Record number of corporate lawsuits target climate action in controversial tribunal
Follow The Money | 28 August 2025
Record number of corporate lawsuits target climate action in controversial tribunal
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Behind closed doors in Washington, D.C., fossil fuel and mining companies are suing governments over lost profits. Follow the Money has analysed how a system built to protect foreign investors poses a growing threat to green laws and policies worldwide, with the polluting sectors having filed a record number of lawsuits this year.
Fossil fuel and mining companies are ramping up lawsuits against governments over environmental rules, using a controversial arbitration mechanism that critics say is skewed in industry’s favour and jeopardises global climate action.
Under the investor-state dispute settlement (ISDS) system – which is common in investment and free trade agreements – corporations can sue governments in private courts over decisions that might threaten their interests and their profits.
The world’s largest institution for these cases is the World Bank’s International Centre for Settlement of Investment Disputes (ICSID), based in Washington, D.C.
A review of the ICSID’s case database by Follow the Money reveals that 2025 is a record-breaking year for claims filed by oil, gas and mining firms, as they seek compensation for climate-related legislation and policies like fossil fuel phase-outs.
As of 28 August, these heavily polluting industries had lodged 22 ICSID claims this year – exceeding 2024’s total of 21. Their lawsuits make up 47 per cent of the institution’s overall docket so far in 2025, up from 38 per cent last year.
The rise in claims comes at a time when global institutions such as the International Court of Justice and the Inter-American Court of Human Rights have ruled that states are legally obliged to address climate change and curb greenhouse gas emissions.
“We are yet to see whether ISDS tribunals will take these clear state obligations into consideration when assessing investor claims,” said Anil Yilmaz Vastardis, a senior lecturer at the U.K.’s Essex Law School and an expert on investment law and human rights.
Tens – if not hundreds – of billions of dollars in public money are at stake.
Across all ISDS tribunals, nearly 114 billion dollars overall had been awarded to investors as of December 2023, according to a global tracker. In the biggest payouts made so far, fossil fuel companies have been the main beneficiaries, the data shows.
Developing nations and bodies such as U.N. Trade and Development (UNCTAD), the Intergovernmental Panel on Climate Change (IPCC) and the European Parliament have raised concerns about massive claims resulting in “regulatory chill”.
In other words, governments – not just in the world’s poorer countries but also within the EU – dilute, delay or even scrap green policies for fear of becoming legal targets.
As this largely opaque system faces growing scrutiny due to the enormous sums of money involved and growing concern about the impact on the climate crisis, alternatives have been put forward – including by the European Commission.
But analysts told Follow the Money that such reforms essentially fall into the same trap as the ISDS system, because they still concentrate on the impacts on investors and overlook the difficult reality facing governments and their citizens.
“Tribunals focus mainly on protecting investor rights and expected future earnings,” said Yilmaz Vastardis.
“They often ignore the broader legal obligations that states have, such as their commitments to climate policy and the public interest,” she told FTM.
Investors in the driving seat
Governments started including ISDS in investment treaties in the late 1960s and 1970s, and by the 1990s, this had become common practice.
The main aim was to enable investors – mainly from wealthy, industrialised nations – to seek compensation via international arbitration if they believed their investment rights had been violated by a host country, which are typically developing states.
There are currently around 1,730 international investment treaties in force that contain ISDS mechanisms, according to UNCTAD’s database for such agreements.
Proponents of ISDS say it offers neutral forums for the settlement of disputes, as opposed to national courts that might be considered biased or “inadequate”, and has been vital for attracting foreign investment to countries where it is most needed.
“There are good reasons why we have these arbitration mechanisms,” said professor Stephan Schill of the Amsterdam Center for International Law.
“The background is that court systems in many countries don’t always function effectively whereas investors need clarity when it comes to long term projects.
“Even in developed economies like the U.S., we see developments that nobody would have thought possible not long ago,” added Schill, who has written about investment tribunals extensively.
However, unlike domestic courts, investors can shape the panelsin ISDS tribunals, which “creates obvious risks of bias, conflict of interest, potential misconduct and other abuses of power”, a report by a U.N. special rapporteur warned in July 2023.
Most of these disputes are handled by the ICSID, which has registered at least 1,060 cases since its establishment in 1966. A significant share of these claims have been brought against countries in Africa and Latin America.
About half of all disputes arbitrated by the ICSID have gone in favour of investors. However, this does not mean that states won the rest; they just didn’t lose.
As the number of ISDS cases and the size of the claims have increased, so has criticism of the system.
For example, Nobel Prize-winning U.S. economist Joseph Stiglitz has described it as “litigation terrorism” – saying that cases “instill fear of environmental regulations and climate regulations because … it’s going to be costly”.
EU nations on red alert
It’s no longer only developing countries that fear ISDS claims from investors.
In 2017, France announced a draft law to phase out all fossil fuel extraction by 2040. As a result, Canadian Vermillion – the biggest oil producer in France – threatened the government with an ISDS claim. Ultimately, the legislation was watered down.
Meanwhile, in 2020, Denmark set a deadline to end fossil fuel exploration by 2050. Had it set an earlier goal, it would’ve had to pay “incredibly expensive” compensation to corporations under fossil fuel deals, the country’s then-climate minister said.
Such concerns pushed the EU last year to announce its withdrawal from the Energy Charter Treaty (ECT), an international trade agreement from the 1990s. The move followed several billion-dollar lawsuits against EU states under its ISDS provisions.
Even the Netherlands – which has a vast network of trade and investment agreements allowing investors to file international ISDS claims using letterbox companies – announced in 2022 that it would unilaterally quit the treaty over its lack of alignment with global climate goals.
U.S. oil major ExxonMobil invoked the ECT to sue the Dutch government last year over the ending of gas production in the Netherlands’ northern Groningen province.
The company said the Dutch government had unilaterally taken measures that “arbitrarily and disproportionately disadvantaged ExxonMobil as an investor”.
To file the lawsuit at the ICSID, ExxonMobil used a Belgian subsidiary and enlisted the services of the prestigious law firm Freshfields, which touts its ISDS credentials.
A spokesperson for the Dutch foreign ministry said that it couldn’t comment on an ongoing case.
However, in a letter sent to the Dutch parliament last November, the ministry said it was “surprised” by the “unnecessary” ISDS claim filed by ExxonMobil in Washington – not in the least because there is also a legal case still pending at a Dutch court.
Yilmaz Vastardis of Essex Law School said ExxonMobil’s lawsuit illustrated how ISDS provisions in investment treaties have spawned an entire sub-industry.
“Dispute resolution has become an industry involving large specialised law firms and an elite community of high-earning international lawyers from the same commercial background,” she said.
“Often they don’t take into account the public interest. Which is problematic in the case of climate policy, which is by default a public interest.”
No easy fixes
Under growing calls for reform, the European Union has been working on trialling replacements to the ISDS system.
As an alternative, the Commission has developed and implemented an Investment Court System (ICS) in trade deals with Canada, Mexico, Singapore, and Vietnam.
The ICS has been designed to provide a neutral forum with independent judges, the Commission says, which is supposed to prevent conflicts of interest and reduce the risk of bias. It also features an appeal body, which is lacking in ISDS tribunals.
Schill of the Amsterdam Center for International Law said he was in favour of the reform.
“Investors in the green economy also often look at long term investment horizons,” he said. “If we want to fight climate change we’ll also have to take into account that their investments are protected as well.”
However, some analysts and insiders were critical – telling FTM that the alternative models offer little in the way of real improvement.
Alessandra Arcuri, professor of international economic law at Erasmus University Rotterdam argued that “the system remains deeply asymmetric”.
“Imagine a football match where only one team is allowed to score,” she said.
“What ICS does is improve the referee – like introducing the Video Assistant Referee (VAR) in football to improve decision-making – but it doesn’t change the fact that only one side, the investor, can file a claim.”
Ultimately, the fundamental problem runs much deeper than the ISDS system, which is just the tip of the iceberg, according to Hamed El Kady, chief coordinator of international investment agreements at UNCTAD.
“Instead of focusing on peripheral issues, we should address the root cause: the thousands of agreements concluded decades ago that make this system possible in the first place,” El Kady told FTM.
“We’re calling on countries to align their treaties with sustainable development objectives and national policy priorities instead,” he added. “That way investors will find it increasingly difficult to file claims against governments that implement measures meant for the protection of the environment or public health.”
