In recent years, foreign investors in the coal sector have
challenged host States’ coal phase-out measures under international
investment law, claiming that these measures violate their investment
treaty obligations. This has led to criticism of international investment
law as chilling climate action. This Article proposes to resolve the
conflict through a contextual interpretation of foreign investors’
legitimate expectations by taking into account the nature of climate
transition.
The Article suggests that investment tribunals adopt this
contextual interpretation of foreign investors’ legitimate expectations
when interpreting the indirect expropriation and fair and equitable
treatment (FET) standards, and proposes a two-step approach: First,
host States should comply with specific commitments made to foreign
investors regarding their coal phase-out schemes; second, in the
absence of such commitments, host States’ phase-out measures should
not be deemed a violation of investment treaty obligations unless they
discriminate against foreign investors. The Article explains how this
approach can be implemented in investment arbitration to achieve a
balance between climate and investment interests.
