The EU’s Powers to Green International Investment Law

Despite the EU’s commitment, Member States continue to support fossil fuel investments, both domestically and abroad, often protected by international investment agreements which include investor-state dispute settlement (ISDS) mechanisms. Such efforts pose significant financial risks to Member States attempting to implement climate policies. This chapter explores the EU’s capacity to reform international investment law to align with climate goals, particularly the net-zero emissions target by 2050, and evaluates the EU’s legal powers to introduce reforms, such as excluding fossil fuel investments from protection, enhancing public policy space, and imposing investor obligations. In noting that the EU’s exclusive competence over foreign direct investment is limited, it nonetheless concludes that while the EU can negotiate new agreements incorporating ‘green’ reforms, replacing existing Member State agreements is challenging, necessitating a coordinated approach.