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Investor-state dispute settlement is being rebuilt in public view. States, institutions, and critics agree that the system needs repair; they disagree sharply on how much. As a result, the future of ISDS is being negotiated on several tracks at once: procedural reform at UNCITRAL, amended rules at ICSID, and a standing court championed by the European Union. This article maps the main initiatives and explains what they mean for investors planning long-term projects abroad.
Why the Future of ISDS Became a Political Question
The classic system grew quietly. Thousands of investment treaties gave investors the right to arbitrate against host states, and for decades few people outside the field paid attention. That changed as claims multiplied and awards grew. Critics now raise recurring concerns: inconsistent decisions on similar treaty language, arbitrators who may sit as counsel in parallel cases, long and expensive proceedings, and limited transparency. For a primer on how the current system works, see our overview of what ISDS is and how claims proceed.
Some states did not wait for multilateral answers. Bolivia, Ecuador, and Venezuela denounced the ICSID Convention, although Ecuador rejoined in 2021. Similarly, the USMCA sharply narrowed ISDS compared with NAFTA, and several states have moved to leave the Energy Charter Treaty. The direction of travel is unmistakable: states want more control over the system they created.
UNCITRAL Working Group III: The Multilateral Track
Since 2017, UNCITRAL Working Group III has carried the broadest mandate: identify concerns with ISDS, decide whether reform is desirable, and develop solutions. Its work has already produced concrete results. Together with ICSID, it delivered a Code of Conduct for arbitrators in investment disputes, addressing conflicts of interest and the practice of double-hatting. Moreover, the group has finalized the framework for an advisory centre to help developing states defend claims, and it continues to debate the most ambitious idea of all: a standing multilateral mechanism with an appellate function. Few processes will influence the future of ISDS more directly.
Transparency reform came earlier. The UNCITRAL Transparency Rules and the Mauritius Convention of 2014 opened treaty-based arbitrations to public scrutiny, with published documents and open hearings in covered cases. Consequently, the era of entirely confidential ISDS proceedings is closing.
ICSID’s 2022 Rule Amendments
ICSID completed its own overhaul in 2022, the most extensive amendment of its rules since the Centre was founded. The changes respond directly to the cost and transparency critiques, and they show that the future of ISDS depends on rulebook repair as much as grand design. Key features include:
- Mandatory disclosure of third-party funding, so tribunals can police conflicts of interest.
- Expedited arbitration rules, which roughly halve the timetable for parties that opt in.
- Tighter deadlines for awards and decisions throughout the proceeding.
- Greater publication of awards, with consent to publication presumed unless a party objects within a set period.
The Concerns Driving Reform
Inconsistent Outcomes
The most famous illustration remains the pair of cases the Czech Republic faced two decades ago. In Lauder v. Czech Republic and CME v. Czech Republic, two tribunals examined essentially the same facts under similar treaty standards and reached opposite results. One dismissed the claims; the other issued a substantial award against the state. Because no appellate body exists, nothing could reconcile the two decisions. That episode features in nearly every discussion of the future of ISDS and anchors the argument for an appeals mechanism.
Arbitrator Independence and Cost
A second concern targets the small pool of repeat players in ISDS cases. The same individuals may act as arbitrator in one case and counsel in another, a practice known as double-hatting. The new Code of Conduct restricts it. Meanwhile, the cost and length of proceedings remain a barrier, especially for smaller claimants and developing-state respondents. Cases routinely run for years, and costs frequently reach several million dollars per side. Therefore, the reform agenda pairs ethical rules with procedural speed.
The Right to Regulate
Finally, states worry that broad treaty standards chill legitimate regulation in areas such as public health and the environment. Newer treaties respond with sharper drafting: clearer definitions of indirect expropriation, express reaffirmations of the right to regulate, and targeted carve-outs, such as the tobacco-control exclusion in the CPTPP. In short, the future of ISDS is being written as much in treaty language as in institutional design.
The European Union’s Investment Court System
The EU has taken the most structural approach. Its newer agreements, including CETA with Canada and the investment protection agreements with Vietnam and Singapore, replace party-appointed tribunals with a two-tier Investment Court System. States appoint the members in advance, cases are allocated randomly, and an appellate tribunal can correct errors. In Opinion 1/17, the Court of Justice of the EU confirmed that the CETA court model is compatible with EU law. For many observers, this model previews the future of ISDS in Europe.
Inside the Union, the change has been even starker. Following the Court’s Achmea judgment in 2018, member states terminated their intra-EU bilateral investment treaties, and the Komstroy decision extended the same logic to intra-EU claims under the Energy Charter Treaty. The EU has also moved to withdraw from that treaty altogether. For investors, therefore, the map of available protections inside Europe has been redrawn within a decade.
The Future of ISDS: Three Scenarios
Where does this leave the system? Three futures are plausible, and they are not mutually exclusive. First, incremental reform continues: better rules, a binding code of conduct, faster cases, and more transparency, with arbitration remaining the default. Second, a multilateral investment court emerges from the UNCITRAL process and gradually absorbs treaty disputes, much as the EU intends. Third, fragmentation deepens: some regions keep classic arbitration, others adopt courts, and some states rely on domestic remedies alone.
For now, the practical reality favours the first scenario. Existing treaties still number in the thousands, and most of them provide for conventional arbitration under the ICSID or UNCITRAL frameworks. In other words, the future of ISDS will arrive gradually, treaty by treaty. Our guide to ICSID procedure explains the rules that continue to govern most new cases.
What the Future of ISDS Means for Investors Today
Reform changes strategy, not just doctrine. Investors should audit which treaties cover their existing structures, because terminations and withdrawals can remove protection with little warning. In addition, funding arrangements now require early disclosure planning, and expedited tracks reward parties whose evidence is organized before filing. Finally, dispute clauses in new contracts should anticipate that treaty arbitration may look different by the time a dispute matures.
Transnational Matters follows these developments closely and represents investors as international investment counsel in treaty and contract disputes. If reform developments affect your investments, contact our office to review your options.
If the issues discussed here affect your business or investments, our team is ready to help. Contact our team to discuss a strategy tailored to your situation.