Introduction

Investment governance debates have historically focused on international investment treaties. However, investor–state contracts, which set out the specific terms for an investment project in a host country, have largely remained outside this reform agenda. These contracts are legally binding agreements signed between a national or subnational government and a foreign investor, typically used for large projects in sectors such as energy, extractives, infrastructure, and agriculture.

Why reforming investment contracts matters

Investment contracts interact with national laws and international treaties, creating a complex legal framework. Reforming them alongside treaties and domestic laws is essential for a coherent approach to investment governance. Many countries currently hold a substantial stock of outdated investment contracts; for instance, the resourcecontracts.org database lists over 3,000 company–state contracts, many of which misalign with modern sustainability objectives.

Investment frameworks are fragmented

Contracts allow foreign investors to negotiate directly with the state. Challenges arise when contractual provisions overlap with protections in investment treaties. In some cases, contractual commitments can neutralise treaty reforms by binding the state to more restrictive obligations at the project level, allowing outdated provisions to override modern safeguards.

Lack of clarity and institutional coordination

Contract governance is often characterised by limited transparency. Many agreements are negotiated by sectoral ministries without coordinated oversight from finance or environmental departments. Furthermore, there is no international, centralised database of investment contracts, and disclosure remains the exception rather than the norm.

Outdated and imbalanced provisions

Numerous active investment contracts contain outdated clauses that pose systemic risks for sustainable development. If left unaddressed, these commitments limit the effectiveness of treaty reforms aimed at increasing regulatory flexibility.

Stabilisation clauses

Stabilisation clauses are designed to shield investors from future legal or regulatory changes. Broad stabilisation can delay necessary environmental and climate transitions, and discourage reforms in taxation and human rights. Failing to address these clauses weakens treaty reforms, leaving governments exposed to similar constraints through different legal instruments.

Tax incentives

Contracts often include tax holidays or incentives negotiated bilaterally, occasionally bypassing finance ministries. While promoted as tools to attract investment, studies suggest the same projects would often proceed without them. Granted through contracts, these incentives lead to revenue losses, unequal treatment among investors, and fiscal opacity.

Growing investor–State dispute settlement exposure through contracts

Arbitration clauses frequently refer disputes to international arbitration, often under the International Centre for Settlement of Investment Disputes (ICSID) Convention. Around 15% of ICSID cases registered between 1973 and 2025 were based on investment contracts. In 2025 alone, 21% of cases invoked contracts as the basis for consent to arbitration, up from 6% the previous year.

How investment policy-makers can reform contracts

Addressing these risks requires coordinated action at both the national level, where contracts are negotiated, and the regional and global levels, where standards are shaped.

Strengthening contract governance at the national level

Governments must pursue reforms that bridge legal and institutional silos to ensure consistency across treaties, laws, and contracts.

1. Strengthening institutional coordination between investment and sectoral ministries

A coordination mechanism, such as an interministerial committee, should be established to review all draft contracts before signature, reducing the risk of conflicting commitments.

2. Collecting and assessing existing investment contracts

Governments should centralise all existing investment contracts within a designated agency to understand their content, duration, and alignment with national obligations. Publishing non-commercially sensitive sections can support transparency.

3. Developing national model contracts and clauses

Developing model contracts tailored to the country’s specific legal and economic context promotes consistency. These models should be grounded in domestic law, created through consultation, made publicly available, and updated regularly.

Advancing coherence at global and regional levels

International and regional initiatives are increasingly discussing contract reform. Governments should systematically engage in these discussions, while regional economic communities can develop tailored guidance for strategic sectors to reduce negotiation asymmetries.

Conclusion

Integrating contracts into the wider investment reform agenda requires active collaboration. Governments must treat investment contracts as part of the broader governance architecture, international institutions should provide platforms for cohesive dialogue, and donors must support bespoke resources for contract governance reform.