From obligation to allocation: Reframing climate disputes in ISDS through CBDR

Abstract

Climate‐related disputes are increasingly testing the structural limits of investor–State dispute settlement (ISDS). While arbitral tribunals have begun to acknowledge climate change as a legitimate regulatory concern, prevailing approaches remain fundamentally obligation‐centred: Climate considerations are accommodated as justificatory factors for State conduct rather than as lenses for allocating responsibility within the investment relationship. This article argues that this structural orientation is ill‐suited to the distributive nature of climate governance and contributes to the misallocation of transition costs in climate‐related investment disputes. Drawing on the principle of common but differentiated responsibilities (CBDR), the article advances an allocation‐based framework for rethinking the role of climate considerations in ISDS adjudication. It demonstrates, first, that CBDR possesses sufficient normative density to inform arbitral reasoning despite its contested status in customary international law, functioning as a framework principle grounded in intragenerational equity and reflected in treaty practice and general principles of international law. Second, the article shows why CBDR is normatively well suited to climate‐related disputes in ISDS, given the global, cumulative and differentiated nature of climate responsibility and the limitations of obligation‐centred adjudication. Third, it illustrates how CBDR can be operationalised within existing ISDS doctrine, particularly in relation to legitimate expectations, indirect expropriation and remedies, by introducing contribution and capacity as markers for allocation‐sensitive reasoning. By reframing climate‐related investment disputes from unilateral assessments of State conduct to bilateral inquiries into the distribution of climate‐related risks and transition costs, the article offers a doctrinally grounded pathway for integrating climate responsibility into ISDS without transforming arbitral tribunals into climate courts. In doing so, it contributes to ongoing debates on the legitimacy, adaptability and future role of investment arbitration in the era of climate change.