UNCITRAL Working Group III and Reform of Investor–State Dispute Settlement

In 2017, UNCITRAL mandated its Working Group III to identify concerns regarding investor–state dispute settlement (ISDS)—the outdated model for settling disputes between foreign investors and states under investment treaties—and develop reform solutions.

ISDS has repeatedly been used by investors to block climate action—including through the Energy Charter Treaty—hinder environmental protection, and impede on the rights of local communities. Reforming the system is crucial for delivering on the Sustainable Development Goals.

IISD has been an observer member of the Working Group since 2017 and has participated in all of its sessions. Our aim as a member of the Working Group is to turn it into an inclusive process for reforming the ISDS regime—and to support a new approach to investment disputes that enhances, rather than threatens, sustainable development, the energy transition, and a fairer global economy.

The Working Group is crucial for the future of the international investment regime, as the only forum on ISDS reform with a global reach. The sessions are taking place while several countries and regions are developing new approaches to dispute settlement and prevention—as well as negotiating alternative types of treaties and terminating existing outdated ones. 

As an observer member, IISD provides technical guidance, tailored briefings, and strategic advice to delegations from a wide range of developing countries.

We also deliver submissions directly to the UNCITRAL Secretariat, organize on-site workshops and side events, and publish analyses of the process. Through our initiatives, we have continuously highlighted agenda issues with a high reform potential, such as the unfair way damages in ISDS disputes are calculated, flagged developments that could threaten sustainable development, and proposed practical solutions.

IISD is having an extensive impact on the reform process. For example, our joint submission with the Columbia Center on Sustainable Investment and the International Institute for Environment and Development on regulating third-party funding of ISDS claims—a practice that has enabled speculative claims that often generate badly inflated costs for developing countries—triggering the Working Group to publish draft regulation reflecting our recommendations.