Sustainable Development Through International Arbitration?
The Investor-State Dispute Settlement System (ISDS) is in dire need of reforms. While the 2030 Agenda and the Sustainable Development Goals (SDGs) dominate global initiatives, they have not received as much consideration in certain international domains, including in foreign investment. By restraining its dispute resolution system to particular domains of law, the ISDS hinders the inclusion of the SDGs in global foreign investment. Several reforms have been proposed to update the ISDS to reflect the growing importance of the SDGs in the global business environment. These proposals range from the integration of human rights clauses to the creation of new permanent courts, but none have been implemented yet. The smoothest change might come from the inside: the system itself should give greater weight to sustainable development principles to adapt to new values, essentially prioritizing public interests over investment interests.
The origins of the ISDS: solving a diplomatic problem
The ISDS System was created over 60 years ago to remedy the endless diplomatic negotiations that emerged between two states when an investor from one state felt ill-treated by the other state’s government. Since then, the ISDS has become a dispute settlement system for foreign investors to bring states in front of an ad hoc arbitration tribunal. The parties of the dispute each select one arbitrator and these two then select a third one. The proceedings are regulated by the international framework of rules (usually ICSID or UNCITRAL) agreed to in bilateral or multilateral investment treaties (BIT/MIT).
The ISDS, now an outdated and biased system?
The ISDS system is specific to foreign investment, and the mechanisms and arguments used in disputes reflect this economic and investment-dominated perspective. Foreign investment, however, always touches upon the SDGs, including: energy provision (SDG 7), environmental protection (SDG 13), workers’ rights (SDG 8), access to water (SDG 6), and reduced inequalities (SDG 10). By keeping disputes confined to the narrow realm of investment, the legal battles between investors and states overlook important SDG commitments.
The ISDS system limits the inclusion of the SDGs in numerous ways. First, the ISDS is structurally biased in favor of foreign investors: only they can bring a claim in front of an ad hoc tribunal. States cannot do so and seldom have the opportunity to launch a counterclaim. Even when the investment touches upon sustainable development issues, the investment component is still given priority.
Second, the sums at play are gigantic. Millions of dollars are poured into the dispute settlement process and into the awards to be paid by the condemned party. As a result, only big companies can compete. If states lose the dispute, they are forced to use part of their national budget to pay the award. One of the effects of this system is the so-called ‘regulatory chill’ coined by researcher Kyle Tienhaara in 2011: fearing retaliation through the ISDS from big companies inconvenienced by national legislation, governments might be dissuaded to regulate in the public interest. 
As a result, human rights and environmental issues – both of which are at the heart of the SDGs – are often neglected in the dispute settlements handled by the ISDS. Additionally, the threat of retaliation from major investors may even deter countries from establishing regulations that support the SDGs.
Numerous unimplemented reform proposals
A variety of reforms have been proposed in the past decade. They can be categorized in three ways: complete overhaul, piecemeal institutional change, and halfhearted integration.
Complete overhaul: There are two radical options for a complete overhaul. The first is to create a new, permanent investment court. This project is led by the European Union, which started negotiations on the topic in 2014, and aims to achieve more consistent, predictable, and less biased jurisprudence in investment disputes. The second option is to abandon the ISDS system altogether. Venezuela, Bolivia, and Ecuador have already opted out of the leading framework of rules used by the ISDS. Australia has also eliminated the option of using the ISDS to settle disputes in its bilateral investment agreements.
Piecemeal institutional change: Some reform proposals advocate for piecemeal institutional changes, such as adding an appeal mechanism. Currently, neither the state nor the investor has the option to challenge decisions made by the tribunal on substantial issues. An appeal mechanism would give states the opportunity to challenge the outcomes of disputes, allowing them to argue more effectively for their public interest concerns.
Halfhearted integration: In the past five years, several countries have integrated provisions about basic human rights, environmental protection, or sustainable development in general into their BITs and MITs. However, as long as these are mentioned only in the preamble or as a recommendation and not as a mandatory part of the investment agreement, the arbitration tribunal will not make it a substantial part of the dispute argumentation and resolution. 
So far, none of these options have triggered real change in the ISDS system. A less expected, but more powerful solution is to adapt the system itself.
Adapt for a system reversal
Until now, critics of the ISDS system have argued that companies suing states would necessarily have investment interests in conflict with public interest. Now, however, an increasing number of companies have incorporated sustainable development values into their business models. Some cases have been brought to the ISDS in which investors did not object to states pursuing goals in the public interest, but instead sued states for not protecting them. This “system reversal” signals an opportune moment for the states who created the ISDS and regularly bring forward disputes to reform the system to support sustainable development. For this to succeed and to avoid a long and contested overhaul, the participating states of the ISDS should commit to integrating the SDGs into the current system.
First, there needs to be an increasing number of companies for which SDGs are a priority and they need to be big enough to pursue arbitration. For this to occur, states should integrate SDG provisions into investment agreements. These should be integrated not only as good intentions in the preamble, but as a substantial part of investment obligations. Companies will be motivated to prioritize SDGs in this way if they are incentivized by national and international policies (for example, by regulations on corporate social responsibility like those currently being developed in Europe).
Second, the system will only work if the ISDS mechanisms allow international treaties and sustainable development law to be considered on equal footing with investment interests. The possibility of counterclaims based on public interest should be made a standard of arbitration. From a legal perspective, this means integrating a clause into BITs and MITs that make counterclaims explicitly possible for that purpose. In practice, this would require states to systematically bring arguments and counterclaims based on the SDGs to arbitration disputes without fear. This would force the tribunals to regularly consider human rights or environmental protection arguments and build a solid precedent for future disputes.
The integration of the fundamental values of the 2030 Agenda is possible within the current ISDS system if participating states prioritize investments in the public interest.
 Anna de Luca, “UNCITRAL Working Group III: Counterclaims in ISDS – Challenges and Prospects in Light of the UNCITRAL Reform Process”, Kluwer Arbitration Blog, March 28, 2020, accessed January 04, 2021, http://arbitrationblog.kluwerarbitration.com/2020/03/28/uncitral-working-group-iii-counterclaims-in-isds-challenges-and-prospects-in-light-of-the-uncitral-reform-process/
 Kyle Tienhaara, “Regulatory Chill and the Threat of Arbitration: A View from Political Science”, in C. Brown & K. Miles (eds), Evolution in Investment Treaty Law and Arbitration, Cambridge University Press, 2011: 606–28, at 615.
 Council of the European Union, Press release, ”Multilateral investment court: Council gives mandate to the Commission to open negotiations”, March 20, 2018, accessed November 27, 2020, https://www.consilium.europa.eu/en/press/press-releases/2018/03/20/multilateral-investment-court-council-gives-mandate-to-the-commission-to-open-negotiations/.
 José Carlos Bernal Rivera, Mauricio Viscarra Azuga, “Life acfter ICSID: 10th anniversary of Bolivia’s withdrawal from ICSID”, Kluwer Arbitration Blog, August 12, 2017, accessed January 4, 2021, http://arbitrationblog.kluwerarbitration.com/2017/08/12/life-icsid-10th-anniversary-bolivias-withdrawal-icsid/
 Eduardo Zuleta, “The Challenges of Creating a Standing International Investment Court”. In J.E. Kalicki and A. Joubin-Bret, Reshaping the Investor-State Dispute Settlement System: Journeys for the 21st Century (Leiden: Koninklijke Brill NV, 2015).
 Albert Jan van den Berg, “Appeal Mechanism for ISDS Awards: Interaction with the New York and ICSID Conventions”, ICSID Review – Foreign Investment Law Journal, Volume 34, Issue 1, Winter 2019, Pages 156–189, https://doi.org/10.1093/icsidreview/siz016
 Baltag, “Human Rights and Environmental Disputes in International Arbitration”, Kluwer Arbitration Blog, 2019, accessed November 27,2020, http://arbitrationblog.kluwerarbitration.com/2018/07/24/human-rights-and-environmental-disputes-in-international-arbitration/.
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