Externe Publikationen

Strengthening coherence between investment agreements and environmental, social and economic objectives

Berger, Axel / Cecilia Trasi (co-chairs)
Externe Publikationen (2026)

Think 7 Solution Paper (March 2026), Paris: IDDRI

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Foreign direct investment (FDI) is critical for economic security and supply chair resilience, competitiveness and technological leadership, green industrial transformation as well as labour market opportunities. However, current investment governance faces three interconnected challenges:
● Geographically concentrated flows leaving strategic opportunities untapped. FDI flows remain concentrated in advanced economies and select emerging markets, limiting their contribution to closing financing gaps in low- and middle-income countries (LMICs), particularly in Africa.
● Misaligned investment treaties that create uncertainty and risks for host states. Most international investment agreements (IIAs) prioritize investor protection over development commitments. Unreformed, old-generation treaties with vague descriptions of substantial obligations create ambiguity and often constrain host countries’ regulatory space to pursue climate action, environmental protection, and social objectives, leading to unpredictable disputes. Under most treaties, investor-state dispute settlement (ISDS) mechanisms can thus expose governments to significant financial liabilities and exorbitant damages for legitimate public policy measures.
● Limited G7 leadership results in fragmentation and inefficiencies. While the G7 has made commitments1 to mobilize FDI flows to LMICs and improve enabling environments for investment, recent summits have not advanced ambitious proposals to align investment instruments with environmentally and socially sensitive economic development. The absence of coordinated G7 leadership has led to inconsistent investment frameworks, increasing transaction costs for investors and creating regulatory uncertainty that also affects the competitive position of FDI home states. These challenges coincide with increasing fragmentation in investment governance. Countries are experimenting with investment facilitation frameworks, sectoral partnerships, and plurilateral approaches outside traditional bilateral IIA models, creating both opportunities and risks of incoherence.

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