Mining Companies are Suing Governments, and It's Compromising Environmental and Human Rights Laws

This story is part of our investigative solutions journalism series exploring the hidden human rights costs of the low-carbon transition and potential interventions to prevent the negative impacts of mining as we race toward the net-zero energy transition. 

“I am not one to shy away from hard truths — human rights violations continue to occur with unacceptable and heart-breaking frequency,” Rohitesh Dhawan, CEO of the International Council on Mining and Metals, said in the organization’s human rights due diligence guidance for mining companies.

Human rights abuses, environmental degradation, and land seizures are an unfortunate reality of the push to bring minerals to market. Bringing those minerals to market, however, is a critical part of the plan to transition away from fossil fuels and towards clean, renewable energy sources.

It’s a tricky balance.

“We can't use the energy transition as an excuse to completely forget about the rights of communities just by saying we need to scale energy,” said Lisa Sachs, director of the Columbia Center on Sustainable Investment. “Nor do I think that we should take the stance that mining is so impactful that we can't scale clean energy technologies. We grapple very much with the tensions.”

One of the major obstacles impeding governments from enacting adequate environmental and social policies is the threat of being sued by foreign companies. 

For example, if a government decides that all mining projects now require the free, prior and informed consent of affected Indigenous groups, mining companies might argue that those weren’t the terms under which the initial contract was signed, and enacting that law breaches their rights. 

For these company-government disputes, also known as investor-state disputes, there is a mechanism that allows companies to sue the national government in international arbitration proceedings. This is called an investor-state dispute settlement (ISDS) and has led to billion-dollar rulings favoring foreign companies.

The mechanism is necessary to resolve legal disputes and mobilize private investment, according to a spokesperson for the International Center for Settlement of Investment Disputes, the World Bank Group organization that oversees most of these cases.

But human rights and environmental organizations are not convinced in the slightest.

How can an investor-state dispute settlement be activated?

Investor-state dispute settlements are provisions written into more than 3,000 international free trade agreements. These can be multilateral agreements between multiple countries, or bilateral investment agreements between just two countries. 

Perhaps you’ll remember the Keystone XL pipeline that was proposed to bring crude oil from Alberta, Canada, to Nebraska. Amidst huge protests and environmental concerns, the permit for the pipeline was ultimately revoked in an executive order from President Joe Biden in January 2021. Using the provisions afforded under the North American Free Trade Agreement — now named the United States-Mexico-Canada Agreement — the Canadian oil company launched an investor-state dispute settlement case, suing the U.S. government for $15 billion. The case is still pending.

Is it used often?

It’s not for lack of use that these settlements remain relatively unknown to the public. As of mid-2023, the United Nations Conference on Trade and Development reported that there are 1,303 known cases. The Investment Arbitration Reporter has tracked over 2,200 cases.

The claims in many of these cases involve sky-high dollar amounts, some of which are up to $40 billion, on par with the annual GDP of medium-sized countries like Paraguay, Latvia or Senegal. In one mind-boggling case, Zeph Investments is suing Australia for $300 billion for rejecting its iron mining project. The claim was listed as a risk to the federal budget.

In another case, the Australia-based Tethyan Copper Company claimed $11.43 billion in damages from Pakistan for denying approval of a mine. Tethyan won the case and Pakistan was ordered to pay the company $6 billion in damages, roughly 27 times the value of the initial $220 million investment.

Eco Oro Minerals sued Colombia for $700 million in a case we covered previously in this responsible mining series. The courts ruled in Eco Oro’s favor but are still determining the required payout amount.

Recently, First Quantum’s copper mine in Panama was ruled unconstitutional and forced to close by the Panamanian government after massive public protests — a case we also covered regarding transparency of mining contracts and concessions. The Canadian company has since taken action to sue Panama for $20 billion.

The list goes on, and on and on.

Countries are backing out 

“ISDS provides huge empowerment of multinational corporations over other societal interests and a totally imbalanced system,” said Stuart Trew, director of the Trade and Investment Research Project at the Canadian Center for Policy Alternatives. “Not even national firms have access to those kinds of rights in their own country, yet foreign companies do.” 

Canada recently backed out of the provisions for these settlements in the revamped U.S.-Mexico-Canada free trade agreement. “ISDS elevates the rights of corporations over those of sovereign governments,” Chrystia Freeland, the Canadian Minister of Foreign Affairs, said of the decision in 2018. “In removing it, we have strengthened our government’s right to regulate in the public interest, to protect public health and the environment.”

Many other countries have also withdrawn from the settlements. Ecuador, Bolivia, Honduras, Venezuela, South Africa, and India have all taken steps to remove exposure to them.

“ISDS creates a real moral hazard because a company could behave poorly — no due diligence, no community consultations, not getting the appropriate licenses,” said Sachs, of the Columbia Center on Sustainable Investment. “And then claim in an ISDS tribunal that the state told them their project would move forward, so they now have an obligation to make it move forward.”

Ecuador’s government recently tried to reintroduce these settlements in its free trade agreements, notably in one it is negotiating with Canada now. Canada has the most foreign investment in Ecuador of any country and is home to around 75 percent of the world’s mining companies. But they needed the public to overturn a constitutional ban on the settlements that was introduced in 2008. The Ecuadorian public voted against the reintroduction on April 21, 2024.

“It is mainly the rich countries that are eliminating it since it has been used against them. It is clear how it is remaining a neocolonial tool,” said Manuel Pérez-Rocha, associate fellow at the Institute for Policy Studies. “Countries in the global south need to eliminate it too.”

Investor-state dispute settlements undermine human rights and environmental laws

Critics of the system argue that these settlements undermine a country’s sovereignty, allowing foreign companies to influence which laws can be passed.

“Some countries would rather cave in to the investors’ demands than face a potentially billion-dollar claim against them,” said Trew, of the Canadian Center for Policy Alternatives. “This is sometimes referred to as the regulatory chill aspect.”

That can be detrimental to human rights and the environment. 

“ISDS privileges investment over considerations of environmental protection, human health, protection of communities and local economies — all of that goes out the window when you get involved in arbitration,” said Jamie Kneen, co-manager of Mining Watch Canada.

The European Union agreed to leave the Energy Charter Treaty which allows for the use of these settlements between the 51 signatories, made up of European and Asian countries. EU officials said that the treaty, which allows energy companies to sue governments over new climate policies, undermines efforts to fight climate change. 

What effect would removing these settlements have?

Getting rid of investor-state dispute settlements “would weaken the rule of law by removing an important means to resolve international investment disputes,” an International Center for Settlement of Investment Disputes spokesperson said. “This would be detrimental to mobilizing the vast amounts of private investment required for the green energy transition by raising costs and deterring investment in some states.”

Critics don’t see it that way.

“Companies are going to go where the resources are,” Trew said. “What they need is infrastructure and then some degree of state coordination to get the minerals to market. They don’t need the investment treaties.”

Many studies have tried to determine the effect these settlements have on attracting investment. The results are inconclusive, but one analysis found that the “effect of international investment agreements is so small as to be considered zero.”

Brazil, for example, attracts the sixth largest amount of foreign direct investment worldwide, even though they have never engaged in investor-state dispute settlement trade agreements. 

Critics say that removing these provisions would not hinder the ability of mining companies to bring minerals to market, nor deter foreign investment. 

“Mining companies go where there's going to be profits,” Sachs said. “They don't go where the treaties are.”

They also suggest that investor-state disputes should be handled within the host government’s judicial system.

“Ideally, you would have a contract spelling out the terms of the agreement, and then that could be taken to domestic courts to settle disputes, which is where we should be sending disputes between investors and governments,” Trew said.

As it stands, the system has turned into a business opportunity in its own right. Litigation finance companies and hedge fund managers, who have no stake or interest in the original development projects, are stepping in to fund the settlement process for mining companies. They’re staking millions of dollars, banking on the fact that the case will go in their favor, and reaping millions or billions in rewards.

It’s a messy component of international law that provides more protections for private companies than it does for countries and their citizens. One of the major issues is that the system operates well outside of public view.

“ISDS cases are heard in this private context, often not even known to the public with no ability of the states or other interested parties to participate,” Sachs said. “They’re not governed by any rules of domestic law or procedure and there’s no recognition of its conflict with international human rights law or international environmental commitments — and the awards are staggering.”

With greater public knowledge of these cases, greater public pressure gets placed on governments to scrap the settlements from trade agreements. In the U.S., President Biden has felt the pressure and said that they do not belong in any future agreements. While this does not affect the free trade agreements already signed, it’s a step in the right direction for anyone concerned about the environment and human rights.