Colombia brings little-known legal mechanism to climate debate at First Conference on Transitioning Away from Fossil Fuels

Colombia put a little-known but powerful legal system on the climate agenda at a conference it co-hosted with the Netherlands this week.

At the Conference on Transitioning Away from Fossil Fuels, held in Santa Marta on the Caribbean coast, representatives from 57 countries debated, among other things, the Investor-State Dispute Settlement (ISDS), which allows corporations to sue countries outside of their domestic courts.

Adding the issue to the agenda demonstrated a clear effort to frame the international investment regime as an impediment to climate action.

In the closing session of the conference Wednesday, Colombian Environment Minister Irene Vélez told reporters that ISDS presents "barriers to taking more bold decisions and closures, particularly." The conference will publish a strategy for reform of the financial system which is due to include recommendations on investment protections.

This follows President Gustavo Petro's announcement in March that Colombia intends to withdraw from the international ISDS system.

ISDS, included in thousands of investment treaties worldwide, allows foreign investors to sue governments in international arbitration tribunals if state actions harm their investments.

While designed to protect against discrimination or expropriation without compensation, critics say that claims allow public-interest domestic policies to be challenged in foreign courts.

Fossil fuel companies are among the most frequent users of ISDS. By 2023, the sector had secured more than $77 billion in compensation globally. Claims often include not just sunk investments but projected future profits, inflating their size to sums that can exceed $1 billion, sometimes representing a significant share of national budgets.

That risk is not abstract for Colombia. The country has faced 29 ISDS claims in the past decade, seven of which are brought by fossil fuel extracting or refining multinationals.

A 2025 study from Boston University found that Colombia faces the highest degree of exposure among Amazonian countries with 129 oil and gas projects falling under ISDS provisions.

"The size of the claims can and do act as a freeze on policy," Clint Peinhardt, a political economist at the University of Texas at Dallas, told Latin Times. While successful claimants typically receive less than they demand, he noted that the threat alone can deter governments from pursuing regulation.

Colombia's current policy direction highlights that tension. Environment Minister Vélez has backed high-profile initiatives such as designating the Colombian Amazon and parts of the Sierra Nevada de Santa Marta mountain range as protected reserves, measures that could expose the country to further claims from affected investors.

Other Latin American states, including Ecuador and Honduras, have tried and failed to fully extricate themselves from the ISDS system in recent years. Rather than retreating, however, Colombia is attempting to elevate the issue internationally to gain leverage.

Whilst methods for climate-aligning ISDS have been discussed in OECD committees for several years, the issue is little-discussed at the major climate platforms. Meanwhile, left-wing regimes in Latin America have complained about ISDS on grounds impinging on national sovereignty.

By placing ISDS on the agenda in Santa Marta, Vélez is seeking to reframe investment arbitration as a climate governance issue and build momentum for reform among other states facing similar risks.

"The fact that they have ISDS in the program in itself is a big deal," Ladan Mehranvar of the Columbia Center on Sustainable Investment, told Latin Times. Mehranvar was among 220 academics who wrote an open letter to President Petro in March urging him to lead Colombia out of ISDS.

Greater awareness, she argued, could strengthen the hand of resource-exporting countries in future negotiations. "Countries get bullied into signing these treaties," she said, adding that a broader coalition could help rebalance those dynamics.

Others point to the political hesitation that has so far limited reform efforts. States seeking to move away from ISDS are often "afraid to break the status quo," said Eunjung Lee of the climate think tank E3G. Lee told Latin Times that building "a united voice from the Global South" could increase pressure on countries that have traditionally championed investor protections.

There are signs the debate is shifting. Since 2023, countries including the Netherlands and the United Kingdom have moved to exit the Energy Charter Treaty, a multilateral agreement covering the energy sector that includes ISDS provisions, citing concerns over its compatibility with climate goals.

Even so, capital-exporting states have been slower to reform their broader treaty networks. It is no coincidence that the Netherlands, one of the few capital-exporting states entertaining the idea of wholesale change of its investment treaties, has been on the receiving end of an ISDS claim.

Professor Peinhardt noted that the United States has yet to lose an ISDS case, "but when we do, it will become politically salient".

For capital-importing countries like Colombia, withdrawing from ISDS can carry risks, including potential short-term declines in foreign investment and continued exposure through treaty 'sunset clauses' that extend protections for years after exit.

Thus, a mutual termination of the agreement and the sunset clause is the most effective way out, but this requires negotiation.

Negotiating investment treaties is, according to Peinhardt, "a very asymmetric game," in which resource-exporting states have few cards to play.

For now, Colombia's approach might be less about immediate legal change than about shifting the terms of debate. By bringing ISDS into climate diplomacy, it is testing whether collective pressure can succeed where unilateral action has struggled.

Whether that effort leads to meaningful reform, however, may depend less on countries like Colombia than on the willingness of capital-exporting states to accept limits on the protections they have long demanded for their investors.

John Boscawen, Latin America Reports

Author Bio:

John Boscawen is a contributing reporter at Latin America Reports and the founder of the Latin America Notebook. A Politics and Philosophy graduate from the University of Bristol, John's work has also been published in Latin America Bureau, among others.