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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 134 November 10, 2014
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Adrian P. Torres ([log in to unmask])
*The road to responsible investment treaties*
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by
Roel Nieuwenkamp and Kimmo Sinivuori* <#1499bfd2e76d0d1a__edn1>
As the OECD Guidelines for Multinational Enterprises, first adopted in 1976
and updated for the fifth time in 2011, are approaching middle age, it is
appropriate to reflect on how the use of these far-reaching recommendations
for responsible business conduct can be promoted in international
investment agreements (IIAs). During the Guideline’s almost four decades of
existence, the landscape of the global economy has continuously evolved,
and securing sustainable development has become a key international issue.
The OECD Guidelines is a unique tool to address this issue, as they provide
voluntary principles and standards for responsible business conduct in
areas such as employment and industrial relations, human rights,
environment, information disclosure, combating bribery, consumer interests,
science and technology, competition, and taxation.
Economic growth is essential for achieving sustainable development, and
private investment -- both domestic and foreign -- is its engine. The
fundamental question then is how to ensure that such investment is
environmentally sound, promotes labor standards and respects human rights.
The main aim of IIAs has been, and remains, the protection of legitimate
foreign investors and their investments in the contracting parties. IIAs
have so far imposed obligations on contracting parties only, and not on
investors. The rationale of this approach has been that investors’
obligations must come from domestic legislation, be it environment or
labor-related, and that foreign investors must respect that legislation in
order to be protected by the treaties.
With this in mind, governments have so far encouraged foreign investors to
do more than they are obliged to under the law, based on instruments such
as the OECD Guidelines and the United Nations Guiding Principles on
Business and Human Rights. The question today is whether we can use IIAs to
advance the same objectives as these instruments. Our answer is that we
can, if we introduce some carefully drafted, smart clauses to new treaties.
An approach would be to introduce into an IIA a reference to the OECD
Guidelines.[1] <#1499bfd2e76d0d1a__edn2> This can be done by preamble
language where the parties to a treaty would recognize the need to promote
the Guidelines. This would most likely be the easiest solution -- but at
the same time would not create binding obligations on the parties. A
stronger alternative would be to introduce a provision that would oblige
the parties to promote the Guidelines. It could also include an obligation
to set up a non-judicial grievance mechanism that would assist companies
and complainants in finding a solution to issues related to implementation
of the Guidelines, through mediation or conciliation.[2]
<#1499bfd2e76d0d1a__edn3>
However, the legally non-binding nature of the Guidelines raises the
question of whether the obligation can only be placed on the contracting
parties and only to the extent that it would cover promotion and a
non-binding grievance mechanism. The legitimate concern has been that a
voluntary instrument would be made mandatory indirectly through another
binding international agreement.
Nevertheless, we are in favor of exploring a solution that would stipulate
that only those investors that can demonstrate compliance with the
Guidelines would be eligible for protection under IIAs. This is easier said
than done and involves many complex procedural and substantive issues. It
is, however, conceivable to exclude protection for investments that are
linked to corruption. Another option worth exploring is to include a
provision that specifies that materially relevant breaches of the
Guidelines are taken into account by a tribunal when deciding on the merits
of a claim or on potential damages awarded.
The abovementioned approach needs to be complemented by actionable clauses
in treaties that would ensure compliance from a contracting party to
implement specific measures related to the environment, labor standards and
human rights. A treaty could stipulate, for example, that the contracting
parties would undertake to become party to and implement relevant
international agreements or standards related to environment, human rights
and labor standards[3] <#1499bfd2e76d0d1a__edn4>.
To conclude, we believe that, through the addition of clear and smart
clauses or preamble language, it is possible to advance responsible
business practices in IIAs while at the same time protecting the interests
of responsible investors and their investments against maltreatment.
------------------------------
* <#1499bfd2e76d0d1a__ednref1> Roel Nieuwenkamp ([log in to unmask])
is Chair of the OECD Working Party on Responsible Business Conduct and
Professor at the University of Amsterdam; Kimmo Sinivuori (
[log in to unmask]) is the chief BIT negotiator at the Ministry for
Foreign Affairs of Finland and chair of the Advisory Group on Investment
and Development at Investment Committee or the OECD Working Party on
Responsible Business Conduct and Advisory Group on Investment and
Development. The authors are grateful to Nathalie Bernasconi, Anna
Joubin-Bret and Federico Ortino for their helpful peer reviews. *The views
expressed by the authors of this Perspective do not necessarily reflect the
opinions of the OECD, the Government of Finland, Columbia University or its
partners and supporters. Columbia FDI Perspectives (ISSN 2158-3579) is a
peer-reviewed series.*
[1] <#1499bfd2e76d0d1a__ednref2> For an exploration of the various options
for incorporation by reference, *see* OECD, “Investment treaty law,
sustainable development and responsible business conduct,” June 26, 2014,
prepared for the Informal Ministerial Meeting on Responsible Business
Conduct. Reference to the OECD Guidelines implies a reference to the United
Nations Guiding Principles as the Human Rights Chapter of the OECD
Guidelines is consistent with the Guiding Principles.
[2] <#1499bfd2e76d0d1a__ednref3> The 46 governments adhering to the OECD
Guidelines already have an obligation to set up National Contact Points
that promote the Guidelines and provides good offices to resolve issues
related to the implementation of the Guidelines.
[3] <#1499bfd2e76d0d1a__ednref4> A more light-handed solution would be to
introduce language to the preamble of a treaty whereby the contracting
parties reaffirm their commitments to international environmental and labor
standards as well as human rights. Contracting parties could also recognize
the importance of such standards and refrain from lowering standards to
promote inward investment, as is the Finnish treaty practice.
*The material in this Perspective may be reprinted if accompanied by
the following acknowledgment: “Roel Nieuwenkamp and Kimmo Sinivuori, ‘The
road to responsible investment treaties,’ Columbia FDI Perspectives, No.
134, November 10, 2014. Reprinted with permission from the Columbia Center
on Sustainable Investment (www.ccsi.columbia.edu
<http://www.ccsi.columbia.edu>).” A copy should kindly be sent to the
Columbia Center on Sustainable Investment at [log in to unmask]
<[log in to unmask]>.*
For further information, including information regarding submission to the
*Perspectives*, please contact: Columbia Center on Sustainable Investment,
Adrian Torres, [log in to unmask] or [log in to unmask]
*Most recent Columbia FDI Perspectives*
<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=983d029a46&e=763bcf158c>
- No. 133, Julian Donaubauer, Birgit Meyer and Peter Nunnenkamp, “The
crucial role of infrastructure in attracting FDI,” October 27, 2014.
- No. 132, Ralph Alexander Lorz, “Germany, the Transatlantic Trade and
Investment Partnership and investment-dispute settlement: Observations on a
paradox by Ralph Alexander Lorz,” October 13, 2014.
- No. 131, Kenneth P. Thomas, “How to deal with the growing incentives
competition,” September 29, 2014.
*All previous FDI Perspectives are available at
**http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/
<http://ccsi.columbia.edu/publications/columbia-fdi-perspectives/>**. *
*Other relevant CCSI news and announcements:*
- *On November 24, 2014*, CCSI will co-host *Should Universities and
Pension Funds Divest From Fossil Fuel Stocks?*
<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=14adf17c89&e=763bcf158c>,
a panel discussion that will explore whether divestment is consistent with
the fiduciary duties of fund trustees, and whether divestment is the best
way for investors to influence corporate behavior. The speakers include
both proponents and opponents of divestment, as well as experts on the
effect of divestment on portfolio value and its place in the corporate
social responsibility movement. The event is free and open to the
public; *advanced
registration is required
<http://columbia.us6.list-manage1.com/track/click?u=ab15cc1d53&id=58c3da71bc&e=763bcf158c>.*
- *On December 5, 2014*, CCSI is offering a one day workshop with CLE
credit *on investment arbitration and human rights
<http://columbia.us6.list-manage.com/track/click?u=ab15cc1d53&id=06be18e641&e=763bcf158c>*.
This workshop will examine which human rights issues may be implicated in
investment disputes, as well as how and to what extent the issues have been
handled by parties and arbitrators. *Philippe Sands* (Barrister in the
Matrix Chambers, Professor of International Law at University College
London; and frequent arbitrator in investor-State disputes) will deliver
the Keynote.
Karl P. Sauvant, Ph.D.
Resident Senior Fellow
Columbia Center on Sustainable Investment
Columbia Law School - Earth Institute
Ph: (212) 854-0689
Fax: (212) 854-7946
*Copyright © 2014 Columbia Center on Sustainable Investment
(CCSI), All rights reserved.*
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Columbia Center on Sustainable Investment (CCSI)
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