As demand for critical minerals accelerates, a new legal analysis warns that the race to mine the deep seabed could leave small sponsoring states trapped between investor claims and their duty to protect fragile ocean ecosystems.
Working paper: Sea of investment: "Titanic" of international investment law meets "iceberg" of the UNCLOS. Image credit: AI-generated image created using ChatGPT/OpenAI
The global transition toward net-zero economies has intensified demand for critical raw materials essential for clean energy technologies. A recent legal analysis available through EconStor as a Centre for Inclusive Trade Policy (CITP) Working Paper investigated the deep seabed as an emerging frontier for mineral extraction. The paper primarily focused on how tensions between international investment law and the United Nations Convention on the Law of the Sea (UNCLOS) complicate resource governance.
The existing legal regime may fail to align investor protections with the environmental obligations established under UNCLOS. This institutional misalignment creates regulatory uncertainty and exposes states to potential legal and financial liabilities when implementing or strengthening environmental safeguards for deep-sea mining.
The Urgent Need for Deep-Sea Resource Management
Achieving global decarbonization goals requires a reliable supply of raw materials, including lithium, cobalt, and other battery-relevant metals, important for advanced batteries, photovoltaic cells, turbines, and renewable energy technologies. Land-based reserves of these elements face increasing supply constraints and geopolitical competition. This has shifted attention toward mineral-rich regions of the deep ocean beyond national jurisdictions, including the Clarion-Clipperton Zone.
These deep-sea deposits offer substantial resource potential but require significant upfront investment in technologies, including robotic mining machinery and specialized marine vessels. Their development must navigate an evolving international regulatory architecture that balances resource extraction with the protection of fragile deep-sea ecosystems.
The Legal Landscape: Sponsorship and Governance
The interaction between the International Seabed Authority (ISA), sponsoring states, and international investment law plays a critical role in regulating deep-sea mining. Under UNCLOS, the deep seabed is designated as the "common heritage of mankind." This requires private mining companies to obtain sponsorship from a member state before any exploration or extraction activities. This sponsorship subjects corporate operations to both domestic regulation and the broader UNCLOS framework, while sponsoring states assume ongoing due diligence obligations to protect the marine environment.
Mining investments may also seek protection under bilateral and multilateral investment treaties, which provide guarantees such as fair and equitable treatment (FET) and protection against indirect expropriation. The paper uses the Republic of Nauru's sponsorship of Nauru Ocean Resources Inc. (NORI), a Nauru-registered subsidiary of the Canadian corporation The Metals Company, to demonstrate how these overlapping legal regimes can conflict.
Because private mining companies lack direct access to UNCLOS dispute settlement against sponsoring states, disputes may instead move to domestic, contractual, or investment arbitration forums, depending on the available legal route. This creates tension, as sponsoring states may face liability for failing to strengthen environmental protections and risk investment claims if regulatory changes affect investor expectations.
Imbalances in Stewardship and Investment Protection
The current international legal regime creates an imbalance between environmental stewardship and investor protection. Under UNCLOS, sponsoring states have a duty of due diligence to protect the marine environment. As clarified by the Seabed Disputes Chamber in its 2011 Advisory Opinion, this obligation must evolve in response to new scientific evidence. If evidence shows that deep-sea mining causes significant ecological harm, sponsoring states are expected to strengthen environmental regulations or revoke sponsorship.
Regulatory measures adopted to fulfill UNCLOS obligations may expose sponsoring states to contractual arbitration or, where jurisdictional requirements are met, ISDS claims under the International Centre for Settlement of Investment Disputes (ICSID) or United Nations Commission on International Trade Law (UNCITRAL). Using Nauru's sponsorship agreement with NORI as an example, the paper shows how commitments to a stable regulatory environment can conflict with evolving environmental responsibilities. This legal tension creates a regulatory chill, in which the risk of substantial compensation claims discourages governments from strengthening environmental protections.
For small developing states, a single adverse arbitration award could exceed national economic capacity, limiting their ability to fulfill their stewardship obligations. This imbalance places disproportionate legal and financial burdens on sponsoring states while weakening the environmental protections envisioned under UNCLOS.
Strategic Considerations for Resource Development
These legal dynamics also have downstream implications for material developers, mining companies, and clean energy manufacturers. Critical raw materials sourced from deep-sea mineral supply chains cannot be assessed solely on the basis of geological availability; they are also shaped by evolving international regulatory regimes. For downstream industries, these legal uncertainties may reinforce the value of diversified sourcing and the development of alternative materials.
The paper warns that carefully structured sponsorship agreements can shape this risk in both directions. Stabilization clauses and governing law provisions may reduce regulatory uncertainty for investors while constraining sponsoring states' ability to adapt environmental safeguards. As the ISA continues to develop its exploitation code and debates continue following Nauru's invocation of the "two-year rule," these legal frameworks will increasingly shape investment strategies for deep-sea mining projects.
Recommendations for Legal Reform and Future Governance
In summary, this analysis highlights a misalignment between international investment law, which emphasizes regulatory stability, and the adaptive governance required under UNCLOS. This conflict exposes weaknesses in the current legal framework for deep-sea mining, where commercial investment protections may undermine environmental stewardship obligations.
To address these challenges, the paper calls for legal and institutional reform, including stronger ISA rules and reformed arbitration practices, to better align investment protection with marine protection duties. As commercial deep-sea mining approaches implementation, harmonizing investment protection with environmental safeguards will be essential to safeguard marine ecosystems while providing greater legal certainty for future resource development.
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