Environmental Counterclaims in Investment Treaty Arbitration

Through design of international investment agreements, foreign investors may bring international claims against the States in which they invest, challenging domestic executive and regulatory measures, including those related to the environment and sustainable development. In contrast, host States are usually limited to defending claims brought against them. The capacity for a host State to bring an independent counterclaim has been tested in only a handful of cases, some of which involved environmental considerations. This article considers those cases and the potential for counterclaims to help enforce national and international objectives related to the environment. It does so by setting out the legal framework for counterclaims by host States, analyzing how jurisdiction, admissibility and causes of action involving environmental obligations under domestic and international law may be satisfied, and the attendant consequences for liability and compensation. It then considers the implications of counterclaims for future investment disputes, given the rapid development of international and domestic environmental law and policy, especially in the context of corporate governance, climate change and the United Nations Sustainable Development Goals.