Ankit Malhotra1
The net-zero transition is increasingly being arbitrated, not just negotiated. Investors have used treaty arbitration to challenge coal phase-outs, fossil-fuel restrictions, subsidy reforms, and other environmental measures. In that setting, third-party funding under the 2022 ICSID Rules and security for costs under Rule 53 matter far more than procedure usually admits. They help determine which claims are brought, which are deterred, and how much fiscal pressure a State faces when it regulates in the public interest. That matters because climate-related ISDS is not an even field. Investor claims are enforceable through treaty machinery. States must defend themselves with public money. Communities affected by climate harm, or by poorly designed transition projects, rarely enjoy comparable procedural leverage. Against that background, third-party funding and security for costs should not be treated as neutral housekeeping devices. They are part of the architecture through which climate disputes are financed, filtered, and resolved.
Recent reporting by The Guardian suggests that third-party funding in ISDS remains concentrated in fossil-fuel and mining disputes, and that developing States continue to bear much of the burden. The same reporting links the scale of potential awards and the threat of claims to a broader pattern of regulatory chill in climate policy. One need not accept every rhetorical flourish in that debate to see the structural point. Left to market logic alone, litigation finance will predictably flow towards high-value investor claims with strong enforcement prospects. If institutions do nothing, procedure will continue to reinforce the same asymmetries that already trouble climate governance. The current framework does not yet confront that climate dimension directly. ICSID Arbitration Rule 14 now requires notice of third-party funding, and UNCITRAL Working Group III has been considering disclosure, regulation models, and other reform options for some time. That is real progress. But it still assumes, too often, that climate disputes are simply another form of investment risk to be financed and hedged like any other asset class. In reality, formally neutral procedure can produce highly unequal effects when the underlying field is already asymmetric.
Third-party funding is not inherently objectionable. In some cases, it may widen access to justice by allowing a party with a strong claim but weak liquidity to pursue relief. Security for costs is not inherently objectionable either. It may protect respondents against the risk of an unrecoverable costs award and deter speculative claims. The difficulty lies elsewhere. In climate-related disputes, these tools do not operate in the abstract. Their practical effect depends on who is using them, and to what end. That point is easier to see when doctrine is placed beside practice. In RSM v Saint Lucia, the tribunal’s security-for-costs decision became a reference point for later debate because funding, non-payment risk, and enforceability concerns were treated as procedurally salient. The later codification in ICSID Arbitration Rule 53 reflects that concern, while UNCITRAL Working Group III has likewise treated third-party funding as a structural reform issue rather than a private contracting detail.
The climate context sharpens the problem. In Lone Pine v Canada, the claim followed Quebec’s revocation of oil-and-gas rights linked to a fracking moratorium. In Rockhopper v Italy, the dispute arose from Italy’s refusal to grant a production concession for an offshore oil project after regulatory change. These are not abstract commercial quarrels. They sit close to contested public policy choices on extraction, energy transition, and environmental risk.
By contrast, an environmental counterclaim may point the other way. In Perenco v Ecuador, Ecuador advanced an environmental counterclaim, and the tribunal ultimately awarded compensation for environmental damage. The lesson is simple. A funded investor claim against a bona fide climate measure may externalize downside risk and intensify pressure on the host State. A funded environmental counterclaim may serve accountability. The real issue, then, is not whether procedure is neutral in form. It is whether it is fair in effect.
First, disclosure rules should be climate-tagged and should reach beneficial ownership and climate-exposed interests. Existing disclosure rules are a start, but they are too thin for climate disputes. In cases arising from climate measures, parties should be required to disclose not only the existence and identity of a funder, but also whether the funder has significant interests in fossil-fuel, mining, or other climate-exposed sectors, and whether it has hedging positions tied to the outcome of climate-policy disputes. That is not an attempt to moralize investment strategy. It is a basic matter of institutional visibility.
A funder backing claims against coal phase-outs while holding other positions that profit from climate-policy volatility presents a different risk profile from a funder specializing in environmental remediation or climate-compliance disputes. Tribunals cannot assess those risks if the relevant interests remain hidden. Nor can treaty parties form a serious view about whether funding is widening access to justice, or simply underwriting a more sophisticated form of regulatory arbitrage. Climate-sensitive disclosure would therefore improve conflict analysis, sharpen costs decisions, and give States a more realistic picture of how climate disputes are being financed. Secondly, security-for-costs doctrine should be calibrated to distinguish between different kinds of funded climate claims. ICSID Rule 53 already directs tribunals to consider all relevant circumstances and makes clear that funding alone is not enough. That framework is flexible enough to do more work than it presently does. The law need not pretend that every funded climate case raises the same concerns.
Where a funded investor challenges a bona fide climate measure adopted in good faith to implement domestic or international climate obligations, there is a strong case for a rebuttable presumption in favor of security for costs, particularly where the claimant has structured its local presence thinly or otherwise insulated itself from an adverse costs award. In that setting, funding may operate less as an access mechanism and more as a device for externalizing litigation risk while increasing pressure on public budgets. The respondent State, meanwhile, must defend the case with public resources while facing the prospect of a substantial award.
The position should be different where funding is the only realistic route by which a smaller claimant, or an environmentally grounded counterclaim, can be heard. In those cases, tribunals should be required to treat access to justice and the public character of the dispute as central considerations weighing against security. The aim is not to create immunity from costs discipline. It is to avoid treating every funded claim as functionally identical when the practical effect of security may be to shut the courtroom door. Thirdly, disclosure should feed into a public climate-and-funding data framework. One of the system’s present weaknesses is informational. There is still no coherent public dataset showing who funds climate-related ISDS claims, how often security for costs is sought, how tribunals decide those requests, and what fiscal consequences follow. That opacity benefits repeat players and weakens serious reform.
A modest but useful step would be to require that, in climate-related disputes, disclosed funding arrangements, security-for-costs applications and decisions, and costs outcomes be reported, in suitably redacted form, to a public repository maintained by ICSID, UNCITRAL, or another neutral body. That would not solve the underlying asymmetry by itself. But it would create an evidence base. States could negotiate on the basis of pattern rather than anecdote. Tribunals could see how comparable applications are being handled elsewhere. Civil society could track whether climate-sensitive reform is working in practice. Without better data, the debate will remain under-informed and easily captured by assertion. This is not a call to ban third-party funding. Nor is it a plea to treat every investor claim with suspicion. It is a narrower point. In climate-related ISDS, third-party funding and security for costs are not merely technical issues. They shape which claims are financed, which claims are filtered out, and how far the costs of transition are shifted onto public budgets. Current doctrine is formally even-handed, but that is precisely the problem. Formal neutrality in an unequal field can entrench inequality. Climate arbitration is here to stay. The sensible question is therefore not whether procedure matters, but how it should be designed. Climate-tagged disclosure, calibrated security-for-costs rules, and a public funding dataset would not cure every distortion in the system. But they would ensure, at the least, that the procedural design of ISDS does not quietly work against the net-zero transition it increasingly confronts.
[1] Advocate, Chambers of Gopal Subramanium SA; Felix Scholar; MCIArb.