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Paying Polluters: UN Report

Volume 837: debated on Monday 22 April 2024


Asked by

To ask His Majesty’s Government what assessment they have made of the United Nations Special Rapporteur report on Paying polluters: the catastrophic consequences of investor-State dispute settlement for climate and environment action and human rights, published on 13 July 2023.

My Lords, investor-state dispute settlement mechanisms offer investors an independent means of legal redress to seek compensation following a breach of international investment agreements. The report notes that, outside the UK, investors have brought ISDS claims against climate change measures; however, the UK has not faced a successful ISDS claim. On 22 February we announced withdrawal from the energy charter treaty, to avoid remaining in a treaty not aligned with our energy security and net-zero ambitions.

My Lords, on 7 December we had a debate on a Motion moved by the noble Baroness, Lady Hooper, on Latin America. In the context of our trade deal with Colombia, my friend, the noble Baroness, Lady Coussins, raised the issue of the inherent manifold injustices of the ISDS. The Minister responding to the debate, the noble Lord, Lord Ahmad, wrote in response:

“ISDS is an effective means of resolving … disputes”,

and the Government are

“content with the standard of protection”

provided. So it is surprising that none of the free trade deals concluded since Brexit contains an ISDS—and the absence of one is an explicit goal of our negotiations for a UK-Canada deal. What is the Government’s view of an ISDS as a means of resolving disputes? If they have shifted their view, what are they doing to ensure that their new approach is reflected in trade with Colombia?

This is a complicated area. Of course, these treaties are bilateral, and they also help to protect the investments of UK companies investing in other overseas territories. However, the UK’s investment policy is designed to protect the UK’s right to regulate in the public interest, and so far we have been successful in that, in that we have not seen any successful claims against us.

My Lords, the UN Working Group on Business and Human Rights has said that the ISDS mechanism incentivises investor irresponsibility. Currently there is a case of a UK-listed company using the ISDS in Colombia in a way that undermines the fundamental interests and rights of the Wayuu indigenous people. As penholder at the UN for the Colombia peace process, what are His Majesty’s Government doing to discourage such activity?

I thank the noble Baroness for her question. I cannot comment on cases that are currently ongoing, but we will certainly bear her comments in mind when we consider our policy on this matter.

My Lords, with fossil fuel and mining industries already having won more than $100 billion in awards and at least 175 treaty-based ISDS cases closed or pending that are directly related to environmental measures, does the Minister agree that foreign investors are using the dispute settlement process to seek exorbitant compensation from states that seek to strengthen their environmental protection? What actions are the Government taking with partners and allies on the international stage to try to find solutions to these problems?

As the noble Earl is probably aware, there are discussions in the OECD at the moment about the use of these clauses. As I said, we are responsible for the ones that we have signed, recognised and arbitrated against, and we very carefully ensure that these clauses protect our right to regulate in these circumstances on energy and climate change matters. The success of that has meant that we have seen no successful claims against the UK.

My Lords, while we will of course hear a lot about the importance of investor confidence, it is as important to ensure that Governments, particularly of less affluent and more vulnerable nations, are able to fulfil their climate commitments. It is estimated that those Governments fulfilling their commitments under the Paris Agreement might be liable to pay up to $340 billion in future cases under this system. Can the Minister tell us the Government’s assessment of what the impact of this system will be on limiting the increase in global temperatures to 1.5 degrees centigrade above pre-industrial levels?

The noble Baroness is using the generality to refer to the specific. ISDS clauses are very useful in a whole range of different areas. I accept her point that there is some evidence of their misuse in the case of energy and climate change policies, and we will work with international partners to see how this can be mitigated. We are very careful to make sure that the ones to which we agree preserve our right to regulate. Other countries take their own decisions, of course.

My Lords, many developing countries are handicapped by clauses in foreign direct investment agreements—sometimes called stabilisation clauses—that forbid the hearing of disputes in local courts. As a result, local courts’ lawyers are unable to develop the expertise or necessary institutional structure to combat corporate power. What steps are the Government taking to ban the inclusion of such clauses in FDI agreements, at least for UK companies?

All such agreements are different. Many rely on international arbitration panels that are appointed by the complainant company and the defendant company with an independent chairman. We are very careful in how we regulate these matters and which clauses we agree to. As I said earlier, we will work with other countries to look at their particular disputes as well.

Is the Minister aware that one of the concerns around ISDS is that it is a secret process, as opposed to a multilateral judicial process that is more transparent? Given the fact that ISDS can be used against small emerging economies and deliberately facilitated by legal funds based in the UK, what discussions have the Government had with our legal community to ensure that ISDS is not just about protecting UK interests and that the legal community in the UK is not using it strategically against emerging economies that do not have the capacity and secret processes to defend themselves?

As I said, ISDS clauses work both ways. They also seek to protect the interests of UK companies investing in other overseas economies. Any state that wishes to regulate against the interest has to prove that it is being transparent and fair, not discriminating against foreign investors, et cetera. All these criteria are used to make judgments about whether cases will proceed.

We discussed ISDS arrangements in the context of the CPTPP Bill recently, and a number of noble Members expressed concern about the impact on environmental standards. The response from the Government Front Bench was, “Not to worry; it won’t be used in this way”. That is clearly not the case with Colombia. It has faced at least 21 cases under the ISDS process, mainly for mining companies and mainly questioning the effect on the country’s environmental standards. Given the pressure that Colombia is under in its transition to full democracy and peace, would the money that it inevitably has to spend on defending these cases, and in some instances paying damages, be better spent on maintaining the peace process?

I am sure it would, but we are responsible for what clauses we agree to in the UK. We always protect our right to regulate, and we seek not to take actions that are arbitrary or discriminatory against foreign companies. Ultimately, it is a question of what clauses Colombia agrees to, what criteria it uses and how it will be arbitrated, so it is a difficult question to answer.

My noble friend will be aware that when we were both in the European Parliament we used to debate the issue of ISDS, and that one of the reasons that ISDS was asked for by investors was to ensure they had confidence, particularly when there was no confidence in the local legal system. The other side of that is that big companies were perceived to get preferential treatment in being able to go to the ISDS process, rather than through the legal system. We have to look at the trade-offs, and maybe one of the things that my noble friend’s department could look at is the impact of not including ISDS agreements and how much that would affect outward or inward investment in these countries.

My noble friend makes a powerful point; of course, it works both ways. We want to protect the interests of UK companies, which sometimes operate in very hostile, non-democratic countries with unclear or murky legal systems. By the same token, we need billions of pounds of investment into the UK—we are the top European destination for inward investment—to help us in our energy and climate change transition, so it is important as well that we demonstrate that we are liberal and open to companies investing here in the UK. These clauses help to deliver that, but they need to be structured in the right manner, transparent and liberal.