Beyond Investment Protection: A Theory of Political Risk Governance in International Investment Law

International Investment Law (IIL) confronts unprecedented challenges from climate transition policies, geoeconomic competition, and digital governance. These evolving risks transcend the regime's traditional focus on discrete acts of host state misconduct. This article proposes a reconceptualisation of IIL's fundamental purpose: the regime should be understood not merely as a mechanism for investor protection, but as a comprehensive system for the governance and allocation of political risk between host states and foreign investors. Drawing upon theories of political risk, risk governance, and efficient risk allocation, this article develops a comprehensive analytical framework that reinterprets core treaty obligations—fair and equitable treatment, expropriation, and full protection and security—as dynamic instruments of risk allocation. The framework advances a structured four-step methodology for arbitral decision-making, critically engages with competing approaches in the literature (particularly proportionality-based and legitimate expectations frameworks). The utility of the proposed framework is demonstrated through its application to the Spanish renewable energy cases and the Argentine financial crisis jurisprudence. By articulating and operationalizing the inherent risk allocation function within treaty interpretation, this approach offers a principled pathway towards greater consistency, transparency, and legitimacy in international investment arbitration, with concrete implications for the ongoing UNCITRAL Working Group III reform process.