Since the 1992 Rio Declaration on Environment and Development (the “Rio Declaration“) and the launch of the United Nations Framework Convention on Climate Change by the General Assembly, States have had international commitments in respect of tackling climate change. These commitments have included a duty to act in accordance with the precautionary principle as set out in principle 15 of the Rio Declaration. However, this duty, together with other obligations arising out of subsequent climate change treaties (such as the Kyoto Protocol and the Paris Agreement) and even human rights treaties (as recognised by the Human Rights Council), may conflict with other obligations that States have entered into – in particular, those under investment treaties. As a result, States are finding themselves in the uncomfortable position of having to comply with two sets of potentially conflicting international obligations.

The current state of play: renewable energy companies are making extensive use of investment treaty arbitration

As part of efforts to address climate change, since the late 1990s, States have been implementing regulations to incentivise investment in renewable technologies and low carbon energy production. As a consequence of changes made to some of those regulatory measures, there have been a number of investor-State dispute settlement (“ISDS“) claims against States. A number of these cases have concerned reductions to the incentives provided to investors to develop renewable energy projects. It has been reported that Spain has had over 50 ISDS claims brought against it concerning climate change regulations. Italy, the Czech Republic, Romania, and to a lesser extent, Germany have also been the target of multiple climate change related ISDS claims.

In relation to Spain, a number of these cases arose from the State’s removal of the incentives it had established to attract investment in solar energy projects. As a result, there have been multiple claims against Spain before ICSID and the SCC under the Energy Charter Treaty (“ECT“). Cases have been decided in favour of both the claimants and the State, and many are still pending. Claims have generally been brought under article 10 of the ECT for a failure to provide stable, equitable, favourable, and transparent conditions, as well as a breach of the Fair and Equitable Treatment (“FET“) standard.

For example, in favour of claimants (involving seven Luxembourg, Dutch and Spanish companies) is Watkins Holdings Sàrl and others v Kingdom of Spain, ICSID Case No. ARB/15/44 where, in an award dated 21 January 2020, the tribunal awarded EUR 77 million plus interest for a violation of the FET standard. The majority of the tribunal held that the modification of the renewable energy incentives scheme frustrated the investors’ legitimate expectations, lacked transparency, was unreasonable and disproportionate.

An example of a case in favour of the State (involving nine German investors) is Stadtwerke München GmbH, RWE Innogy GmbH, and others v Kingdom of Spain, ICSID Case No. ARB/15/1, where the tribunal (in an award rendered on 2 December 2019) dismissed the claimants’ claims finding, among other things, that the renewable incentives regime at the time of the investment did not create any legitimate expectation of legal stability. The tribunal found that the investor could only legitimately expect to obtain a reasonable return.

In relation to Italy, the government introduced incentives for the production of renewable energy in the mid-2000s. However, in 2014, Italy changed course and adopted a government decree to reduce the financial burden that the incentive regime had on the State and consumers. As a result, at least 13 claimants have initiated ECT claims against Italy. For example, a Danish renewables company and two Luxembourg entities brought a claim in Greentech Energy Systems A/S, et al v. Italian Republic, SCC Case No. V 2015/095. In an award rendered on 23 December 2018, the majority of the tribunal found in favour of the investors, holding that Italy’s reduction of the incentive tariffs failed to accord FET to the claimants and impaired the investments by unreasonable measures.

Romania has also been the respondent in recent claims as a result of regulatory changes to its green certificates market in 2017. Following Romania’s changes, a collective action against the State was brought by a group of 10 claimants in June 2018 (including Austrian, German, Dutch and Cypriot entities) in LSG Building Solutions GmbH and others v. Romania, ICSID Case No. ARB/18/19. The case is pending.

More recently, another collective case was commenced at ICSID in September 2020 against Romania in Fin.Doc S.r.l. and others v. Romania, ICSID Case No. ARB/20/35. In that case, a group of 44 companies and individuals from Italy, Greece, Luxembourg, Germany, Turkey, the Czech Republic and Cyprus have brought claims against Romania under the ECT in relation to solar power projects.

These are just a few examples of how investors in the renewable energy sector, increasingly through claims involving multiple claimants, have used investment treaty arbitration to challenge the actions of States which have modified their regulatory frameworks designed to encourage investment in renewable energy. It remains to be seen what effect the recent Komstroy and PL Holdings decisions of the Court of Justice of the European Union, following on from Achmea, will have on how ISDS tribunals will treat investment disputes concerning EU States.

What may lie ahead

In addition to the types of claims discussion above, other claims which may arise in connection with climate change in the future include: (1) claims brought by investors in fossil fuels as a result of damage to their investments due to new policies devised to tackle climate change; and (2) claims arising from damage caused to investors due to States’ failure to protect their investments from the effects of climate change.

Concerning the first type of claim, a similar approach may be to follow those cases concerning renewable energy regulations. A recent case of this type was filed in February 2021. RWE, a German utility company, filed an ECT claim against the Netherlands, which plans to end all coal-fired power production by 2030. RWE is arguing that the State has not provided enough time nor money to transition from burning coal to biomass. This contrasts with Germany’s position: it agreed in December 2020 to compensate investors of lignite-fired power plants for an accelerated shutdown of their investments.

However, unlike the cases concerning renewable energies, States may have additional defences to rely on. For example, States could make use of Article 31(3)(c) of the Vienna Convention on the Law of Treaties to argue that their obligations under investment treaties have to be interpreted in light of any climate change rules “applicable in the relations between the parties“. Therefore, the availability of this defence will depend on the specific treaty at issue as well as the climate change obligations applicable to the State in question. States could also rely on the defence of necessity (Article 25 of the Articles on State Responsibility), although this line of argument has had little success in investment treaty arbitration so far.

As to the second type of claim, many investment treaties include standards that could potentially be invoked if States fail to protect foreign investments from the effects of climate change. The Articles on State Responsibility (Article 2) make clear that a State is responsible for its actions as well as for any omissions leading to a breach of an international obligation. In the framework of investment treaty arbitration, the full protection and security standard could potentially be invoked if an investor’s physical assets are damaged due to the effects of climate change if a State has not taken adequate steps to address the impact of climate change. A foreseeable example is the situation of a seaside factory that suffers losses or even stops being able to carry out its business as a result of rising sea levels caused by global warming. Similarly, there may be a potential claim for a breach of the FET standard if an investor can show it relied on a legitimate expectation that the State would comply with its climate change obligations and that failure to do so caused damage to its investment.

However, in both situations, a key issue that would need to be overcome is causation. While a State is under an obligation to make full reparation for injury caused by an internationally wrongful act (Article 31 of the Articles on State Responsibility), it is less clear which causation standard would apply in a climate change action in an investment treaty arbitration. The commentary to Article 31 makes reference to several potential criteria such as directness, foreseeability, remoteness and proximity while making clear that “the requirement of a causal link is not necessarily the same in relation to every breach of an international obligation“. Even if it can be shown that a State is in breach of its international obligations concerning climate change, the question of the impact and magnitude of a particular inaction causing a specific harm to the investor remains to be proven.


Climate change related disputes are being determined by ISDS and the framework is well equipped to deal with the various disputes which are and will arise. There is already a significant number of investment arbitration cases related to climate change and these numbers are likely only to increase. There is the potential for claims arising out of measures taken by States to address climate change (but also compliance with climate change obligations may provide States with a defence to changes in their regulatory framework), as well as States not taking adequate steps to address climate change which negatively impacts an investor’s investment. Accordingly, States must carefully balance their regulatory policies to adequately address both climate change and obligations contained in existing treaty standards.


Clàudia Baró Huelmo is an associate at Withers (Geneva), qualified in Spain. She specialises in public international law, investment treaty arbitration and international criminal law.

Dr Robert Kovacs is Special Counsel at Withers (London), qualified in Australia. He specialises in public international law, international arbitration and business and human rights.