Honduras, one of the poorest nations in the Western Hemisphere, faces nearly $20 billion in legal claims from foreign companies. This amount is over five times last year’s public expenditures. The claims arise from a system known as investor-state dispute settlement (ISDS), which permits investors to sue governments in arbitration panels outside national courts. Companies can demand compensation if they believe regulations harm their investments, even if such regulations are aimed at safeguarding public health or the environment.
Honduras was notably impacted by ISDS last year, facing 15 claims, including one by American investors for nearly $11 billion to set up a semi-autonomous city. This year, two more claims were filed, one replacing a withdrawn claim. Details on some claims, previously undisclosed, have surfaced recently.
Manuel Díaz-Galeas, Honduras’ solicitor general, stated that defending these claims is straining the treasury, requiring millions for each case. He emphasized the state is prepared to confront these challenges, likening ISDS claims to negotiating with “a revolver on the table.”
The information was released by advocacy groups highlighting the effects of renewable energy projects in southern Honduras, where seven pending claims originate. Denia Castillo from the Network of Human Rights Defenders reported deforestation and water contamination from local solar farms.
While ISDS proponents argue the system protects foreign investors from discrimination and promotes investment, evidence does not consistently support these claims. Honduras’ renewable energy sector illustrates how ISDS benefits developers. Most claims arose from previous government contracts privatizing parts of the power system. The current government sought to renegotiate these contracts, prompting ISDS claims.
Luciana Ghiotto, from the Transnational Institute, noted that renewable energy projects in developing nations often overlook local impacts. ISDS cases are typically secretive; details on many claims against Honduras remain scarce. More than 58 ISDS claims were filed worldwide last year, according to a U.N. database.
Calls for ISDS reform or abolition are increasing. The Inter-American Court of Human Rights warned that ISDS might cause a “regulatory chill,” discouraging environmental protections due to fear of arbitration costs. However, the court did not advocate for abolishing ISDS, instead promoting a balance between regulations and investment treaty protections.
Elisa Morgera, a U.N. climate change rapporteur, urged for a system overhaul, suggesting treaties should facilitate climate action without compensating fossil fuel companies for losses. Her report notes fossil fuel firms have gained $83 billion in awards, surpassing the GDP of many countries.
Honduras’ largest claim, by Honduras Próspera, involves American investors aiming to create a charter city. Earlier laws allowed such enclaves with autonomy over taxes and regulations, but Honduras repealed the law. Another charter city-related claim, involving U.S.-based Overseas Real Estate, remains under scrutiny.
EMCO Group, managing Honduras’ new international airport, filed another claim accusing the government of illegal actions, as detailed in a press release. Neither EMCO Group nor Greenberg Traurig, its legal counsel, responded to comments.
Original Story at insideclimatenews.org