Creating obligations for investors within an IIA would involve non-state actors—private sector—being covered and potentially liable under international law. This prospect has been long debated by jurists, but has gone from debate to reality during the past century, due to the increase in global economic cooperation, environmental deterioration and the awareness of human rights violations. For example, the Maritime Labor Convention directly imposes liabilities on ship owners; the Rome Statute of the International Criminal Court (ICC) grants the ICC jurisdiction over private individuals; various labour and human rights conventions also impose obligations on non-state actors.21
In the investment context, options range from a general restatement of the obligation of investors to comply with domestic law, to more specific obligations relating to issues such as corruption, fraud or environmental impact assessments. The latter may be particularly useful where domestic laws are not complete.22 Such obligations could be enforced in different ways. The most comprehensive approach would be to set up a dedicated dispute settlement mechanism or process. This option goes beyond the scope of this paper and is not discussed here. Another option would be for delinquent investors to lose their rights under the treaty, including the right to access dispute settlement. This is reflected as an option in the language provided below. Finally, the treaty could direct tribunals to consider investors’ behaviour when assessing whether the state has violated an obligation or when determining the level of compensation.
Option 1:Include obligations to establish and maintain their investments in accordance with the host state’s laws, regulations, policies and measures on environmental, labour, tax and anti-corruption matters, among others
While this is a basic expectation of the parties, including such provisions in the international agreement serves to prevent foreign investors from invoking treaty provisions against the host state when the investment was not established or operated in accordance with the law.
Examples
“The parties reaffirm and recognize that:
(i) Investors and their investments shall comply with all laws, regulations, administrative guidelines and policies of a Party concerning the establishment, acquisition, management, operation and disposition of investments.
(ii) Investors and their investments shall not, either prior to or after the establishment of an investment, offer, promise, or give any undue pecuniary advantage, gratification or gift whatsoever, whether directly or indirectly, to a public servant or official of a Party as an inducement or reward for doing or forbearing to do any official act or obtain or maintain other improper advantage nor shall be complicit in inciting, aiding, abetting, or conspiring to commit such acts.
(iii) Investors and their investments shall comply with the provisions of law of the Parties concerning taxation, including timely payment of their tax liabilities.
(iv) An investor shall provide such information as the Parties may require concerning the investment in question and the corporate history and practices of the investor, for purposes of decision making in relation to that investment or solely for statistical purposes.” (Indian Model BIT, article 11)
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Examples
“1) Each Contracting Party shall ensure that measures and efforts are undertaken to prevent and combat corruption regarding matters covered by this Agreement in accordance with its laws and regulations
2) Investors and their Investments shall not, prior to the establishment of an Investment or afterwards, offer, promise or give any undue pecuniary or other advantage, whether directly or through intermediaries, to a public official of the Host State, or a member of an official’s family or business associate or other person in close proximity to an official, for that official or for a third party, in order that the official or third party act or refrain from acting in relation to the performance of official duties, in order to achieve any favour in relation to a proposed investment or any licences, permits, contracts or other rights in relations to an investment.
3) Investors and their Investments shall not be complicit in any act described in Paragraph 1 above, including incitement, aiding and abetting, and conspiracy to commit or authorization of such acts.
4) A breach of this article by an investor or an investment is deemed to constitute a breach of the domestic law of the Host State Party concerning the establishment and operation of an investment.” [Per definitions, such a breach means the investment is not covered] (Morocco-Nigeria Reciprocal Investment Promotion and Protection Agreement, Article 14)
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Examples
“Nothing in this Chapter shall oblige either Party to protect:
(a) investments made with capital or assets of illicit origin;
(b) investments in the establishment or operation of which corruption was verified;
(c) investments in the establishment or operation of which unlawful acts have been verified which, in accordance with its laws and regulations, have been subject to the judicial penalty of loss of assets.” (unofficial translation) (Brazil-Peru ETEA, Article 2.14(2))
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Option 2:Include investor obligations that, where necessary, supplement the state parties’ domestic laws, to abide by internationally recognized standards on CSR and responsible business conduct, and to go beyond what is already provided for under international legal instruments
Including these provisions in agreements governing investment creates a floor standard in the event of gaps in the domestic law in relation to a given project, for example, larger projects that may be more extensive in terms of potential environmental impacts than previously seen in a developing country party.
Examples
On environmental impact assessment:
“Investors or their Investments shall comply with environmental and social assessment screening criteria and assessment processes applicable to their proposed investments prior to their establishment, as required by the laws of the Host State for such an investment [[or the laws of the Home State for such an investment][or the International Finance Corporation’s performance standards on Environmental and Social Impact Assessment], whichever is more rigorous in relation to the Investment in question.]
The impact assessments required under [the previous paragraph] shall include assessments of the impacts on the human rights of the persons in the areas potentially impacted by the investment, including the progressive realization of human rights in those areas.
Investors or their Investments shall make the environmental and social impact assessments:
a) public [including via the Internet] and
b) accessible to the local communities, or other areas with potentially affected interests, in an effective and sufficiently timely manner so as to allow comments to be made to the Investor, Investment and/or government prior to the completion of the Host State processes for establishing an Investment.
Investors, their Investments and the Host State authorities shall apply the precautionary principle to their environmental impact assessment and to decisions taken in relation to a proposed investment, including any necessary mitigating or alternative approaches to the Investment, or precluding the Investment if necessary. The application of the precautionary principle by Investors and Investments shall be described in the environmental impact assessment.” (SADC Model BIT, Article 13)
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Examples
On environmental impact assessment:
1) Investors or the investment shall comply with environmental assessment screening and assessment processes applicable to their proposed investments prior to their establishment, as required by the laws of the host state for such an investment or the laws of the home state for such an investment, whichever is more rigorous in relation to the investment in question.
2) Investors or the investment shall conduct a social impact assessment of the potential investment. The Parties shall adopt standards for this purpose at the meeting of the Joint Committee
3) Investors, their investment and host state authorities shall apply the precautionary principle to their environmental impact assessment and to decisions taken in relation to a proposed investment, including any necessary mitigation or alternative approaches of the precautionary principle by investors and investments shall be described in the environmental impact assessment they undertake. (Morocco-Nigeria Reciprocal Investment Promotion and Protection Agreement, Article 14)
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Examples
On environmental management and improvement:
“Investments shall, in keeping with good practice requirements relating to the size and nature of the Investment, maintain an environmental management system consistent with recognized international environmental management standards and good business practice standards.
Emergency response and decommissioning plans shall be included, and regularly reviewed and updated in the environmental management system process, and made accessible to the Host State and the public.
A closure fund to ensure that resources are available to implement the decommissioning plan shall be established and maintained by the Investor or its Investment in accordance with good industry practice for such funds.
Environmental management plans shall include provision for the continued improvement of environmental management technologies and practices over the life of the Investment. Such improvements shall be consistent with applicable laws, but shall strive to exceed legally applicable standards and always maintain high levels of environmental performance consistent with best industry practice.” (SADC Model BIT, Article 14)
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On environmental management and improvement:
“Investments shall, in keeping with good practice requirements relating to the size and nature of the investment, maintain an environmental management system. Companies in areas of resource exploitation and high-risk industrial enterprises shall maintain a current certification to ISO 14001 or an equivalent environmental management standard.” (Morocco-Nigeria Reciprocal Investment Promotion and Protection Agreement, Article 18.1)
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On corporate social responsibility:
“Investors and their enterprises operating within its territory of each Party shall endeavour to voluntarily incorporate internationally recognized standards of corporate social responsibility in their practices and internal policies, such as statements of principle that have been endorsed or are supported by the Parties.
These principles may address issues such as labour, the environment, human rights, community relations and anti-corruption.” (Indian Model BIT, Article 12)
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Examples
On corporate social responsibility:
“The investors and their investments shall strive to carry out the highest level possible of contributions to the sustainable development of the host State and the local community, by means of the adoption of a high degree of socially responsible practices, taking as a reference the voluntary principles and standards defined in Annex [X] – “Corporate Social Responsibility.” (Brazil – Angola Agreement on Cooperation and Facilitation of Investment, Article 10, Annex 2(unofficial translation))
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- 21
See for example, Maritime Labour Convention (2006), Title 4, Regulation 4.2. Also see UN General Assembly. (25 May 2000). Optional Protocol to the Convention on the Rights of the Child on the Involvement of Children in Armed Conflict, art.4. Also see UN Committee on Economic, Social and Cultural Rights. (11 August 2000). General Comment No. 14: The Right to the Highest Attainable Standard of Health (Article 12 of the Covenant), E/C.12/2000/4, para. 42.
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For some other options, see UNCTAD’s Investment Policy Framework for Sustainable Development (2015), pp. 109–111 (Policy Options for IIAs, Section 7).