“ISDS Claims in Honduras: How Corporate Greed is Undermining Democracy and Climate Action”
In recent years, the use of Investor-State Dispute Settlement (ISDS) mechanisms in international law has raised concerns among political leaders, lawyers, and activists. These mechanisms allow corporations to bring multi-billion dollar legal claims against governments that have taken actions affecting their investments. The impact of ISDS on climate action and democracy in developing countries, particularly in Honduras, has come under scrutiny.
Honduras, one of the poorest countries in Latin America, is currently facing 15 ISDS claims, with eleven seeking up to $14 billion collectively. These claims are related to contracts or laws adopted after a military coup in 2009, which led to a period of right-wing rule marked by corruption and violence. The current government’s efforts to reform or renegotiate these contracts and laws have led to the ISDS claims, although the exact nature of these cases remains undisclosed.
A recent report by progressive advocacy and research organizations highlights the irregularities and corruption associated with these ISDS claims in Honduras. The report describes the investments behind the claims as “mafia-style,” linking them to criminal networks, corruption, and undemocratic legal frameworks. Critics argue that the investors behind these claims should have been aware of the risks involved in their investments.
The report also sheds light on the energy sector in Honduras, where foreign energy companies have filed seven ISDS claims seeking a combined $1.3 billion. These claims stem from contracts awarded without proper bidding processes, legal eligibility requirements not being met, and above-average rates for electricity being paid by the government. The report suggests that foreign investors often use ISDS claims as negotiation tactics, especially in dealing with developing countries.
Community opposition to projects linked to ISDS claims, such as a toll road and solar projects, has been met with violence and legal challenges. The toll road project, deemed a “Monument to Corruption” by locals, led to protests and the filing of an ISDS claim seeking compensation far exceeding the initial investment. The solar projects have also faced resistance, with one project partner being convicted of involvement in the murder of an environmental activist.
The ISDS system has been criticized for favoring foreign investors over governments and communities, with claims often resulting in substantial compensation for expected future profits. Critics argue that the system undermines democracy and environmental protection efforts. The ongoing ISDS cases in Honduras highlight the need for reform in international investment law to ensure accountability and transparency in investment practices.
The Biden administration’s decision not to intervene in the ISDS cases in Honduras has drawn criticism from lawmakers and human rights defenders. The complex legal and ethical issues surrounding ISDS claims in Honduras underscore the challenges faced by developing countries in balancing economic development with environmental and social concerns.