Yes. It has to be this way. Otherwise investor-state dispute settlement is meaningless.
ISDS gets a bad rap. Let's review why it's there. In the best case, governments are elected by local citizens. In the worst case they're just totalitarian dictatorships who stick around until they get overthrown in a revolution. In both cases, governments still care more about their local people than foreigners, who typically have no power at all.
In a world that gets ever more connected and in which peopl rely on "foreigners" ever more, this can cause big problems. Governments are strongly incentivised to be nice to foreigners until they're invested deeply enough in a country that they can't easily get out, and then start whacking them / exploiting them / taxing the bejeezus out of them / generally changing the rules of the game after it's started and screwing them over. For example, what stops a government just seizing a foreign companies factories and then selling it to a local competitor? Well, nothing. What incentivises them to do that? Money. Power. Lots of things, really. That company will slowly pull out of the country and other companies would be put off from investing in the first place, but that's a slow and largely invisible process that local citizens won't notice. On the other hand beating up foreigners and claiming they're yukky and inferior is always a good way to score political points.
There's a nice idea floating around that governments and regulators are never unfair and only ever act against companies that deserve it. Only people who have never watched the regulatory process in action would really believe this, but even if you do, consider that many countries are not as saintly as your own. Arbitrary confiscation of assets is a real problem in large parts of the world. There's always some nice sounding excuse, of course - the dirty foreigners weren't up to our exacting local standards, or they were playing the system, or whatever. Sometimes the complaint may be legitimate, but sometimes it's just opportunism.
Regardless, the end result is the same: less foreign investment, which is another way of saying, less international collaboration on complex projects. We like international collaboration, don't we? Integrated economies are less likely to declare war on each other. We like the advanced technology it enables, like smartphones with components from dozens of countries around the world. We like the wealth it generates.
So .... ISDS. The idea is simple. Governments are free to change the rules of the game after it's started in any arbitrary or unfair way they like. They can continue to treat foreign companies as disposable assets. But .... they have to pay for it. If a company starts on a 4-year factory construction project with a 10 year payoff horizon, and after two years the local government decides that a new 95% tax should be applied to that precise industry whereas before there was none, then this is confiscation of assets and under the treaty, the state has to compensate the investor. This should (in theory) radically reduce the risk of foreign investment by smoothing out unpredictable business environments, and thus lead to more investment/collaboration.
If ISDS didn't at least try to include potential future earnings then it'd be much less effective, because the risk would still be very large. If the factory was nationalised and the business was relying on it as part of its business plan, then it'd potentially get a chunk of money for the physical assets but now it's got to start all over again and is four years behind its competitors, potentially fatally wounding it.
ISDS has plenty of downsides as well. Notably, that local citizens rather like being able to tax and seize stuff from foreigners - it looks a lot like free money which is a short term pleasure hit, whereas the long term rot of becoming an unattractive place to do business is much harder to reason about. So ISDS is always a rather hard sell in democracies, for similar reasons as political fixes to climate change are ...