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During this year’s climate summit (COP30), more than 80 countries called for a roadmap to phase-out fossil fuels. This raised hopes that the primary cause of the climate crisis would finally be put at the centre of the negotiations. 

These hopes were quickly dashed in the face of fierce opposition from petrostates. The main decision text adopted by governments in Bélem does not even mention fossil fuels. Nevertheless, a coalition of states, led by Colombia, is moving ahead with a plan for a world-first conference on phasing out fossil fuels in April 2026, co-hosted with the Netherlands.

While there was a fair amount of media attention on Colombia’s demands for fossil fuels to be addressed at COP30, an important statement made by Environment Minister Irene Vélez Torres was not widely reported. Speaking at a side-event hosted by a number of NGOs and think tanks, Vélez identified investor-state dispute settlement (ISDS) as “one of the greatest obstacles” to the energy transition. 

ISDS is the enforcement mechanism for over 2,500 treaties that provide protection to foreign investors. The system, which emerged in the 1960s, was shaped by big oil companies like Shell, and through it, fossil fuel firms have already extracted at least US$82.8 billion in public funds. Critically, a growing number of firms are using ISDS to sue governments that have rejected new fossil fuel projects or continued extraction to protect the environment and vulnerable communities. 

Countries in the Global South are exposed to the greatest risks and Colombia has substantial first-hand experience with ISDS, having been sued 25 times. In one ongoing suit, the multinational mining giant Glencore is objecting to a court ruling that halted the expansion of what is already one of the world’s largest open pit coal mines. Countries in the Global North have also faced cases. Most recently, a claim was launched against the UK over the rejection of a coal mine in Cumbria.

Although there is increasing recognition of the conflict between ISDS and climate action by governments and experts, there is no obvious forum where serious reform discussions can be held. Much as with the roadmap for phasing-out fossil fuels, the most obvious path forward is for a ‘coalition of the willing’ to take the lead in eliminating ISDS protection for the industry, with the hope that the rest of the world will eventually follow.   

Whether an existing ‘climate club’ could spearhead this effort is a question that is explored in a recent article that I co-authored with Harro van Asselt and Peter Newell. We interrogate the Beyond Oil and Gas Alliance (BOGA) and the Coalition on Phasing Out Fossil Fuel Incentives Including Subsidies (COFFIS). We find that addressing ISDS is not beyond the remit of these so-called ‘climate clubs’, as investors could use ISDS to challenge measures taken by governments to implement their club commitments and could dissuade those that are not currently members from joining. Indeed, New Zealand’s former climate minister admitted that the country did not become a full member of BOGA because of the threat of ISDS claims.  

We provide several options for what a climate club could do to address the conflict between investment law and climate policy, including modification of investment treaties among club members to carve-out protection for the sector covered by the club, a carve-out of investment treaty protection for all fossil fuels, or the complete removal of ISDS from the relevant treaties.

In addition to existing climate clubs taking action, we propose that a new club could be formed specifically to address the issue of ISDS. Who might spearhead such an effort? Clearly Colombia has already demonstrated substantial concern about this issue, but leadership will also need to come from the Global North. 

The Netherlands, which is co-hosting the fossil fuel phase-out conference with Colombia, has quit the Energy Charter Treaty - the most invoked treaty in ISDS cases -  due to its misalignment with the Paris Agreement. In addition to being sued twice over its coal phase-out plan, the Netherlands is currently embroiled in a dispute with Shell and ExxonMobil over the closure of a gas field where extraction had caused earthquakes. If the Netherlands brought its treaties into alignment with climate goals it would be a significant outcome as those treaties have facilitated at least 135 ISDS cases, which is almost 10% of the global total. Many of these cases have been brought by multinationals - including ExxonMobil - using Dutch subsidiaries or “mailbox” companies.

With both Colombia and the Netherlands having had recent experience of fossil fuel ISDS claims, and the fact that ISDS could chill fossil fuel phase-out plans both domestically and internationally, the conference in April 2026 would appear to be an opportune moment for discussions over a new club to address this issue. Additionally, Australia, which signed the Belém Declaration on the Transition Away from Fossil Fuels, could push the issue during their presidency for COP31. Support for this could also be drawn from the Baku to Belém Roadmap to 1.3T, which explicitly mentions ISDS as a barrier to the achievement of climate finance goals. The current Australian Labor government is opposed to the inclusion of ISDS in new treaties and is actively trying to reform existing treaties. Australians are also acutely aware of the way in which fossil fuel investors can utilise ISDS to obstruct climate policy. Australian mining magnate and billionaire Clive Palmer has brought three ISDS cases against his own government (channeled through a foreign subsidiary of his firm) over the rejection of a coal mine on climate grounds.

The best way to address the ISDS-climate conflict is through plurilateral or multilateral efforts. However, such efforts will no doubt take considerable time and will not be easy; as in other areas, the fossil fuel industry is working hard to maintain the system that protects them so well. In the interim, there is another, albeit primarily symbolic, action that countries can take unilaterally. This is to denounce the International Centre for Settlement of Investment Disputes (ICSID), as Honduras has recently done. In an article in a special issue of Global Environmental Politics on the North-South Politics of Global Just Transitions, I examine ICSID and how it governs the energy transition in a way that risks burdening the Global South with substantial costs, contrary to distributional justice. 

Although investor claims can still be brought in other forums against governments that renounce ICSID, I argue that doing so sends a strong message to the international community that the current system of ISDS is unacceptable. Furthermore, it places pressure on the World Bank Group, of which ICSID is a member, to live up to its shared mission to “end extreme poverty and boost shared prosperity on a livable planet.”

Whichever approach or strategy is adopted, perhaps most likely in tandem, the issue of legal protection for investments in the fossil fuels driving the climate crisis must be addressed if the level of climate ambition the world urgently needs is to be realised.

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