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Linklaters has advised the lenders on the financing of the UK’s first commercial-scale carbon capture and storage facility integrated with a waste-to-energy plant, to be developed at Encyclis’ Protos Energy Recovery Facility (ERF) in Cheshire.

The facility is among the first to be selected by the Department for Energy Security and Net Zero to benefit from its Waste Sector Industrial Carbon Capture business model and will pave the way for the decarbonisation of the energy-from-waste sector in the UK.

As one of the first industrial projects within the HyNet North West CCUS cluster to reach financial close, the Protos CCS project represents a milestone transaction that will drive industrial investment in the region and support the UK’s modern Industrial Strategy. Once operational, the new facility aims to capture up to 370,000 tonnes of CO2 per year. Captured CO2 will be transported via the HyNet network to depleted gas fields beneath Liverpool Bay, providing permanent storage and underpinning the UK’s net zero ambitions. Commercial operations are targeted to commence by May 2029.

The transaction builds on the Linklaters team’s track record in the UK’s carbon capture industry, having advised on each of the Liverpool Bay, Northern Endurance Partnership and Net Zero Teeside Power carbon capture projects, as well as their longstanding experience across the energy from waste sector, e.g. advising on the financing of the Walsall energy-from-waste facility and the Protos energy-from-waste facility. 

The Linklaters team was led by Energy & Infrastructure partners Richard Ginks and Richard Coar together with managing associate Isabella Albani. The team included associates Ed Jackson, Aisling O’Kane, Paras Marya and Katerina Lipanski, and real estate counsel Imogen Jones.

Richard Ginks commented:

“We are delighted to have assisted the lenders and our longstanding client Encyclis on this landmark project. The successful financing of this pioneering facility demonstrates the strength and depth of Linklaters’ energy transition capabilities and our commitment to supporting clients in transitioning towards a net zero economy.”

Richard Coar added:

“The carbon capture industry has a significant role to play in the drive both towards reindustrialisation and decarbonisation. We are very proud to have been able to further demonstrate our leading global expertise in this sector by supporting the Protos CCS project in what continues to be a dynamic and growing market for our clients around the world.”

Investor-State dispute settlement has become a widely used aspect of global investment protection over the last fifty years, generating a steady flow of disputes. It is where an investor uses the dispute settlement mechanism of an international investment treaty to bring a case directly against a State for breach of the protections contained in the treaty. Yet, despite insurers operating on an international and even global plane, cases brought by insurance companies traditionally appear to have been few and far between: according to UN statistics, they make up just 23 out of over 1300 reported cases.

However, there are signs that this reluctance of investors to utilise such protections may be in the process of changing, given a number of recently commenced disputes in 2024 and 2025 brought by investors against States on the basis of treaty protections.

Against this backdrop, this article looks at the relationship between insurers and investment arbitration by first, considering the existing relationship of insurers to investor-State disputes, and then projecting forward to consider whether recently commenced cases mark the beginning of a new phase in insurers’ use of treaty protections in safeguarding their investments.

The role of insurers in investment arbitration

While insurers can unquestionably be protected investors under investment treaties (A.), their recourse to investment arbitration has thus far been limited. We consider this in the light of the structural features of the insurance industry and the availability of alternative mechanisms such as political risk insurance (B.).

A.    Insurers as protected investors under investment treaties

Investment treaties (usually bilateral, also termed BITs) are designed to protect foreign investments and often provide for the possibility to bring claims against sovereign States. To benefit from such protection, an entity doing business in a foreign country must qualify as an investor making an investment; two notions that have traditionally been broadly defined in such treaties:

• an investor is generally defined as a natural or legal person holding the nationality of one of the parties to the relevant BIT making an investment in the State of the other party to said BIT; and
• an investment is generally understood as any contribution of capital, assets, or resources by a person or a company in a foreign country, with the purpose of generating profits and contributing to local economic development.

With regard to insurers carrying out international investments, an insurer selling insurance products in a foreign country would generally be expected to fall within these two definitions, and indeed this has been confirmed in certain cases.

For instance, the matter of Continental Casualty Company v. Argentina is an example of a case brought by an insurer against a State regarding its investments in that country. The insurer relied on the Argentina – United State BIT, which as set out at Article 1 adopts a broad definition of “investment”, namely: “Every kind of investment in the territory of one Party owned or controlled directly or indirectly by nationals or companies of the other Party, such as equity, debt, and service and investment contracts; and includes without limitation (…)”. Although the State did contest jurisdiction, its objections did not pertain to the existence or qualification of the investment itself (but rather issues of consent and jus standi).

In Fireman’s Fund Insurance Company v. Mexico (ICSID Case No. ARB(AF)/02/1, award issued in 2006, Mexico did contest whether the insurance company could be said to hold an investment, arguing that the debentures held by Fireman’s Fund fell instead under the NAFTA treaty’s Chapter 14 (Financial Services), which covered ordinary financial transactions, and were thus not eligible for the protections of Chapter 11 (Investments). The Tribunal disagreed with that reading, as it considered that the debentures held by the insurer in question were an investment for the purposes of the treaty and as such upheld its jurisdiction.

While individual cases will therefore turn on specific facts or treaty wording, the general position will be that an investor can be covered by investment treaty protection. 

B.     Insurers’ recourse to investor-State disputes has been historically limited

The investor protections outlined above have not historically resulted in the kind of investment dispute case numbers seen in other areas of investment, notwithstanding the heavily regulated nature of the insurance industry. This is likely the result of several factors linked to the nature of both the industry and also the insurers themselves.

An insurance companies’ overseas investment in its local subsidiary may simply be less susceptible to one-off decisions of Governments than, say, a construction or a mining project, for example. Where an insurance company operates a local subsidiary there could of course be disputes with regulators (related, for example, to solvency requirements, price controls or capital adequacy) but these may be more nuanced and less likely to result in the type of sudden and extreme loss that tends to give rise to treaty arbitration. All the more in places where insurance markets are still in the process of growth and development.

Furthermore, treaty arbitration is long, can be costly, and the outcome uncertain. In addition, there may be the unpredictable consequence of playing out a formal and public dispute against a State in which the insurer may wish to continue to do business. This may have led insurance companies, which are by their very nature focused on predictable risk management, to prioritise local remedies, through regulators or State courts, or simply the use of insurance policies themselves so that risk is spread in the event of damaging State action.

Insurers’ increasing presence in investment arbitration

There are signs however that we may see an increase in investment disputes involving insurers in the near future. For a start, insurance markets are growing rapidly in many regions, and a number of cases suggest that this growth may have already had an impact in the exposure of insurers (A.). Secondly, political risk insurance may provide another way in which insurers have a role to play in investor-State cases (B.).

A.    Insurers’ recourse to investment arbitration would appear to grow in line with markets

According to the IAIS (International Association of Insurance Supervisors) mid-year Global Insurance Market Report 2025, the global insurance sector exceeded EUR 7,000 billion in gross written premiums in 2024, with an average annual growth of over 8% in emerging markets (including Africa), compared to just 2% in advanced markets.

The growth of international markets will necessarily lead to an increase of exposure on the part of investing insurers. This comes with its own challenges, such as compliance with local regulations and risks arising from economic and political instability, that can include protectionism, restrictions on foreign investors, or nationalisation. The highly regulated sector in which insurers navigate combined with the current geopolitical instability can lead to breaches of investment treaties in different ways, from an arbitrary removal of necessary authorisations, to damaging changes in the law, creeping expropriation, and breaches of fair and equitable treatment.

Although few details are available at this stage, since 2020, at least five disputes have been reported as having been brought by insurers. While these are generally in their early stages, they appear from reports to have arisen out of relatively typical investor-State alleged fact situations. These include the nationalisation of the pension system (a case brought before the Permanent Court of Arbitration by an insurer against Bolivia), foreign exchange restrictions (a case brought by a Spanish incorporated insurer against Venezuela), a revoked licence to sell insurance products (a case started at ICSID (International Centre for Settlement of Investment Disputes) by an automotive insurer against Romania) and an allegedly severe retroactive tax measure applying specifically to insurance companies (two separate cases brought by international insurers under investment treaties with Mexico). 

New cases such as these suggest there may be a gradually changing attitude on the part of insurers, and, if the outcomes of such disputes go in the favour of the claimant insurance companies, it may encourage other insurance companies to start such disputes in the future. 

B.     The impact of political risk insurance

Beyond cases brought on their own behalf, there may be another link between insurers and investor-State arbitrations. Political risk insurance is a protective mechanism for international investors that, dependent on the specific policy, may be triggered in the event of geopolitical events in a manner similar to investment treaties. The market has grown substantially in recent years, and according to the United Nations it covered approximately USD 150 billion of projects in developing countries between 2018 and 2022.

Investors can combine political risk insurance and investor-State recourse. Political risk policies contain defined contractual terms and specific exclusions, while investment treaties may allow recovery for losses that fall outside traditional insurance coverage parameters. These mechanisms are therefore complementary: political risk insurance serves as the first line of protection while investor-State dispute mechanisms emerge as the ultimate recourse for serious treaty violations and exceptional compensation.

As such, both the insured investor and the insurer may have an interest in a case being pursued in investment arbitration. The investor aims at recouping additional losses to those recovered through the insurance policy, while the insurer that pays out under a political risk policy will aim at recouping the amount paid under the policy. While the insurer may not be a named party to the investment arbitration proceedings, it therefore has a role to play as the investment arbitration develops, and, depending on the payout, may even stand to benefit to a greater extent than the insured investor itself. While often in domestic proceedings a payout could, depending on the jurisdiction, lead to a claim from the insurer itself (which steps into the shoes of the claimant), this throws up specific challenges given the particular nature of treaty-based jurisdiction as outlined above, but it cannot be eliminated as a possibility either, and some treaties have started to recognise subrogation of one party for another, albeit generally on the side of the State not the investor.

Comment

Gradually, it would seem that insurers are increasingly turning to investment treaty protections as a meaningful safeguard for their cross-border activities, and given the growth of insurance markets globally will continue to do so. Whether we see major cases brought for treaty breaches such as expropriation remains to be seen, and will depend on the actions of States as much as the attitude of insurers themselves, but it would appear that market forces are leading insurers to rely on investor-State recourse, and as such the number of cases are only likely to increase.