Author: Riya Garg, Lloyd Law College, Greater Noida

Traditional investment treaties were designed to attract and protect foreign investment, with the expectation that doing so would increase economic growth. Yet in practice, these treaties often restricted the states’ ability to regulate for the public interest, particularly in areas such as environmental protection, public health, and social welfare. Over the last decade, governments have sought to address these shortcomings by introducing a new generation of treaties that integrate sustainable development into the governance of international investment. Drawing on an analysis of multiple recently concluded agreements, this paper identifies three emerging approaches: a European model that recalibrates traditional protections, a Brazilian/Indian model centred on cooperation and facilitation, and an African model that gives priority to sustainable development. Although sustainability has become a global priority, the study finds that no single governance model has achieved universal acceptance. The paper concludes by proposing a hybrid framework that draws on the strengths of all three approaches, aiming to reconcile investor protection with environmental sustainability and the broader public interest.

Key words: Investment treaties, sustainable development, sustainable investment, global economic governance, new treaty models

Investment treaties are international agreements that establish the conditions under which private investors of one state may invest in the territory of another state. Frequently referred to as International Investment Agreements (IIAs) or Bilateral Investment Treaties (BITs), these instruments offer legal guarantees such as fair and equitable treatment, protection from expropriation, non-discrimination, and access to dispute settlement. Together, they regulate billions of dollars in cross-border investment flows.

While traditional investment treaties were created to protect foreign investors from arbitrary or discriminatory treatment, experience has shown that they often limit state autonomy, particularly when governments attempt to adopt or strengthen environmental or social regulations. Over time, this led to growing criticism that investment treaties privileged investor rights at the expense of sustainable development. In response, many governments have begun revising their treaty models. According to UNCTAD (2023), nearly 90% of recently concluded treaties now contain sustainability clauses or explicit references to environmental protection and the right to regulate.

This paper examines whether these sustainable investment treaties amount to a coherent new model of global economic governance or whether states are adopting divergent regional approaches. Using doctrinal and comparative analysis of various treaties concluded recently, the study evaluates three prominent models, the European recalibrated protection model, the Brazilian/Indian cooperation-and-facilitation model, and the African sustainable-development-first model and observes whether they collectively show a broader transformation of the international investment regime.

1.The strong investor protection phase

Early scholars on investment treaties emphasized on stability, predictability, and broad investor protections as an essential for promoting foreign direct investment. Rudolf Dolzer and Christoph Schreuer, in Principles of International Investment Law, describe key protections such as fair and equitable treatment (FET), full protection and security, and national treatment, arguing that these safeguards reduce political risk and encourage investment flows. Similarly, Kenneth J. Vandevelde’s book Bilateral Investment Treaties: History, Policy, and Interpretation identifies six core principles, reasonableness, security, non-discrimination, access, transparency, and due process, he argued that investment must be free from any unreasonable government intervention to promote economic development.

2. Critical phase

By the early 2010s, a substantial body of critical works emerged, highlighting the democratic and regulatory concerns associated with traditional BITs. Gus Van Harten, in Investment Treaty Arbitration and Public Law, argues that the investor-state dispute settlement (ISDS) system effectively privatized public law functions typically exercised by domestic courts, weakening accountability and raising legitimacy concerns. Critiques also pointed out that traditional treaties privileged investor rights over the public interest, limiting governments’ ability to implement environmental, social, and health-related policies (Bonnitcha et al., 2017). The OECD’s Investment Treaties and Climate Change (2022) reinforce these concerns, showing how outdated treaty provisions expose states to arbitration claims when they attempt to introduce environmental reforms.

3. Reform and restructuring

Growing regulatory backlash and global recognition of the Sustainable Development Goals (SDGs) led to a widespread reform effort. UNCTAD’s Investment Policy Framework for Sustainable Development (2015) offers guidance on how states can align their treaties with sustainability targets, emphasizing regulatory space, responsible investor conduct, and inclusive economic growth. Complementing this, the Columbia Center on Sustainable Investment’s Reforming Investment Treaties (2018) highlights the climate-related risks embedded in older treaties and advocates for a narrowing of investment protections, strengthening investor obligations, and creating mechanisms that prioritize sustainable development.

4. Contemporary trends

UNCTAD’s World Investment Report 2023 shows a significant shift in treaty practices. More than 90% of treaties concluded after 2018 include sustainability provisions, explicit recognition of the right to regulate, and improved versions of traditional standards like FET. This signals a potential rebalancing of the investment regime, but it remains unclear whether these reforms lead to a single model or a fragmented landscape of regional approaches.

This research aims to determine whether recent sustainable investment treaties converge towards a new model of global economic governance or whether states are pursuing different regional frameworks. The analysis focuses on three major approaches- the European, the Brazilian/Indian, and the African models, and evaluates their similarities and differences.

The study employs doctrinal and comparative legal analysis of 78 treaties and investment chapters concluded between 2012 and 2023, sourced primarily from the UNCTAD Investment Policy Hub and official government sources. Each treaty was examined for its treatment of sustainability, regulatory rights, dispute settlement, investor obligations, and overall governance.

The study considers investment treaties as instruments of global economic governance. Global economic governance encompasses the institutions, rules, and processes through which states manage cross-border economic activity, including investment, trade, and finance. Traditional investment treaties governed economic relations by emphasizing investor protection, effectively disturbing the states’ ability to regulate in the public interest. The emerging generation of treaties seeks to bring together these relationships, integrating sustainable development into the regulatory structure of international investment law.

Drawing on UNCTAD’s Investment Policy Framework and the Columbia Center’s proposals for treaty reform, this paper adopts the concept of rebalanced economic governance. It assesses whether modern treaties provide adequate regulatory space, incorporate sustainability provisions, and impose duties on investors while preserving protections necessary to encourage investment.

Since 2012, states have responded to the legitimacy crisis in traditional BITs by developing three distinct treaty models. Each model attempts to integrate environmental, social, and governance (ESG) objectives into treaty practice but differs in terms of priorities, institutional innovations, and the balance between investor rights and state regulatory authority.

1. The European model 

This model, exemplified by the Comprehensive Economic and Trade Agreement (CETA) between the EU and Canada (2016), the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP, 2018), and the EU-Vietnam Free Trade Agreement (2019), maintains core investor protections while explicitly embedding sustainable development. It emerged after the 2009 Lisbon Treaty, reflecting a shift from the traditional investor-centric protection towards a more balanced approach that incorporates the state’s right to regulate in the public interest. 

It is implemented through a modern investment protection agreement negotiated by the EU and features a permanent investment court system for dispute resolution. The EU rejected the earlier system of ISDS arbitration in favour of a permanent institutionalised court system (ICS). It ensures greater legitimacy, transparency, impartiality and consistency. 

The government has the right to regulate for legitimate public interest and welfare objectives such as protecting public health, environmental protection or safety. Such measures taken by the government do not give rise to any claims for compensation, even if they affect the investment negatively. 

The EU model aims to ensure that foreign investment supports sustainable development and high standards for human rights and the environment. EU IPAs explicitly refer to the need of promoting corporate social responsibility and other responsible business practices. Investment rules are designed to encourage compliance with high environmental and labour standards. 

This model has shown a significant shift from the traditional model of investment, ever since the Lisbon treaty, the EU has worked to create a strong, common investment policy. It advances economic governance by maintaining a balance between investor confidence and government regulatory autonomy.

2. Brazilian/Indian model 

Developed by Brazil in response to ISDS risks, this model is represented by Brazil's Cooperation and Facilitation Investment Agreements (CFIAs) with partners like Mexico (2015), Angola (2015), and India (2020). It is a modern model for investment agreements that prioritize the cooperation and facilitation over traditional dispute settlement systems.

 It emphasizes the right to regulate for the government by incorporating clauses that protect public policy while still maintaining favourable conditions for investment through mechanisms like institutional cooperation and dispute prevention rather than the old ISDS system.

The primary goal of this model is to create a positive environment for investment through active contribution between the two parties.

It explicitly protects the state’s authority to enact policies for public goods such as environment, public health, and national security.

Unlike older treaties that allow investors to sue states in international arbitration, this model replaces ISDS with a system which is focused on government-to-government dispute prevention and resolution. 

The agreement acknowledges the importance of investment in promoting sustainable development and includes provisions for cooperation on sustainable investment initiatives. By embedding investments in broader regulatory contexts, this model enhances governance through collaboration

3. African model 

This approach, seen in the Morocco-Nigeria Bilateral Investment Treaty (BIT, 2016), the Pan-African Investment Code (2016), and the African Continental Free Trade Area (AfCFTA) Investment Protocol (2023), prioritizes sustainable development as the treaty's core objective. This model reflects a significant shift from the traditional investment centric agreements by prioritizing sustainable development. It balances the investor rights with host-state obligations and emphasizes regional integration.

The AfCTA Investment Protocol 2023 is an authoritative and continental-wide framework, binding on and superseding previous regional models. Sustainability has been placed at this model’s core, and defines the investment criteria to require a significant contribution to the host- state’s sustainable development. It imposes specific binding obligations on investors to comply with human rights, labour laws, environmental standards and anti-corruption measures.

The traditional and controversial Fair and Equitable treatment (FET) standard is replaced with a more limited fair administrative and judicial treatment standard. This change reduces the risk of arbitrary and unpredictable outcomes in investor and state disputes. 

It explicitly reaffirms the right of the African government to regulate in the interest of public policy, national security and most importantly, environmental protection.

The analysis reveals several clear trends:

1. Widespread incorporation of sustainability: Nearly all treaties concluded after 2018 include at least one sustainability clause and an explicit right to regulate, signalling a global shift away from the traditional investor-centred model.

2. Emergence of three distinct models:

The European model recalibrates investor protection through institutional reforms and balanced regulatory space.

The Brazilian/Indian model prioritizes cooperation and facilitation over litigation.

The African model places sustainable development at the forefront, imposing obligations on investors.

3. Absence of a dominant global model: While all three approaches reflect a shared desire to embed sustainability, states form their treaty design according to regional priorities, resulting in a fragmented governance landscape.

4. Common goals but fragmented implementation: The regime reflects a common emphasis on sustainability and the right to regulate, yet differences in dispute settlement, investor obligations, and institutional design persist.

The traditional investment treaty regime, which has been built on a broad investor-centric model and limited regulatory flexibility, has increasingly been criticized for limiting the states’ ability to pursue sustainable development. These concerns have driven a significant wave of treaty reform, leading to the emergence of three new models: the European recalibrated protection model, the Brazilian/Indian cooperation-and-facilitation model, and the African sustainable-development-first model.

Although these models share a commitment to sustainability, they are widely different in how they operationalize it. European treaties seek to modernize investor protection through institutional reform, Brazilian and Indian treaties reimagine the system through cooperative mechanisms, and African treaties prioritize sustainable development and impose obligations directly on investors. This fragmentation reflects diverse national interests and governance philosophies.

While no single model has yet emerged as the global standard, the elements common to all three suggest an ongoing transformation towards a more balanced, sustainable, and legitimate investment regime. Whether this transformation ultimately converges into a unified global framework will depend on states’ willingness to integrate best practices across regions.

1. Make sustainable development a core treaty objectiveSustainability should be embedded not only in the preamble, but as an operative provision guiding treaty interpretation, requiring demonstrable contributions to the SDGs.

2. Strengthen and clarify the right to regulateTreaties should explicitly state that non-discriminatory measures for public health, environmental protection, and national security do not amount to indirect expropriation and should not give rise to any claims for compensation.

3. Impose binding investor obligationsInvestors should be required to conduct environmental and social impact assessments, respect human rights, comply with labour standards, and adhere to anti-corruption norms.

4. Reform or replace ISDSStates should consider adopting either a permanent investment court system (as in the EU model) or cooperative, state-to-state mechanisms (as in the Brazilian model) to enhance legitimacy and reduce litigation risks.

5. Establish joint committees Regularly meeting committees can monitor treaty performance, support green investment initiatives, and prevent disputes before they arise.

6. Develop a multilateral sustainable investment frameworkStates should work toward a unified treaty model that consolidates best practices across regions, reducing fragmentation and strengthening global economic governance.

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