Climate Finance and International Investment Law

Published on February 2025

This briefing provides an overview of climate finance frameworks, focusing on the distribution of finance via two key channels - those within the multilateral climate regime supervised by UNFCC and the Paris agreement, and funds and frameworks operating outside this.

Key Messages

• Private investments, and particularly foreign investors are key actors in the energy transition, both in the renewable energy and fossil fuel sectors. It is crucial for policymakers to consider how financing arrangements may interact with international legal protections for foreign investments and mitigate the risk of triggering foreign investment disputes.
• Climate finance frameworks and instruments can extend beyond the transfer of financial resources and involve legal, regulatory and policy reforms in developing countries.
• Legal standards protecting foreign investments may pose significant legal risks for host countries receiving finance and investments for climate action, including regulatory chill and raising the cost of taking measures to manage a multi-faceted transition.
• The necessity of rapidly scaling up climate-friendly investments, especially in the developing world, cannot be viewed in isolation from the broader socio-economic context in which these investments operate.
• It is crucial for developing states to revisit their investment protection frameworks to align them with just transition objectives.

This briefing is authored by:

• Dr Anil Yilmaz Vastardis, Senior Lecturer, Essex Law School. University of Essex, UK

Author