Colombia’s President Gustavo Petro announced last week that his government will “withdraw from the international investment arbitration system because the courts end up resolving disputes in favour of private entities”.
The move follows an open letter to Petro from 200 international economists – among them Nobel prize winner Joseph Stiglitz and French economist Thomas Piketty – calling for the country to leave the Investor-State Dispute Settlement (ISDS) system to “ensure that it does not stand in the way of its transition away from fossil fuels”.
The ISDS system allows investors – many linked to fossil fuel projects – to sue governments in an international arbitration court over disputes. This mechanism has been used by polluting companies to challenge environmental measures.
“Why do we agree to sign contracts where, in the event of a dispute, it is a private arbitration centre in the contractor’s country that ultimately decides whether our country is in the right or not, and, generally speaking, we lose?” Petro said on March 25.
The Colombian president added that several other countries, including the United States, have left or are in the process of leaving this system. In Europe, for example, many governments have started the process of leaving the Energy Charter Treaty, an energy investment mechanism, in an attempt to prevent it from shielding fossil fuel projects.
“I undoubtedly believe we have opened a global debate, not just a Colombian one,” he told an event in Bogota held to launch a report on his government’s economic reforms and their results.
Signatories to the open letter celebrated the move but warned that withdrawing from the system is a complex process and would be easier if it was coordinated with other countries, particularly those in the Global North.
Kyla Tienhaara, Canada research chair in economy and environment and associate professor at Queen’s University, said “it would be preferable for ISDS access to end immediately, which means coordinated action among states.”
She added that such a “coalition of the willing” could set terms on ending treaties in an efficient way, or modify them in a way that removes ISDS protections.
Mario Osorio, research fellow at the Center for Economic Policy and Research (CERP), an American think-tank, who is also a signatory of the open letter, said in a statement that he hoped Colombia will now “help to lead other countries in exiting ISDS”, which has “too often stood in the way of needed measures to mitigate climate change”.
High exposure to lawsuits
Harro van Asselt, professor of climate law at the University of Cambridge, told Climate Home News that it remains unclear how the Colombian government is planning to cut ties with the ISDS system, but it could include re-negotiating or terminating existing investment agreements.
If the country seeks to terminate treaties – which van Asselt said is the more “nuclear” option – it could trigger so-called “sunset clauses”, which allow investors to still access ISDS for a period of five to 20 years after the agreements have been ceased. These clauses can be cancelled if both parties agree to it.
A 2025 paper by researchers at Boston University showed Colombia could be significantly exposed to lawsuits, as an estimated 129 oil and gas projects are covered with ISDS provisions – the most of any country in the Amazon basin.
At last year’s COP30, the country vowed to ban all oil and gas drilling in the Amazon, the world’s largest rainforest, which – if applied to existing projects – could trigger multi-billion dollar lawsuits, according to the paper. In 2015, neighbouring Ecuador lost a $1.7-billion case with oil major Occidental for ending an oil concession, while Venezuela lost an $8.5-billion judgement with ConocoPhillips in 2019 for nationalising oil assets.
The Colombian American Chamber of Commerce, an industry body that promotes American investments in the country, said in a statement that the move away from the ISDS system “deepens uncertainty” for investors. Its president María Claudia Lacouture added that disputes don’t arise from the system itself but from “changing rules, reduced predictability, a lack of institutional coordination, and weaknesses in preventing unlawful harm”.
Several other countries, including Indonesia, South Africa, Bolivia and India, have moved to cut ties with the ISDS system, while Brazil and Suriname avoided its provisions altogether in their investment deals. Tienhaara said this has not stopped investment in these countries.
However, she added that “it would be easier for Colombia (and other countries in the Global South that might be interested in following this path) if other countries, particularly from the Global North, would support them through an ISDS-free alliance”.
Ramping up support
While it is not the first country to move away from the ISDS system, experts said Colombia has an opportunity to rally other countries to follow their path, as it prepares to host the first Conference on Transitioning Away from Fossil Fuels in the Caribbean city of Santa Marta.
Van Asselt said the country is sending a “crucial” signal ahead of the conference, suggesting that to move away from coal, oil and gas, governments need to look at broader reforms of international finance and investment.
Tienhaara added “it is excellent that Colombia is showing leadership, but they should not have to”, as the ISDS system was set up by developed countries and international agencies like the World Bank, which should be leading efforts to reform it.
“In many ways, the current situation mirrors that of climate action more broadly – countries in the Global South like Colombia and the Pacific Islands are leading the transition away from fossil fuels when it should be the big polluters in the Global North taking responsibility,” she said.
