Climate Change and Investment Arbitration: The IACtHR’s 2025 Advisory Opinion as a Regulatory Defense Tool

On 3 July 2025, the Inter-American Court of Human Rights ("IACtHR") issued its Advisory Opinion on Climate Emergency and Human Rights (OC-32/25). In the Opinion, the Court clarified the scope of States’ obligations under the Inter-American Convention on Human Rights ("ACHR") and the Protocol of San Salvador in responding to the climate emergency.

While the Opinion primarily addresses human rights obligations, it may also carry significant implications for international investment law and arbitration. This post summarizes the Opinion’s key findings and explores how it may influence investment arbitration going forward. It focuses on the Opinion’s implications for the merits phase, though its relevance may extend to jurisdictional and quantum phases.

Key Findings of the IACtHR

The Court began by affirming that the current climate emergency demands urgent, effective, and rights-based responses, grounded in the principle of resilience (para. 183). States are obliged to respect, guarantee, and adopt measures that ensure the progressive development of the rights enshrined in the ACHR.

In this light, the Court distinguished between substantive rights—such as the right to a healthy climate—and procedural rights relating to environmental participation and access to justice (paras. 266, 320). It emphasized that States must not only avoid causing environmental harm but must take positive steps to protect, restore, and regenerate ecosystems (paras. 364–67, 559). These actions should reflect the best available science and recognize traditional and indigenous knowledge (paras. 240, 468, 478, 480). Importantly, the duty to prevent irreparable ecosystem harm was described as an imperative obligation under international law (paras. 290–91).

Regarding private actors, the Court reaffirmed that States have a duty to prevent third parties from violating protected rights. This obligation arises where the State is—or should be—aware of real and immediate risks and fails to act (para. 226). States must require environmental impact studies (paras. 358–63), establish contingency plans, and implement mitigation measures where environmental harm occurs. In the framework of the climate emergency, these last two duties are fulfilled when the State adequately plans and executes the response to the impacts of climate change, both on the environment (paras. 269-376) and on people (para. 230). In a particularly relevant passage, the Court stressed that States must take coherent international action, including in areas such as foreign investment, finance, and trade (para. 344). Private companies must avoid causing or contributing to rights violations and adopt remedial measures when violations occur (para. 345).

Finally, the Court acknowledged a possible tension between international investment treaties and environmental/human rights obligations. This tension is not inherent to the investment regime but depends on treaty design and how dispute mechanisms are used. The Court urged States to rebalance investment frameworks to allow for regulatory responses to the climate crisis—without compromising legal certainty for investors. Accordingly, States should review trade and investment treaties, including investor-State dispute settlement ("ISDS") mechanisms, to ensure they do not hinder climate or human rights efforts (para. 351).

Implications for Investment Arbitration

Although non-binding, advisory opinions rendered by international courts are widely understood to shape and influence the development of international law, as well as to affect the conduct of States. In 2023, the International Law Commission took the view that advisory opinions could be as authoritative as judicial decisions. The 2025 IACtHR Advisory Opinion therefore constitutes a landmark pronouncement on States’ obligations under the ACHR on climate change and environmental protection.

As investment disputes increasingly intersect with ESG concerns, the Opinion may serve as a strategic legal tool for State parties to the ACHR defending climate-related measures. In investment arbitration, ACHR obligations may become relevant through: a) systemic interpretation under Article 31(3)(c) of the Vienna Convention on the Law of Treaties; applicable law clauses (e.g., Article 42 ICSID); and/or as part of the factual and normative background to State conduct. Against this backdrop, this post argues that integrating ACHR provisions, as interpreted by the IACtHR, into the application of investment provisions, such as fair and equitable treatment ("FET"), may raise the threshold for finding a breach of that standard.

a) Legitimate Expectations

The Advisory Opinion confirms that investors can no longer reasonably expect legal stasis in sectors linked to the exploration, extraction, transport, and processing of fossil fuels. The Court affirms that States have a continuing duty under the ACHR to adopt and enforce measures to prevent climate-related damages and protect natural ecosystems. These measures are not discretionary; rather, the duty to prevent irreparable harm to ecosystems is described as an imperative obligation under international law, reinforcing that regulatory adaptation is not only foreseeable but necessary. Given the central role of fossil fuels in the climate crisis, States are required to reform legal frameworks in line with environmental imperatives. Following the Advisory Opinion, the only reasonable expectation is of progressively more stringent regulation. Thus, absent specific and binding assurances to the contrary, investors cannot reasonably expect the regulatory framework to remain unchanged. Tribunals have already held that investors should foresee regulatory changes in sensitive sectors such as the environment, especially when they are adopted to advance constitutional or treaty-based rights (Tecmed v. Mexico, para. 154; Plama v. Bulgaria, para. 333; Urbaser v. Argentina, para. 248). The Opinion also notes that the adoption of best-available science and traditional knowledge should inform such regulation—further illustrating the dynamic and evolving nature of the normative framework. Respondent States may therefore argue that a prudent investor should be aware of their obligation to enact and enforce legislation to comply with duties to protect the right to a healthy climate. This holds particularly true in light of the Court’s framing of climate obligations as requiring a transformation of the productive and extractive model. Consequently, the threshold for invoking legitimate expectations in climate-sensitive sectors is likely to be significantly higher.

b) Arbitrariness

The arbitrariness standard focuses on whether a State’s conduct is unreasonable, capricious, or taken in bad faith. Here, references to the 2025 Advisory Opinion may allow States to demonstrate that contested measures are grounded in other binding legal obligations, thereby precluding any claim of arbitrary behavior. Indeed, when regulatory measures are traceable to obligations under environmental or human rights law, tribunals are less likely to find arbitrariness (Peteris v. Norway, para. 543). The Opinion emphasizes that States must plan and execute responses to climate impacts in both environmental and human terms, and that failure to act on known risks may constitute a breach as well. Moreover, obligations to conduct environmental impact assessments and maintain contingency planning show that pre-emptive regulation is not only permissible but required. These considerations collectively underscore that climate measures are often not discretionary acts of governance but fulfill specific treaty-based duties. This interpretation aligns with the emerging trend in investment arbitration to grant States wide discretion in regulating natural resources. As noted by several tribunals, a degree of uncertainty is unavoidable when States manage complex projects involving numerous competing interests (Lone Pine v. Canada, paras. 623–24; Red Eagle v. Colombia, para. 309; Montauk Metals v. Colombia, para. 937; Gabriel Resources v. Romania, para. 1320; Discovery Global v. Slovak Republic, para. 629). In this light, inconsistencies in States’ measures do not amount to arbitrariness unless serious flaws or bad faith are involved. The IACtHR’s guidance reinforces this interpretive approach and may further insulate States from arbitrariness claims in climate-linked disputes.

c) Non-Discrimination

In investment arbitration, discrimination typically requires a showing that similar cases were treated differently without reasonable justification. However, when States rely on human rights or environmental obligations, such differential treatment may be not only justified but required. The Advisory Opinion confirms that structural inequalities, particularly those affecting indigenous peoples, necessitate preferential treatment to ensure effective protection of cultural rights and traditional land tenure. In this context, the Court reaffirmed that States must recognize traditional land rights and adopt affirmative measures—including collective ownership frameworks—as integral to the right to cultural participation. These obligations support differential regulatory treatment designed to protect environmentally or culturally sensitive areas. This reasoning echoes prior arbitral jurisprudence, which has found that environmental and heritage protections may constitute legitimate justifications for regulatory distinctions (Parkerings v. Lithuania, para. 392; Renée Rose v. Peru, para. 215). The procedural rights emphasized by the Court, such as environmental access and participation, further underline that regulation in pursuit of inclusive governance may produce differentiated impacts without amounting to discrimination. Therefore, integrating these obligations into the non-discrimination analysis may enable tribunals to recognize legitimate, policy-based distinctions, thereby raising the threshold for establishing a discrimination claim and reinforcing States’ ability to pursue differentiated yet lawful public interest regulation.

Conclusion

ACHR provisions—authoritatively interpreted by the IACtHR in its 2025 Advisory Opinion on Climate Emergency—can inform arbitral interpretations of investment standards. By clarifying binding obligations to regulate and enforce compliance, the Opinion raises the threshold for findings of arbitrariness or frustration of legitimate expectations. At the same time, it supports greater deference to State regulatory autonomy, especially in complex and evolving environmental contexts. In turn, invoking such provisions in investment arbitration may help reconcile investment protection with States’ regulatory powers, ensuring the former does not restrict legitimate efforts on climate change and human rights. As Judge Cleveland noted in her separate declaration to the ICJ Advisory Opinion on the Obligations of States in respect of Climate Change, the interpretation of investment protection instruments must be guided by States’ international climate obligations in order to avoid the phenomenon of regulatory chill (paras. 21–22). Against this backdrop, and as investment disputes increasingly intersect with ESG-related concerns, the Opinion may serve as a strategic defense for States seeking to justify environmental and climate-related regulation.