A year after the EU’s official withdrawal from the controversial Energy Charter Treaty, EU Member States remain dangerously exposed to billion-worth lawsuits from foreign investors through outdated Bilateral Investment Treaties (BITs). With over 1,000 such treaties still in force between EU states and non-EU countries, the highly criticised Investor-State Dispute Settlement (ISDS) mechanism included in most of them violates EU sanctions laws and continues to undermine Europe’s ability to protect national security interests, take tax measures, run climate and environmental policies and safeguard democratic decision-making.
Friends of the Earth Europe, the European Trade Justice Coalition, SOMO, the Transnational Institute and Powershift launch a series of 10 new ISDS case studies showing how widely this mechanism threatens governments’ right to regulate and risks overruling EU member states’ own court decisions (1).
ISDS allows foreign investors to bypass national courts and sue governments in investor- friendly private tribunals demanding massive sums of compensation for democratically agreed decisions. This practice not only undermines climate and environmental policies of the EU and its member states but recent cases show that it also increasingly poses a risk to EU sanctions against aggressive regimes and challenges its Member States’ national security policies:
- Sanctions undermined: Russian oligarch Fridman, who is subject to EU sanctions over the Russian invasion of Ukraine, is using ISDS to sue Luxembourg, which has frozen his assets. Fridman is demanding a gigantic $16 billion payout.
- National security challenged: Sweden’s decision to protect its telecom infrastructure on national security grounds was challenged by Chinese tech-giant Huawei with a claim of almost half a billion euros. Huawei is also known to have threatened other countries such as Czechia and the UK with ISDS.
Paul de Clerck, economic justice expert at Friends of the Earth Europe, said:
“We live in a time where private courts have the power to challenge governments’ democratic choices, with the sole purpose of protecting corporate profits. Not only are those secretive lawsuits undermining European climate and environmental policies but they now also challenge measures to protect national security, corporate taxes and sanctions against Russian oligarchs. The EU and member states need to abolish this obscure relic and get rid of ISDS in all their investment agreements”.
Climate action, environmental protection and consumer prices at stake:
- Taxing windfall profits challenged: Oil and gas corporation Klesch Group, registered in tax heaven Jersey, is suing Denmark, Germany and the EU over the European windfall tax on energy corporations. This tax was agreed after these corporations made massive extra profits while society at large was suffering from exploding energy prices in 2022. Klesh is using ISDS to get out of paying its taxes.
- Environment on trial: Australian corporation Berkeley, is seeking compensation of up to US$1 billion from Spain for a uranium mining project that would have left behind a trail of radioactive waste, after licenses were annulled by the Spanish High Court because they violated environmental rules.
- Pressure and regulatory chill: Fossil fuel giants Shell and Eni have used Nigeria’s investment treaty with the Netherlands to pressure the government into allowing their polluting projects. Shell’s initial $1.8 billion ISDS claim helped them secure a lopsided license for one of the country’s richest oil fields in 2011. The deal deprived Nigeria of its share in future profits from the oil. A later government succumbed to further pressure from a second lawsuit, dropping corruption claims against the oil majors.
The European Court of Justice already ruled that ISDS in intra-EU cases violates EU law. The EU decision to exit the ECT was partly based on the argument that ISDS actually undermines European and national climate and energy policies. Moreover, ISDS provisions in BITs with non-EU members such as Russia, also violate EU law as they interfere with EU sanction laws (2).
The coalition calls on the EU to ensure that member states take necessary measures to terminate their Bilateral Investment Treaties, and on EU member states to effectively terminate them.
Notes to editor
(1) In addition to the cases presented above, the list include
- The land-grabber that seized a Tanzanian plane: EcoDevelopment vs Tanzania
- Forcing through a toxic lithium mine despite mass protest: Rio Tinto vs Serbia
- Vulture funds cashing in on a bank bailout: Suffolk and others vs Portugal
- Harming a pension fund, then suing to escape liability: Andraous vs the Netherlands
- The investment fund suing over road blocks and toll profits: InfraRed vs Colombia
(2) In three rulings issued in 2009 against Austria, Sweden and Finland, the European Court of Justice found that capital transfer clauses in extra-EU BITs are incompatible with the Council’s powers to unilaterally adopt restrictive measures with regard to third countries.
- Case C‑118/07, Commission v. Finland, paras 30-34; Case C-205/06 Commission v Austria , para 37, and Case C-249/06 Commission v Sweden, para 38.
- In July 2025, the Council adopted a new regulation on sanctions against Russia which contains provisions (article 11) attempting to neutralise the effects of Member States’ BITs with Russia on EU sanctions. This confirms that capital transfer clauses in extra-EU BITs– and the operation of the BITs themselves – can clash with EU sanctions laws.
Council Regulation (EU) 2025/1494 of 18 July 2025 amending Regulation (EU) No 833/2014 concerning restrictive measures in view of Russia’s actions destabilising the situation in Ukraine.
