During the 2025 summer heatwave, the Inter-American Court of Human Rights (IACtHR) delivered its much-awaited advisory opinion on the climate emergency and human rights. The San José court's decision has direct implications for investment governance and the ongoing reform of investment treaties. In particular, it highlights the potentially negative consequences of the old-generation treaties for investment protection and investor–state dispute settlement (ISDS) on climate action.
The IACtHR is a regional human rights tribunal whose task is to interpret and apply the American Convention on Human Rights, also called the Pact of San José, Costa Rica. It is one of three regional human rights tribunals, together with the European Court of Human Rights and the African Court of Human and Peoples' Rights. These advisory opinion proceedings on the obligations of states in responding to the climate emergency were initiated by the governments of Chile and Colombia in January 2023.
On the heels of this decision, the International Court of Justice (ICJ) is expected to deliver its advisory opinion on the Obligations of States in respect of Climate Change later this month. Will this be the year in which international law finally aligns investment treaties with sustainable development? Here are a couple of initial takeaways for investment policy from the IACtHR's climate emergency decision.
1. The tension between investment treaties and climate and environmental obligations is not inherent; it depends on the regulatory design of investment treaties.
In its opinion, the court noted that more recent investment treaties include environmental protection and climate action provisions (para. 162). This implies that older-generation treaties that focus exclusively on investment protection are more likely not to be in harmony with climate and sustainable development goals (para. 163).
The tension between investment treaties and climate and environmental obligations depends on the regulatory design and use of ISDS mechanisms (para. 163). This aligns with our view that we need to move beyond investment protection and rethink investment treaties—their functions, goals, and designs—as reflected in the International Institute for Sustainable Development's (IISD's) ongoing consultation on Rethinking Investment Treaties.
2. Treaties should be designed to avoid regulatory chill and allow for experimentation.
The opinion underlines that avoiding an eventual deterrent effect on climate regulation, so-called "regulatory chill," should be a key consideration when states design investment treaties to ensure they support climate action (para. 164). Regulatory chill refers to a situation in which the simple possibility of challenging regulations in ISDS can dissuade host states from adopting the necessary climate action policies.
3. The ISDS practice of high damages is detrimental to climate action.
The IACtHR recognizes that imposing onerous damages awards on states that lose ISDS claims, regularly forcing governments to pay millions of USD to investors, may discourage states from implementing public policies aligned with their environmental and climate obligations (para. 164). IISD has been emphasizing that reforming the calculation of damages in ISDS is timelier than ever.
4. States should review their existing investment treaties and ISDS mechanisms.
The court gave a clear signal to the states to align their ISDS mechanisms in treaties with sustainable development "to ensure that they do not limit or restrict efforts in climate change and human rights" (para. 352). The considerations relevant to applicable law in ISDS have also been spelled out by the court (para. 287), such that the investment arbitration tribunals that rule on ISDS cases should no longer be able to avoid environmental and climate change law considerations.
5. States must regulate corporate behaviour to address the climate emergency, and companies must expect that such regulation will be implemented.
While recognizing the duty to regulate corporate behaviour to prevent human rights abuses falls on states, the court was clear that these obligations must be fulfilled by companies. Companies must avoid their actions causing or contributing to human rights violations and adopt measures aimed at their remedy (para. 345).
Companies "have obligations and responsibilities with regard to climate change and [its] impacts ... on human rights," it writes (para. 346). Notably, this should be an important consideration by ISDS tribunals when assessing potential investors' "legitimate expectations." The arguments voiced by the court might also be relevant for implementing legally sound fossil fuel phase-outs.
6. Investment policy cannot be considered in isolation from the wider economic law and policy landscape.
The court observed that various areas of international economic law beyond investment consider the environmental and climate impacts of economic activities (e.g., international finance, paras. 165–170). Various multilateral development banks have adopted policies and projects promoting resilience, adaptation, and climate mitigation.
For instance, the court noted that "the International Monetary Fund (IMF) gradually incorporated climate risks and opportunities into its public policy advisory mechanisms, capacity building (para. 165)." This reasoning is in line with our view that investment treaties must be considered part of the broader set of policy tools for states to allocate economic and political risks linked to investment projects.
7. States need to adopt holistic energy transition regulation, especially in the context of investment incentivization and during the extraction of critical minerals.
Investment treaties are but one element of regulating the activities of foreign investors. The court highlighted that states have the need to protect human rights from violations that may occur during the energy transition (para. 342). On incentives to promote investment, states should adopt "measures to foster and attract investments in innovation in low-emission activities, as well as to develop new tools and standards to strengthen green finance; and ... policies that favor green investments and facilitate the transition of polluting sectors" (para. 342).
8. Domestic law is the primary vehicle for regulating corporate behaviour.
The court also noted that states have a duty to establish corporate obligations on climate action in their domestic legal frameworks (para. 346). Such obligations relate to, for instance, carbon disclosures and discouraging greenwashing (para. 347).
The opinion highlights that states can order sanctions for economic activities carried out in contravention of environmental regulations, including the cessation of conduct and compensation for environmental damage (para. 356). This can inspire policy-makers when they reform their national investment laws and regulatory frameworks.
9. Some corporations have greater responsibilities than others when it comes to climate action.
The court considered that states should differentiate between corporations when imposing burdens through domestic regulations based on current and past contributions to climate change. These burdens may, for instance, be expressed through taxes or contributions (paras. 350 & 352). For the court, this means putting into practice the "polluter-pays" principle.
Importantly, the court highlighted that imposing those burdens should consider "economic conglomerates and transnational corporations, so that States can attribute legal responsibilities to parent companies" (para. 350).
10. Environmental impact assessments (EIAs) are mandatory whenever there are risks of significant environmental damage.
The court went to some length to determine the details of EIA obligations and the discussion of best practices in this area (paras. 358–362). EIAs and related tools, such as Environmental and Social Management Plans, are critical components in legal frameworks for mining and other high-risk activities, both to minimize the negative impacts and optimize the positive contributions of the investment. This decision will complement the already existing guidance available to governments on reforming and implementing EIAs.
Paving the Way for a Historic ICJ Ruling on Climate
This decision breaks ground by interpreting the obligations of states, as well as corporations and investors, in response to the climate emergency. It makes a clear case for why investment policy-makers cannot ignore considerations related to climate change and the environment when designing and implementing investment policies.
While this decision produces direct legal effects only within the inter-American human rights system, it can serve as an inspiration for similar legal initiatives beyond the region. At least as important, it can pave the way for a robust decision by the ICJ on states’ obligations to tackle climate change when the world court delivers its much-anticipated verdict later this month.
