Scandinavian Working Papers in Economics

Working Paper Series,
Research Institute of Industrial Economics

No 1496: Investment Treaties and the Threat to Biodiversity

Henrik Horn (), Axel Lavenius () and Mark Sanctuary ()
Additional contact information
Henrik Horn: Research Institute of Industrial Economics (IFN), Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Axel Lavenius: IVL Swedish Environmental Research Institute, Postal: Stockholm, Sweden
Mark Sanctuary: KTH Royal Institute of Technology, Stockholm, Postal: and IVL Swedish Environmental Research Institute, Stockholm, Sweden

Abstract: Protecting biodiversity will require the phase-out of harmful production at a large scale. However, some of these stranded investments will be foreign-owned, and can therefore be protected by the more than 2,600 investment treaties that are in force worldwide. These treaties' compensation requirements are often alleged to dissuade host countries from undertaking desirable policy measures that harm foreign investor interests. This paper seeks to identify the countries, and the bilateral investment treaties they are parties to, that pose the most severe threat to biodiversity protection. It assumes that these treaties combine three features: (i) they can be interpreted to impose far-reaching protection of (ii) considerable foreign investment positions, and (iii) in countries with vulnerable biodiversity. To operationalize these notions, the paper identifies 15 criteria that a treaty must fulfill to be considered problematic from a host country regulatory perspective. It also introduces an index for biodiversity vulnerability, based on Red List data. The analysis of 1,781 bilateral investment treaties and the 172 countries that are parties to these treaties identifies 12 countries that are the most concerned from a biodiversity perspective. These countries are almost all newly industrialized and middle-income. The paper also identifies 44 agreements that from a biodiversity perspective should be prioritized targets for renegotiation or termination.

Keywords: Biodiversity; International investment agreements; Investment treaties; Stranded assets; Regulatory chill

JEL-codes: F21; F23; F53; K33; Q57

Language: English

65 pages, June 27, 2024

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