In recent years, investor-state arbitration, or investor-state dispute settlement (ISDS), has faced intense political criticism. The international arbitration community has responded by implementing a plethora of reforms to the arbitration process. However, these reforms cannot, on their own, fully address the criticisms heaped against investor-state arbitration. This is because the criticisms stem from a political backlash against the perceived inequitable distribution of benefits from international trade and capitalism. Voters in many countries are also increasingly focused on enforcing environmental, social and corporate governance (ESG) norms. Arbitration often becomes a collateral victim when elected officials take aim at treaties that do not keep pace with these norms.

Investor state arbitration is the mechanism to resolve disputes between foreign investors and sovereign states. Such arbitrations arise from bilateral investment treaties, or multilateral free trade agreements. The disputes concern whether the actions and policies of the state have violated international obligations of the state to give foreign investors protection under international law. In their awards, Tribunals can determine what financial damage, if any, foreign investors have suffered as a result. Awards can range from a few million to over $50 billion, as in the case of Yukos v. Russia. Investor-state arbitration is often administered by the World Bank's arbitration arm, the International Centre for Dispute Resolution (ICSID), or the Permanent Court of Arbitration at The Hague. Typically, like in commercial arbitration, each party picks a co-arbitrator. The two co-arbitrators in turn propose a chair. If the parties cannot agree on the presiding arbitrator, the international institution will select the chair.

Elected officials have chaffed against the idea of tribunals comprised of private international arbitrators making decisions about public policies of governments when foreign investors find that those policies have hurt their profits. For example, Sen. Elizabeth Warren is on record objecting to the investor-state arbitration aspect of the United States-Mexico-Canada Agreement (USMCA): "I have serious concerns about ISDS—a policy in the new TPP trade agreement that would let foreign companies challenge American laws outside of American courts. And I'm not the only one—former Secretary of State Hilary Clinton did too in her book [.]"