By Carolina Joy

As international investment agreements (IIAs) increasingly include references to the United Nations’ Sustainable Development Goals (SDGs), investor-state arbitration further becomes a site of global governance, mediating conflicts between private investment protection and public development objectives. Within this dispute resolution mechanism, the tension between the soft law of the SDGs and the hard law protections required by investment treaties is increasing, especially as tribunals invoke SDG language as an interpretive context rather than a source of binding obligations.

^{“The Sustainable Development Goals Center For Africa | Kigali, 27 January 2017” by Paul Kagame is licensed under CC BY-NC-ND 2.0.}

The United Nations General Assembly adopted the SDGs in 2015. The SDGs enumerate seventeen integrated objectives aimed at advancing sustainable economic growth, environmental protection, and climate action, and reducing income inequality by 2030. Although UN Member States have broadly endorsed the SDGs, the initiatives are non-binding, and implementation remains uneven. As 2030 approaches, data indicates that progress across key targets continues to fall behind the original timeline. This gap between implementation and target progress has encouraged policymakers’ interest in integrating SDGs into binding legal frameworks, such as IIAs.

IIAs are international contracts that regulate and protect foreign direct investment (FDI) by establishing treatment standards for foreign investors and providing access to investor-state dispute settlement mechanisms. Lower-income states traditionally used IIAs for economic benefits, including tax revenues, technology transfer, and employment opportunities. IIAs are also associated with long-term economic growth through investment flows into sectors critical for development, such as energy, mining, and manufacturing. However, IIAs are increasingly scrutinized for impeding climate, social, and environmental goals, presenting a question of balance between public and commercial interests.

Recent reform efforts advocate for integrating SDG language into IIAs, raising a new question for international investment arbitration: to what extent can non-binding SDG obligations be enforced through IIAs, and what are the potential consequences? While incorporating SDG language into IIAs demonstrates a shift in the aspirations of investment governance, it remains largely symbolic in arbitral practice. The traditional structure of IIA arbitration limits the ability of reformed agreements to function as enforceable obligations, particularly those interpreted in accordance with treaty doctrines, such as the Vienna Convention on the Law of Treaties (VCLT). Without more significant doctrinal and procedural change, modern IIA reform may merely preserve the investment regime’s legitimacy rather than reshape its legal outcomes.

What does IIA Reform Address?

Reform efforts are not merely stylistic. They are founded on mounting critiques of the investment regime’s legitimacy, particularly its power asymmetries favoring investor rights over public regulatory authority.

IIA reform efforts include amending or replacing preexisting treaties to incorporate language that reflects a commitment to advancing SDG initiatives, including references to sustainable development, environmental or human rights law, and provisions that state explicit requirements for investors in accordance with the SDGs. A symbolic “signaling value” may be used to indicate certain priorities and actions that the parties to a treaty are prepared to pursue to encourage progress for sustainable investment. SDG provisions are also drafted to formalize the parties’ relationship and their obligations in specific areas, supporting specific initiatives to improve the domestic investment environment.

In the context of IIA reform, SDGs have thus far served more as normative guidelines for modern treaty drafting than as enforceable rules. However, treaties like the 2024 Pact for the Future and the 2025 Compromiso de Sevilla show growing consensus on the importance of fostering an international regulatory environment that promotes investment supporting “inclusive, sustainable, and resilient economies.” Incorporating SDGs into IIAs demonstrates a state’s willingness to condition investment protection on responsible investor conduct, though individual treaty design largely dictates the method and magnitude at which it occurs.

“For IIA reform to meaningfully advance sustainable development, SDG commitments must manifest as more than linguistic and cultural context and into enforceable treaty provisions.”

^{Carolina Joy}

Sustainable Development and International Arbitration

Investor-state arbitration under IIAs derives its authority from treaty obligations, and arbitration of parties’ alleged violations takes place in front of tribunals like the International Center for Settlement of Investment Disputes (ICSID). Arbitral tribunals tend to adopt broad interpretations of existing IIAs; these interpretive methods often prioritize investor interest, and as a result limit states’ abilities to regulate in the public interest. Tribunals primarily rely on broad standards such as fair and equitable treatment, drafted with investor protections in mind, by mitigating governmental power abuse. Although SDG-related objectives may be qualified through reference or treated as operative, which would render them obligatory under Article 31(3) of the Vienna Convention on the Law of Treaties, tribunals consistently treat them as contextual. This interpretive tradition preserves investment protection, limiting the practical implementation of sustainability and environmental language.

By reforming IIAs, states can account for economic stability and environmental protection challenges, which potentially reduces the risk of arbitral proceedings. However, there are studies of reform in practice that present a different perspective. According to a 2024 study published by Global Environmental Politics, data suggest that the modification of IIAs to include more sustainability provisions does not significantly alter arbitration decisions. This suggests that SDG language functions less as a rule-altering mechanism and more as a legitimacy-preserving tool by appearing to prioritize public interests over investor interests within the existing arbitral framework. By signaling a commitment to environmental and social development, states can defend their continued use of investor-state arbitration without reallocating legal authority. This dynamic helps explain why reform efforts emphasize treaty language over procedural reform, even as empirical evidence casts doubt on their effectiveness.

Although integrating SDG language into IIAs cannot ensure sustainable development outcomes on its own, it highlights an important shift in how investment law and public policy relate to one another. Without reforms that challenge interpretive traditions, SDG integration risks remaining a symbolic action that preserves existing power asymmetries. For IIA reform to meaningfully advance sustainable development, SDG commitments must manifest as more than linguistic and cultural context and into enforceable treaty provisions. Tools such as regulatory carve-outs or enterprise liability mechanisms could help render sustainability commitments more concrete. In addition, treating SDG obligations as operative at arbitration would enhance accountability for both investors and states and promote more substantive progress toward sustainable development objectives.