addition, it is necessary to increase adherence to coherence and homogeneity of IIAs and bilateral treaties. In particular, it is essential to respond by creating standards in the majority of IIAs, and the harmonisation of provisions should limit ambiguity and improve the current conditions of a state and investor in IIAs, making them more predictable. It is also vital to extend cooperation between governments, international organizations, and stakeholders to develop criteria that would protect the interests of investors and the public. A growing number of agreements should be directed at defining the best balance between the two, focusing on the interests of a community in a sustainable environment and social welfare. Thus, with solutions to these issues and reforms, ISDS can treat disputes as a tool to provide qualitative and unbiased decisions on investors’ claims and join the efforts of countries and corporations toward sustainable renewal and energy transition.


To conclude, following the intersection of investor-state dispute settlement and renewable energy investment indicates opportunities and challenges for a shift toward sustainable energy systems. ISDS is essential for investors to mitigate political and regulatory risks and ensure a fair mechanism to pursue the resolution of legal disputes. However, its excessive use and collateral effects inhibit public policy and encourage de-regulation and negative environmental impacts. In the future, ISDS should be reformed to increase transparency and consistency and consider a balance of interests. To achieve this goal, ISDS must be harmonized between different jurisdictions and include cooperative mechanisms. If these conditions are satisfied, ISDS will nurture a more predictable context for investments in renewables, facilitating their expansion, contributing to climate change challenges, and ensuring the development is sustainable for future generations.

Author(s) Name: Chinmay Oza (Symbiosis International University)


[1] “Campbell K, Dispute Resolution in International Law (2nd edn, Cambridge University Press 2020)”

[2] “Dolzer R and Schreuer C, Principles of International Investment Law (3rd edn, Oxford University Press 2022)”

[3] “Elliott D, Renewable Energy: Power for a Sustainable Future (4th edn, Oxford University Press 2019)”

[4] “Newcombe A and Paradell L, Law and Practice of Investment Treaties: Standards of Treatment (Kluwer Law International 2009)”

[5] “Redfern A and Hunter M, Law and Practice of International Commercial Arbitration (6th edn, Sweet & Maxwell 2015)”

[6] “Salacuse JW, The Law of Investment Treaties (3rd edn, Oxford University Press 2021)”

[7] “Schill SW, International Investment Law and Comparative Public Law (Oxford University Press 2010)”