DENMARK Trends and Developments Contributed by: Johannes Grove Nielsen, Jakob Lentz, Anne Buhl Bjelke and Daniel Myhre Engell, Bech-Bruun Law Firm P/S
is the current focus for Denmark’s modern investor– state risk profile. Implications for potential claims against Denmark following Denmark’s withdrawal from the ECT Effective date and legal effect of the withdrawal The legal framework for non-EU-based investors has been impacted by Denmark’s decision to withdraw from the ECT. The ECT offers protection for investments in the energy sector and Denmark was a former party to the treaty, thereby extending the ECT’s provisions to for- eign investors’ investments in Denmark. The ECT can be invoked and tried through international arbitration under the ICSID and thus provides an effective dis- pute resolution mechanism for investors in Denmark. Denmark’s withdrawal from the ECT took effect on 4 September 2025. That date appears in the deposi- tary’s formal record and follows Article 47 (2), which makes withdrawals effective one year after receipt of notification. However, under Article 47 (3), the ECT’s protections continue to apply to investments made before the withdrawal takes effect for 20 years after the effective date (in Denmark’s case, until 2045) (the “sunset clause”). Rationale for leaving the ECT The ECT has been criticised for being a stumbling block for states trying to transition away from fos- sil fuel dependencies to renewable energy, and has been accused of creating an adverse desire among governments to regulate in these fields, dubbed the “regulatory chill” factor. Even with modernisations of the ECT negotiated recently and adopted by the end of 2024, the problem was not remedied. The Danish government stated that, as the ECT cur- rently stands, it is outdated and creates “unneces- sary uncertainty about the green transition”, and that attempts to modernise the Treaty have not produced a sufficiently ambitious outcome. The government therefore chose to work toward with- drawal, while noting that Denmark and the EU would
co-ordinate their approach. These reasons are reflect- ed in the official ministry announcement and in subse- quent EU communications preparing a co-ordinated EU exit. The EU formally conveyed its notification to withdraw from the ECT in 2024. The “sunset clause” of the ECT ensures protection of legacy investments The 20-year “sunset clause” included in Article 47 of the ECT means that Denmark’s exposure to ECT- based investor–state arbitration does not switch off immediately in 2025. Where a qualifying legacy investment established pri- or to the effective date of withdrawal on 4 September 2025 alleges post-withdrawal measures that breach the ECT, investors retain access to the treaty’s dis- pute resolution clause throughout the sunset period, including ICSID-based investor–state arbitration. In practice, this keeps the door open for ECT disputes – including energy and climate policy-related disputes potentially involving extraordinary fiscal measures – to continue for two decades after Denmark’s withdrawal, which offers protection for investors currently involved Denmark’s formal exit on 4 September 2025 narrows future ECT exposure prospectively, but the “sunset clause” preserves Denmark’s respondent risk for legacy energy investments until 2045. EU investors will largely need to pursue remedies under EU law and national courts, while non-EU investors may still bring arbitration claims if they can establish an ECT standing. For now, the pending ICSID case of Klesch Group Holdings Ltd. et al. v Kingdom of Denmark provides the best real-time guide to how these issues are likely to play out against Denmark during the sunset period. Live indicator: Klesch Group Holdings Ltd. et al. v Kingdom of Denmark As mentioned above, Denmark is currently a respond- ent in the pending ICSID case of Klesch Group Hold- ings Ltd. et al. v Kingdom of Denmark (ICSID case no ARB/23/48), an ECT-based challenge to the EU in the market. Looking ahead
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