{"id":289590,"date":"2026-03-19T16:00:00","date_gmt":"2026-03-19T15:00:00","guid":{"rendered":"https:\/\/dailyjus.com\/?p=289590"},"modified":"2026-03-23T15:40:01","modified_gmt":"2026-03-23T14:40:01","slug":"the-thin-line-between-state-regulation-and-investor-protection-a-reflection-in-light-of-the-icjs-advisory-opinion","status":"publish","type":"post","link":"https:\/\/dailyjus.com\/index.php\/2026\/03\/19\/the-thin-line-between-state-regulation-and-investor-protection-a-reflection-in-light-of-the-icjs-advisory-opinion\/","title":{"rendered":"The Thin Line Between State Regulation and Investor Protection: A Reflection in Light of the ICJ\u2019s Advisory Opinion\u00a0"},"content":{"rendered":"\n

Part I: Fair and Equitable Treatment (FET)<\/strong><\/h1>\n\n\n\n
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THE AUTHORS<\/strong>:
Lika Turmanauli, <\/strong>Legal Counsel at Spribe<\/strong>
Eug\u00e9nie Louvet du Halgou\u00ebt<\/strong>, French-qualified Lawyer<\/p>\n\n\n\n

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<\/div>\n\n\n\n

Introduction<\/strong><\/h2>\n\n\n\n

On 23 July 2025, the International Court of Justice (ICJ<\/strong>) issued its Advisory Opinion on Obligations of States in respect of Climate Change<\/a> (Opinion<\/strong>). A few months have passed, the initial attention has faded, but the question remains: does this Opinion have any impact on investment arbitration?<\/p>\n\n\n\n

Some may say, and quite rightfully so, that States now have a clearer legal basis for climate action. But truth be told, climate-related measures may not always stem from the State\u2019s genuine commitment to \u201csave the planet\u201d \u2013 some States may pursue economic or political objectives under the guise of climate policy. In investment relationships, this may create tension: while States may justify new measures as part of their climate commitments, investors may see their rights affected by the measures. As a result, tribunals may be faced with the familiar balancing act between a State\u2019s duty to regulate and the protection of the investors\u2019 rights. <\/p>\n\n\n\n

The two most central protections, fair and equitable treatment (\u201cFET\u201d<\/strong>)<\/a> and indirect expropriation, already sit at the heart of this balance (even if their scope and consistency remain open to debate). So, what does the Opinion actually bring to the table? Does it shift how tribunals read these standards? Should investors now expect constant policy change on climate grounds as part of the norm? <\/p>\n\n\n\n

This two-part blog post looks at those issues. Part I focuses on FET and legitimate expectations \u2013 how promises, timing, and process may be read after the Opinion. Part II will look at indirect expropriation. The aim is not to call this a turning point, but to see whether the balance in investment protection is starting to shift. <\/p>\n\n\n\n

<\/div>\n\n\n\n

ICJ\u2019s Advisory Opinion<\/strong><\/h2>\n\n\n\n

In the Opinion, the ICJ declares climate change an \u201curgent and existential threat<\/em>\u201d and confirms that States have binding obligations under international law to prevent and mitigate its effects. These include obligations to mitigate and adapt under the UNFCCC<\/a>, for developed States to \u201ctake the lead<\/em>\u201d in emission reductions, and for all Parties to cooperate toward the Convention\u2019s objectives. 
Under the Paris Agreement<\/a>, States must act \u201cwith due diligence in accordance with their common but differentiated responsibilities and respective capabilitie<\/em>s\u201d and prepare successive nationally determined contributions \u201ccapable of achieving the temperature goal of limiting global warming to 1.5 \u00b0C<\/em>.\u201d States are also subject to duties of adaptation and cooperation, including financial and technological transfers \u201cperformed in good faith.<\/em>\u201d <\/p>\n\n\n\n

Beyond treaties, the ICJ recognized customary international law obligations to \u201cprevent significant harm to the environment by acting with due diligence and using all means at their disposal<\/em>\u201d and to \u201cco-operate in good faith \u2026 through sustained and continuous forms of co-operation.<\/em>\u201d It further linked climate duties to human-rights law, affirming that \u201ca clean, healthy and sustainable environment<\/em>\u201d is essential for the enjoyment of other fundamental rights. <\/p>\n\n\n\n

In essence, the ICJ provided clarity as to the normative boundaries of lawful State conduct and confirmed that States have a duty to adopt preventive and precautionary measures to avoid foreseeable harm, including regulating private emissions and phasing out fossil fuels. The Opinion views climate action as a legal duty rather than a policy choice, reinforcing that well-founded climate measures are necessary, not arbitrary. Such confirmation may strengthen the legal force of climate obligations and extend their influence into related areas of international law, particularly investment law, where environmental regulation often collides with investor protections<\/a>.<\/p>\n\n\n\n

Yet it also acknowledges broad State discretion over how to fulfil these obligations. That flexibility allows legitimate diversity in regulatory paths, but also creates room for potential misuse, where \u201cclimate\u201d becomes a shield for protectionist or unrelated restrictions. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Implications for Investment Protection Standards: FET<\/strong><\/h2>\n\n\n\n

The FET remains one of the most frequently invoked protections in investment arbitration, functioning as a general guarantee against arbitrary, discriminatory, or bad faith conduct by host States. Yet its drafting and interpretation vary significantly. Earlier-generation bilateral investment treaties (\u201cBITs<\/strong>\u201d), such as the 2002 Gambia-Qatar BIT<\/a>, typically contain broad standalone FET provisions, formulated in open terms that grant tribunals wide interpretative discretion. By contrast, more recent treaties, including the Model BITs of the Netherlands<\/a>, Canada<\/a>, and the European Union<\/a> adopt a more structured approach, limiting the FET standard to specific categories of State conduct, such as denial of justice, manifest arbitrariness, discrimination, or abusive treatment. <\/p>\n\n\n\n

Nevertheless, FET interpretation remains one of the most contested issues in investment arbitration. Tribunals have adopted divergent approaches: some stress the intent of the contracting parties and the object and purpose of the treaty<\/a>, while others employ a literal or autonomous reading of \u201cfair<\/em>\u201d and \u201cequitable<\/em>.\u201d <\/a><\/p>\n\n\n\n

However, the prevailing approach the tribunals take is that a breach of the FET standard involves conduct attributable to the State that is injurious to the investor, including arbitrary, discriminatory, or procedurally improper measures and breaches of legitimate expectations<\/a>.

In light of the Opinion, if compliance with climate obligations is legally mandated, then regulatory measures adopted in pursuit of the 1,5 \u00b0C temperature threshold or the phasing-out of fossil fuels acquire a different legal character: they become expressions of due diligence and necessity, not evidence of unfair treatment. Judge Sarah Cleveland, in her separate declaration<\/a>, explicitly linked this reasoning to Investor-State Dispute Settlement, warning that investment treaties must not be interpreted in isolation from States\u2019 climate duties. <\/p>\n\n\n\n

In today\u2019s context, due to the combined effect of the Paris Agreement, subsequent jurisprudence, and the Opinion, genuine climate-related regulation will probably no longer have a surprising effect, and investors (particularly in carbon-intensive or energy sectors) may no longer plausibly claim that transitions, phase-outs, or emission restrictions were unforeseeable. Such development narrows the protective scope of legitimate expectations. Future FET claims will likely hinge not on whether regulation occurred, but on how it was implemented: whether measures were transparent, proportionate, and non-discriminatory. <\/p>\n\n\n\n

The real difficulty lies in the temporal dimension of foreseeability: when should a regulatory change have been foreseeable \u2013 at the time of the investment, when expectations were formed, or at the time of the measure, when the regulation was enacted? In assessing this, it is prudent to distinguish between investments made before and after the Opinion. For investments made after July 2025, legitimate expectations of regulatory stability are significantly narrower, as States\u2019 obligations to act on climate change have been expressly confirmed. For investments made before the Opinion, however, the analysis is more complex. While many of the underlying obligations were already reflected in existing treaty commitments, or widespread public commitments (particularly in developed States), and were further supported by IPCC science, the degree of foreseeability was uneven. Several States had explicitly questioned during the advisory proceedings the existence or precise scope of such obligations, a divergence also acknowledged by the ICJ itself. This makes it difficult to argue that investors should universally have anticipated more stringent regulatory action. In such cases, foreseeability may depend less on the existence of global norms and more on the specific host State\u2019s legal and policy context. <\/p>\n\n\n\n

Accordingly, this could challenge arbitral tribunals to integrate climate obligations into their interpretative framework, ensuring that international investment law evolves in harmony with environmental and human rights law. The central question now is whether measures adopted in good faith to fulfil climate duties should still be scrutinized under the traditional lens of investor protection or recognized as part of a new paradigm of lawful and necessary State regulation. <\/p>\n\n\n\n

<\/div>\n\n\n\n

Conclusion: Balancing Investor Rights and Climate Obligations<\/strong><\/h2>\n\n\n\n

The Opinion did not create new obligations but clarified and consolidated those already in place, thereby strengthening the normative basis for future regulatory measures. Climate-related policies, having higher chances of not being viewed as a political prerogative, may narrow the space for investors to claim that regulatory change was unforeseeable or unfair. <\/p>\n\n\n\n

At the same time, the Opinion leaves States with discretion as to how to fulfil their duties. This is where the FET tension resurfaces: legitimate climate measures deserve deference, but climate rationales cannot excuse arbitrary or discriminatory conduct. The decisive factors remain procedural and proportional \u2013 Was the measure transparent? Was the investor consulted? Was there a reasonable transition period? <\/p>\n\n\n\n

Tribunals are therefore likely to adopt a more calibrated approach. Measures consistent with international obligations and adopted through fair process will enjoy a presumption of legitimacy. Conversely, where a State invokes \u201cclimate\u201d as a post-hoc justification for erratic or protectionist action, the FET standard will continue to provide redress. <\/p>\n\n\n\n

Legitimate expectations now operate within a legal landscape that recognizes the inevitability of stricter climate regulation. Stability now rests on the predictability of States\u2019 climate action. For investors, this means due diligence must extend to Paris-aligned national commitments and transition pathways. For States, it means that respecting transparency, good faith, and proportionality is not optional \u2013 it is the safeguard that keeps necessary regulation from becoming unlawful interference. <\/p>\n\n\n\n

Ultimately, the Opinion keeps the balance shifting toward recognizing that protecting the climate is not an exception to sovereignty, but an expression of it. <\/p>\n\n\n\n

<\/div>\n\n\n\n
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ABOUT THE AUTHORS<\/strong><\/p>\n\n\n\n

Lika Turmanauli<\/strong> is a Legal Counsel at Spribe<\/strong>, an international gaming and technology company, where she focuses on dispute resolution and commercial matters, including preparation and negotiation of contracts and cross-border transactions. Her Background includes experience at Gvinadze & Partners, where she assisted in arbitration and litigation and contributed to the launch of the ICC<\/a> Arbitration and Mediation Rules in Georgian. Lika holds an LL.B. from Free University of Tbilisi and is actively involved in international arbitration initiatives, including the Vis and FDI Moots.<\/p>\n\n\n\n

Eug\u00e9nie Louvet du Halgou\u00ebt<\/strong> is a French-qualified lawyer focusing on international arbitration and dispute resolution, with particular interests in international sanctions and investment arbitration. Her background includes experience in international arbitration at leading firms, including Honlet Legum Arbitration<\/a> in Paris and Three Crowns<\/a> in London. Eug\u00e9nie holds an Advanced LL.M. in International Dispute Settlement and Arbitration from Leiden University and a Master\u2019s degree in Litigation and Arbitration from Universit\u00e9 Paris Panth\u00e9on-Assas, where her research examined the role of arbitrators in the application of international sanctions. She is actively involved in international arbitration initiatives, including the Willem C. Vis International Commercial Arbitration Moot.
<\/p>\n\n\n\n

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*The views and opinions expressed by authors are theirs and do not necessarily reflect those of their organizations, employers, or Daily Jus, Jus Mundi, or Jus Connect.<\/em><\/em><\/p>\n\n\n\n

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