The regulatory chill and how investment treaties block climate action
International investment treaties, and the special legal system they create for foreign investors via Investor-State Dispute Settlement (ISDS), have now become a major obstacle for countries as they try to pursue more ambitious climate action. Many countries over the years, have signed Bilateral Investment Treaties to attract foreign investment.
The idea is that, if foreign investors felt unfairly treated by a government, they could resort to special international arbitration, moving beyond the host government’s own courts. In practice, this has created a regulatory chill, with governments being cautious of passing environmental laws and climate policies that may lock them up in devastating lawsuits, which may attract exorbitant liabilities. For African countries with financial challenges, this risk is enough to pause them from calibrating new laws.
The impediments to African climate and fiscal sovereignty
African countries are negatively impacted by these treaties in three fundamental ways. First, governments are forced to tailor environmental laws and policies in a way that does not align with or works against their nationally determined contributions. Second, attempts to calibrate fiscal regimes in exploration and production contracts to secure more revenue for adaptation are directly impeded by stabilisation clauses and treaty protections. Third, the treaties impose limitations on how governments extract revenues from mining activities, which limits their capacity to invest in adaptation and related efforts.
The fossil fuel industry, in particular, has been the most aggressive user of this system. According to the United Nations Conference on Trade and Development (UNCTAD), by the end of 2023, foreign investors had filed a total of 235 known ISDS cases related to fossil fuel activities globally, and the total number of cases brought based on investment treaties was in excess of 1300, at the close of 2023. Given that the reportedfinancial consequences per case is about US$215million in damages and about US$5.7 million in legal fees, this is certainly not a cost that African governments can afford.
Fossil fuel, critical mineral and renewable energy disputes to date
DLA Piper reported in November 2025, that disagreements between governments and investors about natural resource contracts had reached a ten year high. A particular emphasis has been on the growing competition between China and the US for critical minerals, with profound implications for Africa.
The continent alone accounted for ten out of 32 reported disputes, cutting across Niger, Tanzania, the Democratic Republic of Congo, Mali, Morocco, and Senegal. Energy security lurked in the background as a driver, as the need for critical minerals for new energy technologies continues to become a central transition strategy for many countries. The call for governments to diversify their energy systems further, in a bid to reduce their carbon emissions, may exacerbate the situation.
For context on how this risk materialises, think of the case where Colombia banned mining in a fragile high-altitude wetland, which was a vital source of drinking water and natural defence against climate change. The company, Eco-Oro Minerals Corp, sued Colombia under a free trade agreement, alleging that the environmental ban violated the minimum standard of treatment owed to the investor and amounted to expropriation. The arbitration outcome held that Colombia’s approach to delimiting the wetland was arbitrary and inconsistent, but rejected Eco-Oro’s damages claim, finding it lacked sufficient supporting evidence. For any African country thinking of protecting a forest, water source, or its general fiscal take to support investments in adaptation measures, this could be a potential nightmare – doing the right thing could get them sued.
In Senegal, Woodside Energy has initiated an action against an alleged US$68 million reassessment of tax due the government, claiming these were exemptions granted during the project’s development. As of May 2026, a substantive arbitration decision has yet to be reached. Similar claims in the oil and gas sector include Mozambique, which is currently contesting a US$2billion claim made against it by a contractor for delays in the commissioning of gas export projects. Following a lengthy arbitration, the Democratic Republic of Congo was also found liable for nearly US$619 million in damages for future economic losses and expenditure incurred by DIG Oil, as a result of a failure to honour questionable commitments secured under long-serving leader Joseph Kabila. The matter ended in a settlement with DIG Oil walking away with reallocated oil blocks and a cash payout.
In Guinea, Falcon Energy, riding on the UAE-Guinea Bilateral Investment Treaty, has initiated proceedings to recover US$100 million in alleged damages from the government for allegedly breaching a bilateral investment treaty with the UAE, following a presidential decree last year that revoked over 50 mining and exploration permits countrywide. Related to this action, and perhaps the largest claim against a West African country, is also in Guinea, where another UAE based mining company is claiming more US$28.9 billion – eclipsing the size of the country’s GDP of US$25billion in damages, also for the revocation of its mining license last year. The decision to revoke comes from Guinea’s military junta, which have allegedly targeted mining projects that are inactive, delayed or failed to create national processing operations, as part of a broader policy to generate more value from minerals to support investment and development.
At a time when battery manufacturers and automakers are scrambling to secure long term lithium deposits, and as resource rich countries aim to move up the processing value chain to retain both value and play a role in the renewable energy value chain, the Democratic Republic of the Congo is losing billions of dollars to private contractors after changing its mining code. This is a further indication of the risks associated with the rigidities of the Bilateral Investment Treaties of yesteryear.
Renewable energy development also presents unique challenges under ISDS frameworks. A country electing to end the provision of incentives such as feed in tariffs for solar and wind power, originally given to attract green investments, could result in legal action by investors. Available evidence already suggests that, investors have filed at least 123 ISDS cases related to renewable energy projects across the world. Several African countries including Ghana, Kenya, Algeria, Tanzania among others operate feed-in tariff programmes.
The reality is that a reform of any of these programmes could lead to costly litigation. It could potentially worsen considering the fact that, even phasing out fossil fuels can potentially trigger claims in the billions. This is well illustrated in Europe – where Germany was sued for more than EUR1.4 billion by a Company in lost profits from a coal – fired power plant that was marked for closure due to climate reasons.
The path forward – AfCFTA, UNCTAD reforms, and a choice for African leaders
For Africa, this burden is already draining much needed resources away from development and climate adaptation efforts. A group of civil society organizations examined 132 bilateral investment treaties in West Africa and found that Ghana leads the region with 26 active ISDS cases, followed by Nigeria with 16 cases, with each case costing millions of dollars in legal fees and potential compensation. This has necessitated callsfrom civil society organisations from 13 African countries, calling for a renegotiation or termination of investment treaties that block climate action.
The push is for the entry into force of the Investment Protocol of the African Continental Free Trade Area, which was adopted in 2023. The protocol is designed to be more balanced and explicitly protects the right to regulate in a way that promotes climate action and development. For instance, Article 24 of the Investment Protocol provides for the right of counties to regulate and take measures consistent with national priorities, including climate action, with the exercise of this right not giving rise to an investor claim for compensation. The protocol will only enter force when enough African states ratify or accede to it.
Similarly, the UNCTAD has developed a reform toolbox that suggests concrete changes – for instance, excluding fossil fuel investments from treaty protection and adding clauses that actively promote sustainable energy development.
The real question is whether Africa’s leaders will seize this moment to break free from a legal system built for the fossil fuel era. If they do, they can reclaim the policy space needed to build a just, climate resilient future.
