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Inclusion of Investor Obligations and Corporate Accountability Provisions in Investment Agreements

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Handbook of International Investment Law and Policy

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Abstract

The terms “corporate social responsibility” and “responsible business conduct,” while growing increasingly popular in public discourse as consumers demand greater corporate accountability, are also being worked into clauses featured in international investment agreements (IIAs) to varying degrees and effects. These treaty provisions often focus on how to ensure that foreign investors making investments in host states are abiding by environmental, social, governance, or other norms and are normally voluntary in nature. They tend to apply to the state parties, rather than to investors directly, with some notable exceptions that have emerged in recent years and which are explored here. Also significant is how many IIAs have treated the subject of investment compliance with national laws, often building the definition of “investment” around those lines, though how arbitral tribunals have dealt with infractions of such laws has depended largely on the nature of the violation. Some of these IIAs have focused primarily on violations in the making of the investment, while others look further to the operations and closure phases, which have been considered in investment jurisprudence. In addition to requirements to comply with laws and regulations, several recent IIAs have begun spelling out specific investor obligations, ranging from anti-corruption to environmental and social impact assessment and management plans, along with providing company information. Given this context, this chapter features a detailed analysis of various bilateral investment treaties (BITs), model treaties, and arbitration cases that demonstrate some of these issues and their evolution, both in theory and in practice. It also places this discussion within the wider context of the push for IIA reform at multiple levels, from the bilateral to the multilateral.

The author would like to acknowledge the excellent research support provided by Sofia De Murard, NYU Law Fellow at IISD. Thanks also go to Sofia Baliño for her thorough review and input.

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Notes

  1. 1.

    See, e.g., Chaisse J, Donde R (2018) The state of investor-state arbitration– a reality check of the issues, trends, and directions in Asia-Pacific. Int Law 51(1):47–67.

  2. 2.

    See UNCTAD, International Investment Agreements Navigator, “Mapping of IIA Content”, https://investmentpolicy.unctad.org/international-investment-agreements/iia-mapping. Please note that, unless indicated otherwise, the texts of all treaties referred to in this chapter are available at this site.

  3. 3.

    These treaties include the following: Burkina Faso-Canada BIT (2015); Iran-Slovakia BIT (2016); Angola-Brazil BIT (2015); Japan-Uruguay BIT (2015); Canada-Guinea BIT (2015); Canada-Mongolia BIT (2016); Cameroon-Canada BIT (2014); Canada-Senegal BIT (2014); Colombia-Costa Rica (2013); EU-Georgia Association Agreement (2014); EU-Moldova Association Agreement (2014); Canada-Mali BIT 2014; Pacific Alliance Additional Protocol (2014) between Colombia, Peru, Mexico, and Chile; EU-Ukraine Association Agreement (2014); Canada-Cote d’Ivoire BIT (2014); Canada-Serbia BIT (2014); Georgia-Switzerland BIT (2014); Canada-Korea FTA (2014); Canada-Honduras FTA (2013); Benin-Canada (2013); Finland-Serbia BIT (2005); and Japan-Korea (2002). For ease of reading, the agreements are generally referred to in their abbreviated form rather than their full names.

  4. 4.

    The Canadian BITs referred to here include Canada-Mongolia BIT (2016); Burkina Faso-Canada BIT (2015); Canada-Guinea BIT (2015); Cameroon-Canada BIT (2014); Canada-Senegal BIT (2014); Canada-Mali BIT 2014; Canada-Cote d’Ivoire BIT (2014); Canada-Serbia BIT (2014); Canada-Korea FTA (2014); Canada-Honduras FTA (2013); and Benin-Canada (2013).

  5. 5.

    Zhu Y (2017) Corporate social responsibility and international investment law: tension and reconciliation. NJCL:111. https://journals.aau.dk/index.php/NJCL/article/view/1983

  6. 6.

    See UNCTAD (2019) World investment report. United Nations:105. https://unctad.org/en/PublicationsLibrary/wir2019_overview_en.pdf

  7. 7.

    See UNCTAD. International Investment Agreements Navigator, “Mapping of IIA Content”, https://investmentpolicy.unctad.org/international-investment-agreements/iia-mapping.

  8. 8.

    Art 16 of the 2013 Benin-Canada BIT states:

    Each Contracting Party should encourage enterprises operating within its territory or subject to its jurisdiction 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 Contracting Parties. These principles address issues such as labor, the environment, human rights, community relations and anti-corruption.

  9. 9.

    Art 14.17 USMCA provides:

    The Parties reaffirm the importance of each Party encouraging enterprises operating within its territory or subject to its jurisdiction to voluntarily incorporate into their internal policies those internationally recognized standards, guidelines, and principles of corporate social responsibility that have been endorsed or are supported by that Party, which may include the OECD Guidelines for Multinational Enterprises. These standards, guidelines, and principles may address areas such as labor, environment, gender equality, human rights, indigenous and aboriginal peoples’ rights, and corruption.

  10. 10.

    See Art 14.17, USMCA.

  11. 11.

    See Porter C (2017) Canada wants a new Nafta to include gender and indigenous people’s rights. The New York Times, 14 August 2017. https://www.nytimes.com/2017/08/14/world/americas/canada-wants-a-new-nafta-to-include-gender-and-indigenous-rights.html.

  12. 12.

    See Art 16 of the 2013 Benin-Canada BIT.

  13. 13.

    See Art 14.17, USMCA. See also article 9.17 of the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP).

  14. 14.

    See Organisation for Economic Co-operation and Development (2011) OECD guidelines for multinational enterprises. http://mneguidelines.oecd.org/guidelines/.

  15. 15.

    See Art 14.17, USMCA.

  16. 16.

    See Art 7.2, Dutch Model BIT.

  17. 17.

    Zhu Y (2017) Corporate social responsibility and international investment law: tension and reconciliation. NJCL (2017):114. https://journals.aau.dk/index.php/NJCL/article/view/1983

  18. 18.

    This text is from the Brazil-Malawi CFIA (2015), Art 9.2.

  19. 19.

    Zhu Y (2017) Corporate social responsibility and international investment law: tension and reconciliation. NJCL (2017):118. Available at https://journals.aau.dk/index.php/NJCL/article/view/1983

  20. 20.

    Id, pg 118. On the impact of soft law in international economic law see Chaisse J, Ji X (2018) “Soft Law” in international law-making: how soft international taxation law is reshaping international economic governance. Asian J WTO Law Health Policy 13(2):463–509

  21. 21.

    Id, 112

  22. 22.

    See Trans-Pacific Partnership Agreement (2016), Art 9.17 and Netherlands Model BIT (2018), Art 7. Note that while the above text refers to the CPTPP, the language quoted herein from the TPP was kept intact in the CPTPP version.

  23. 23.

    See Dubin L (2018) Corporate social responsibility clauses in investment treaties. Investment Treaty News, December 21, 2018. https://www.iisd.org/itn/2018/12/21/corporate-social-responsibility-clauses-in-investment-treaties-laurence-dubin/.

  24. 24.

    It is worth noting, however, that Canada is a party to the CPTPP and that these variations in language should be noted accordingly and considered in relation to other relevant factors, such as the negotiating dynamics with the other state parties involved.

  25. 25.

    See Canada-Benin BIT (2013), Art 16; Canada-Senegal BIT (2014), Art 16, all available at the UNCTAD website.

  26. 26.

    See Dubin L (2018) Corporate social responsibility clauses in investment treaties. Investment Treaty News, December 21, 2018. https://www.iisd.org/itn/2018/12/21/corporate-social-responsibility-clauses-in-investment-treaties-laurence-dubin/.

  27. 27.

    See, for instance, the French Duty of Vigilance Law. LOI n° 2017-399 du 27 mars 2017 relative au devoir de vigilance des sociétés mères et des entreprises donneuses d’ordre (1), JORF n°0074 du 28 mars 2017 texte, n° 1, available at: https://www.legifrance.gouv.fr/affichTexte.do?cidTexte=JORFTEXT000034290626&categorieLien=id.

  28. 28.

    See the Canada-Senegal BIT (2014), Art 16.

  29. 29.

    See Dubin L (2018) Corporate social responsibility clauses in investment treaties. Investment Treaty News, December 21, 2018. https://www.iisd.org/itn/2018/12/21/corporate-social-responsibility-clauses-in-investment-treaties-laurence-dubin. See also Levashova Y (2018) The accountability and corporate social responsibility of multinational corporations for transgressions in host states through international investment law. Utrecht L Rev 14:47. https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3204456.

  30. 30.

    See the Brazil-Malawi CFIA (2015), Article 9.2. By comparison, Art 15 of the Brazil-Chile CFIA (2015) addresses both state parties and investors in its CSR clause and explicitly refers to the OECD Guidelines, according to the below text in Spanish:

    1. 1.

      Las Partes reconocen la importancia de promover que las empresas que operen en su territorio o que estén sujetas a su jurisdicción apliquen políticas de sostenibilidad y responsabilidad social y que impulsen el desarrollo del país receptor de la inversión.

    2. 2.

      Los inversionistas y sus inversiones deberán desarrollar sus mejores esfuerzos para cumplir con las “Líneas Directrices de la OCDE para Empresas Multinacionales” de la Organización para la Cooperación y el Desarrollo Económico […].

  31. 31.

    See Dubin L (2018) Corporate social responsibility clauses in investment treaties. Investment Treaty News, December 21, 2018. https://www.iisd.org/itn/2018/12/21/corporate-social-responsibility-clauses-in-investment-treaties-laurence-dubin/.

  32. 32.

    Brazil-Malawi CFIA (2015), Art 9. 2. By comparison, Art 15 of the Brazil-Chile CFIA (2015) addresses both state parties and investors in its CSR clause and explicitly refers to the OECD Guidelines for Multinational Enterprises:

    1. 1.

      Las Partes reconocen la importancia de promover que las empresas que operen en su territorio o que estén sujetas a su jurisdicción apliquen políticas de sostenibilidad y responsabilidad social y que impulsen el desarrollo del país receptor de la inversión.

    2. 2.

      Los inversionistas y sus inversiones deberán desarrollar sus mejores esfuerzos para cumplir con las “Líneas Directrices de la OCDE para Empresas Multinacionales” de la Organización para la Cooperación y el Desarrollo Económico […].

  33. 33.

    See Morocco-Nigeria BIT (2016), Art 24.

  34. 34.

    See the Canada-Mongolia BIT (2013), Art 20.

  35. 35.

    See, for example, Article 25.3 of the Brazil-Ecuador CFIA (2019).

  36. 36.

    See the Brazil–Ecuador CFIA (2019), Art 24.

  37. 37.

    See the Cambodia-Turkey BIT (2018), Art 1.

  38. 38.

    See, for example, Comprehensive Economic and Trade Agreement (CETA), Art 8.1.

  39. 39.

    See the India Model BIT (2015), Art 1.4.

  40. 40.

    See the Nigeria-Morocco BIT (2016), Art 1.3.

  41. 41.

    See Moloo R, Khachaturian A (2010) The compliance with the law requirement in international investment law. Fordham Int LJ 34:1494–1499. https://ir.lawnet.fordham.edu/cgi/viewcontent.cgi?article=2310&context=ilj.

  42. 42.

    See Debevoise W (2006) Inceysa Vallisoletana S.L. v. Republic of El Salvador ICSID Case No. ARB/03/26 – Decision on Jurisdiction, 2 August 2006. Trans Disp Manag. https://www.transnational-dispute-management.com/article.asp?key=848.

  43. 43.

    Inceysa Vallisoletana S.L. v. Republic of El Salvador, ICSID Case No. ARB/03/26, paras. 234, 236 (2 August 2006), https://www.italaw.com/cases/documents/564

  44. 44.

    Ibid., paras 219–221

  45. 45.

    Ibid., paras 220–224

  46. 46.

    The Fraport award has been annulled, but due to other issues. The full award decision, “Decision on the Application for Annulment of Fraport AG Frankfurt Airport Services Worldwide,” is available here https://www.italaw.com/sites/default/files/case-documents/ita0341.pdf.

  47. 47.

    Fraport AG Frankfurt Airport Services Worldwide v. The Republic of the Philippines, ICSID Case No. ARB/03/25, paras 394–397. Retrieved from https://www.italaw.com/cases/456

  48. 48.

    See Agreement between the Federal Republic of Germany and the Republic of the Philippines for the Promotion and Reciprocal Protection of Investments, Art 1.1.

  49. 49.

    See Fraport v. Philippines, supra note 101, para 401.

  50. 50.

    Ibid., para 394

  51. 51.

    See Moloo, R., & Khachaturian, A., supra note 1, p. 1481.

  52. 52.

    Alasdair Ross Anderson et al. v. Republic of Costa Rica, ICSID Case No. ARB(AF)/07/3, Award, May 19, 2010, para 46. Retrieved from https://www.italaw.com/cases/85

  53. 53.

    Id., para 55

  54. 54.

    See Moloo, R., & Khachaturian, A., supra note 1, p. 1481.

  55. 55.

    Ibid., p. 1481

  56. 56.

    Tokios Tokelés v. Ukraine, ICSID Case No. ARB/02/18, Decision on Jurisdiction, para 84 (Apr. 29, 2004). Retrieved from https://www.italaw.com/sites/default/files/case-documents/ita0863.pdf

  57. 57.

    Moloo, R., & Khachaturian, A., supra note 1, p. 1494

  58. 58.

    Desert Line Projects LLC v. The Republic of Yemen, ICSID Case No. ARB/05/17, Award, para 104 (Feb. 8, 2008). Retrieved from https://www.italaw.com/sites/default/files/case-documents/ita0248_0.pdf

  59. 59.

    Ibid., paras 105–121

  60. 60.

    For an in-depth analysis and overview of these cases, see Moloo, R., & Khachaturian, A. supra note 1.

  61. 61.

    See Singapore EU Investment Protection Agreement (2018), Art 2.1.

  62. 62.

    See Comprehensive Economic and Trade Agreement (2016), Art 8.18.

  63. 63.

    See Indian Model BIT (2015), Art 13.4.

  64. 64.

    See Agreement on Promotion, Protection and Guarantee of Investments among Member States of the Organization of the Islamic Conference. Another example stemming from the 1980s is the Unified Agreement for the Investment of Arab Capital in Arab States. The agreement’s Art 14 provides:

    1. 1.

      In the various aspects of his activity, the Arab investor must, as far as possible, liaise with the State in which the investment is made and with its various institutions and authorities. He must respect its laws and regulations in a manner consistent with this Agreement and, in establishing, administering and developing Arab investment projects, must comply with the development plans and programmes drawn up by the State for the purpose of national economic development by employing all means which reinforce its structure and promote Arab economic integration. In so doing, he shall refrain from any action which might violate public order and morality or involve illegitimate gains.

    2. 2.

      The Arab investor shall bear liability for any breach of the obligations set forth in the preceding paragraph in accordance with the law in force in the State in which the investment is made or in which the breach occurs.

  65. 65.

    Al Warraq v. Indonesia, UNCITRAL, Final Award (15 December 2014). On Al Warraq and related developments, see Cotula L (2016) Human rights and investor obligations in investor-state arbitration. JWIT 17(1):148–157. https://pubs.iied.org/X00150/.

  66. 66.

    See Indian Model BIT. See also Belarus-India BIT (2018), Art 1.4, or Intra-MERCOSUR Cooperation and Facilitation Investment Protocol (2017), Art 13.

  67. 67.

    See Iran-Slovakia BIT (2016) https://investmentpolicy.unctad.org/international-investment-agreements/treaties/bit/3633/iran-islamic-republic-of%2D%2D-slovakia-bit-2016-.

  68. 68.

    A precursor for today’s developments on investor obligations in IIAs is the 2005 Model International Agreement on Investment for Sustainable Development of the International Institute for Sustainable Development (IISD Model 2005). 2nd ed. Winnipeg: IISD (2005), https://www.iisd.org/pdf/2005/investment_model_int_handbook.pdf. See also VanDuzer JA, Simons P, Mayeda G (2012) Integrating sustainable development into international investment agreements: a guide for developing countries. Commonwealth Secretariat, London. https://www.iisd.org/pdf/2012/6th_annual_forum_commonwealth_guide.pdf

  69. 69.

    Revised COMESA Common Investment Area Agreement (2017) adopted by Council, as per Official Gazette of COMESA, v. 21, n. 11, January 24, 2018. English version available at: https://www.comesa.int/wp-content/uploads/2019/04/COMESA-Gazette-Volume-21-Final_upload_web.pdf

  70. 70.

    SADC, SADC Model Bilateral Investment Treaty Template (July 2012), https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2875/download. A revision of the template was adopted in 2017, but it is not yet publicly available. It is the author’s understanding that there were no major changes to the sections on investor obligations.

  71. 71.

    African Union, Draft Pan-African Investment Code (October 2017), https://au.int/sites/default/files/newsevents/workingdocuments/33090-wd-3_pan_african_investment_code_e.pdf

  72. 72.

    See Morocco-Nigeria BIT (2016), Art 14 (Impact assessment); Art 17 (Anti-corruption); Art 18 (Post-establishment obligations); and Art 19 (Corporate governance and practices).

  73. 73.

    See the Model Text for the Indian Bilateral Investment Treaty (India Model BIT 2015). Art 11 on “Compliance with laws” reads:

    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.

  74. 74.

    ISO refers to the International Organization for Standardization.

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  1. International Institute for Sustainable Development, Geneva, Switzerland

    Nathalie Bernasconi-Osterwalder

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  1. Nathalie Bernasconi-Osterwalder
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Correspondence to Nathalie Bernasconi-Osterwalder .

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Editors and Affiliations

  1. School of Law, City University of Hong Kong, Kowloon, Hong Kong

    Julien Chaisse

  2. School of Business and Law, University of Portsmouth, Portsmouth, UK

    Leïla Choukroune

  3. Institute of Malaysia and International Studies, National University of Malaysia, Bangi, Selangor, Malaysia

    Sufian Jusoh

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Bernasconi-Osterwalder, N. (2020). Inclusion of Investor Obligations and Corporate Accountability Provisions in Investment Agreements. In: Chaisse, J., Choukroune, L., Jusoh, S. (eds) Handbook of International Investment Law and Policy. Springer, Singapore. https://doi.org/10.1007/978-981-13-5744-2_56-1

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