Cross-border investors in renewables do not consider investment treaties with Investor-State Dispute Settlements (ISDS) a relevant factor when making investment decisions. This key finding from a recent survey among private investors adds to a wider body of evidence that questions the effectiveness of ISDS mechanisms. The findings suggest that other approaches to shifting capital into clean energy must be prioritised.
The world is seeking to scale investment in clean energy and renewables for greater energy and climate security. Especially now that higher interest rates and greater economic uncertainty are pushing up investment costs, the regulatory and diplomatic tools employed need to be as effective as possible.
Investment treaties with Investor-State Dispute Settlements are deployed to allegedly spur cross-border investment by addressing “political risks”. They enable foreign investors to challenge a government if a change in regulatory conditions affects their revenues. Discussions over reforming, discontinuing or even extending these types of treaties are currently underway.
This E3G briefing highlights headline findings from a recent Columbia Center on Sustainable Investment (CCSI) survey of private investors, including renewable energy project developers and sponsors of those projects, as well as specialised consultants. The survey was designed to understand the relative role Investor-State Dispute Settlements mechanisms play in spurring foreign investments in clean energy. The implications for policy makers are that:
- More effort is needed to understand the key drivers for clean energy investments.
- Diplomatic efforts should move from marginally improving existing investment agreements to building the right domestic conditions to spur investments.
- Expansion of ISDS treaties should be halted.