Uncovering the Secretive System Disrupting Climate Action: The Truth Behind Big Payouts to Fossil Fuel Companies

The Biden administration made a last-minute deal with Colombia to limit protections for investors between the two countries, marking a small step towards reforming the Investor State Dispute Settlement (ISDS) system. This system allows foreign companies to sue governments if they believe their rights have been violated, leading to over $100 billion in payouts to multinational corporations. The deal aims to restrict the types of arbitration claims and the amount of damages companies can claim, particularly targeting speculative “future lost profits.”

Critics argue that the ISDS system prioritizes corporate profits over public interests and poses a threat to climate action by punishing countries that limit fossil fuels. Many nations have taken steps to exit the system or limit their exposure. The agreement between the U.S. and Colombia seeks to align arbitration claims with government positions and limit the ability of companies to claim future lost profits.

While some critics welcomed the agreement as a positive step forward, others believe more needs to be done to dismantle the ISDS system entirely. The deal with Colombia only applies to companies based in the two countries and does not alter the original text of the trade pact. Analysts note that the agreement clarifies provisions related to the rights of foreign investors and aims to limit the use of controversial provisions like “fair and equitable treatment.”

Despite the agreement, concerns remain about the ISDS system overriding domestic judicial decisions and enabling companies to challenge government policies. Critics argue that significant changes, such as abolishing the system, may require legislative measures in addition to executive action. While the deal with Colombia falls short of meeting all expectations, it represents a step towards reforming the ISDS system and aligning arbitration claims with government positions.