When plans were announced for an open-pit copper mine in the cloud forests of Ecuador in 2004, they were vigorously opposed by residents. The project risked damaging forests, water sources and the area’s rich biodiversity, they said.
In a rare victory for community action, the Ecuadorean government pulled support for the scheme. But that was not where the story ended. The miners behind the project, Copper Mesa, decided to take the Ecuadorean government to an investor arbitration tribunal. The Canadian company was ultimately awarded a payout of USD 24 million.
Investor-state dispute settlement (ISDS) is a process baked into thousands of investment treaties and contracts. It is supposed to give foreign investors certainty by giving them the right to sue governments over damage to their profits – and the reassurance that their assets will not be seized by a future government in the host country.
ISDS is heavily criticised by environmentalists and academics. They claim it has a “chilling effect” on environmental regulations, and gives foreign investors preferential treatment. The high cost of claims also strains public budgets.
In March, 220 economists and legal experts wrote to Colombia’s president, Gustavo Petro, ahead of his country hosting the First Conference on Transitioning Away from Fossil Fuels, which commences today in Santa Marta. This new international conference is dedicated to reducing fossil fuel reliance. The letter urges Petro to withdraw Colombia from ISDS, arguing that the system impinges on states’ rights to “regulate freely in the public interest, including in the context of climate action”.
Colombia has 129 oil and gas projects covered by ISDS which, the letter explains, exposes it to claims in the “billions of dollars”. In a post on X in late March, Petro suggested he would “accept the invitation”.
Exactly what Petro means by that is likely to be hotly debated over the next six days at Transition Away.
What is ISDS?
Agreements containing ISDS proliferated throughout the 1990s. Dialogue Earth consulted Luciana Ghiotto of the Transnational Institute (TNI), a research and advocacy centre based in the Netherlands. She says wealthier nations promoted these agreements as a way of attracting badly needed investment.
ISDS is thought to be written into more than 3,000 bilateral investment and multilateral trade treaties, according to estimates, as well as private contracts. In rare cases, it is written into domestic law in the receiving countries.
Advocates argue ISDS gives foreign investors certainty and makes them more likely to invest.
However, studies have cast doubt on these claims. A 2020 article in the Journal of Economic Surveys claimed the impact of such agreements was “so small as to be considered zero”. It ceded, however, that contemporary research methods may have been insufficiently precise.
Ladan Mehranvar, a legal researcher at Columbia University in the US, says ISDS puts foreign companies in a privileged position: “These protections go well beyond what’s afforded to similar domestic investors.”
Claims can be brought in a number of international tribunals. The most commonly used is the International Centre for Settlement of Investment Disputes (ICSID), which sits within the World Bank.
Rachel Thrasher, a global trade researcher at Boston University in the US, says this process is a “unique international instrument”. She explains: “This is a situation where countries have granted consent to foreign investors to sue them [outside of their own courts].”
Most cases have generally related to nationalisations. But investors are proving increasingly willing to file claims related to environmental protections that affect their investments.
In the past 30 years, at least 419 known cases have been filed against Latin American and Caribbean countries, according to a TNI report published in February. Awards to investors from these tribunals totalled USD 36.6 billion.
Roughly a quarter of these cases relate to the environment. But this proportion has more than doubled since 2014.
How ISDS throttles environmental protections
Latin American countries have faced a “growing” number of claims from mining, oil and gas investors challenging “environmental conservation policies [and] regulations protecting communities’ rights”, according to the TNI report.
In 2023, the UN environmental human rights rapporteur David Boyd found that “secretive” ISDS mechanisms were a “major obstacle” in addressing environmental crises. His report confirmed that foreign investors use the process to “seek exorbitant compensation from states that strengthen environmental protection”. The fossil fuel and mining industries had been awarded more than USD 100 billion, making it a system for “paying polluters”.
Latin American countries remain exposed. A November 2025 policy brief from Boston University found 218 oil and gas projects in Amazonian countries covered by ISDS provisions. “Policies that limit oil and gas extraction could result in ISDS claims from fossil fuel companies whose profits depend on related deforestation,” the brief reads.
“There is a chilling effect,” says Ghiotto. “The investor is free to do whatever he wants and whenever the state wants to make a small regulation to prevent, for example, mining in a wetland, these corporations start threatening states with a claim.”
Crucially, these claims do not have to be filed to prevent climate action. In 2017, the social scientist Kyla Tienhaara warned that oil and gas companies could use the system to delay public policy on climate change, a tactic previously used by the tobacco industry: “Fossil fuel corporations do not have to win any ISDS cases for this strategy to be effective; they only have to be willing to launch them.”
Colombia has fallen victim to this regulatory chill in public health policy. In 2016, the government was challenged by a drug company when it attempted to remove its production monopoly on blood cancer medicine to lower the price. The policy was scrapped.
The country also faced a tribunal over a decision by its constitutional court to ban mining in some of its mountainous ecosystems, citing environmental risks. This blocked a planned gold mining project by Canadian company Eco Oro, which sued for USD 696 million in compensation. In an unusual judgement, the tribunal ruled that the court’s decision was legitimate, but also that the company had been treated unfairly. It ultimately awarded symbolic compensation of USD 0 (zero), but Colombia was still left with an estimated USD 6 million in tribunal costs.
Mehranvar points out that tribunal decisions tend to be skewed in favour of the Global North, with most cases being filed against Global South countries: “It’s very one-sided.” Thrasher adds that, even when Global North countries do face claims, they may be better able to defend themselves thanks to their greater resources.
Could Colombia leave?
During his administration, Petro has halted new oil and gas licences and, via its hosting of the Transitioning Away conference, his government is placing itself at the forefront of fossil fuel phaseout. However, this could expose it – and other similar countries – to ISDS claims. The Netherlands, for example, is facing a claim from ExxonMobil for its decision to close the Groningen gas field.
The 220 economists and legal experts who wrote to Petro think leaving the ISDS system is the solution. But what could this look like?
The country could attempt to renegotiate its multi- and bilateral trade treaties to remove ISDS. However, it could also choose to leave them unilaterally. Another solution could be to withdraw from the ICSID.
Ecuador withdrew from ICSID in 2010 and by 2017 had terminated its bilateral investment treaties. In addition, its constitution was amended to prevent the signing of future treaties containing ISDS clauses. Bolivia also withdrew after facing a claim following the renationalisation of Cochabamba’s water supply in 2000. Privatisation had quickly increased prices by 50%, leading to an uprising in the city dubbed the “war of water”.
Ghiotto says the idea that withdrawing from ISDS will reduce investment is a “myth”. Brazil has entirely avoided treaties containing ISDS clauses and is regularly the first or second destination for foreign investment in Latin America. Foreign companies will invest where the resources are, she explains: “You cannot extract lithium or gold in the outskirts of Paris or in London.”
Since terminating its agreements in 2017, Ecuador has still been able to attract significant foreign investment – for example, a new trade agreement with Canada that excludes traditional ISDS.
Dialogue Earth spoke to Federico Gay, an analyst at the energy transition supply chains specialist Benchmark Minerals. Gay says multiple factors play into a company’s decision to invest overseas, or a government’s decision to accept investment. Companies would be far more concerned about the prospect of political instability than whether they would have adequate investor protection, he explains.
Even once a country has decided to leave, it remains bound by termination clauses written into agreements that can effectively keep the agreement in force for decades. “This is a way of putting the states in handcuffs,” Ghiotto says. “It’s very difficult [to leave], but you have to try, otherwise there is no way that you will be able to regulate. The system is made for you not to regulate.”
As the Santa Marta conference begins, Colombia’s foreign investors will be cautiously waiting to see if Petro follows through on his word.
