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*Columbia FDI Perspectives*
Perspectives on topical foreign direct investment issues
No. 251  May 6, 2019
Editor-in-Chief: Karl P. Sauvant ([log in to unmask])
Managing Editor: Marion A. Creach ([log in to unmask])
*Promoting sustainable FDI through international investment agreements*
Karl P. Sauvant**

The Washington Consensus promoted the liberalization of inward FDI regimes
as a tool to advance development. Accordingly, governments have sought to
attract as much FDI as possible, focusing on the quantity rather than the
quality of FDI.

This strategy is becoming progressively more nuanced. While countries
continue to seek to attract FDI in general, increasingly they focus on FDI
that they consider particularly desirable for their economic
development. While this is not new—many governments have targeted specific
types of FDI in the past—a broader debate on how to define, and seek,
quality investment is now underway. Indeed, even OECD members are
discussing “FDI qualities”, and linking it to the concept of “sustainable
FDI”: “commercially viable investment that makes a maximum contribution to
the economic, social and environmental development of host countries and
takes place in the framework of fair governance mechanisms.”[1]

Promoting sustainable FDI is particularly important, considering that the
UN’s sustainable development goals (SDGs) have become the lodestar of
international economic policy, and FDI can contribute to closing the SDG
financing gap.

That FDI must contribute to host countries’ development is not new in
international investment relations. Apart from referring to the protection
of investors—which remains the focus of international investment agreements
(IIAs)—the preambles of a growing number of agreements include specific
references to sustainable development,[2]
and some IIAs now contain specific provisions in this respect.[3]
This is a beginning. The pressing challenge is to operationalize and firmly
anchor this objective in the text of these treaties and their application,
so that investment has indeed a substantial sustainable development impact.
Options include:

   - The *Salini *criteria, sometimes used to define “investment” for the
   application of IIAs, can be a starting point.[4]
   While four of the *Salini *criteria are gaining acceptance (duration,
   substantial commitment of capital or other resources, expectation of gain
   or profit, assumption of risk), the fifth—contribution to the economic
   development of the host country—has received less attention. Moreover,
   accepting the *Salini* criteria is a matter for tribunals’ discretion;
   also, the criteria have been elaborated in relation to the ICSID
   Convention, and do not necessarily come into play in arbitrations conducted
   under other procedural rules. Still, they offer an entry point for
   tribunals that recognize the need for investment to contribute to
   sustainable development.

   - Beyond application, IIAs have generally been hesitant about requiring
   that covered investment must contribute to the development of host
   countries. This could indicate a hesitation to narrow IIAs’ protections,
   linked perhaps to uncertainty about the interpretation of what constitutes
   such a contribution. However, governments have indicated in many
   instruments the contributions they expect from investors, and investors
   have identified in many instruments the contributions they seek to make to
   host countries’ sustainable development—and there is considerable overlap
   concerning such “sustainable FDI characteristics”.[5]

   - IIAs could define “investment” explicitly by reference to the five
   *Salini* criteria—clarifying what investments would qualify as
   sustainable investment (or tribunals would have to do so). This, too, is
   tricky: the term “sustainable investment” is open to interpretation, but
   the sustainable FDI characteristics could help provide a way forward.

   - IIAs could allow governments to deny protection to investments that
   fall short of the sustainable investment definition, through a
   denial-of-benefits clause.

   - IIAs could allow governments to grant preferential treatment to
   investment that has certain sustainability characteristics (similar to
   using targeted incentives to invest in renewable energy), permit
   sustainability exceptions, make sustainability characteristics part of the
   “like circumstances” analysis for national treatment,[6]
   or focus investment facilitation preferentially on such investment. The
   last approach is particularly relevant, given the WTO’s structured
   discussion on investment facilitation for development.

   - Finally, incorporating binding references to corporate social
   responsibility (CSR) in IIAs can advance sustainable investment. References
   to such international CSR instruments as the OECD Guidelines for
   Multinational Enterprises
   import into treaties widely accepted provisions that encourage sustainable
   investment (relating to, e.g., environmental management, technology
   transfer, local capacity building). IIAs have begun to do so in the
   preambles and/or texts of treaties. For example, CETA
   Preamble encourages enterprises operating within the territory of the
   contracting parties or subject to their jurisdiction to respect
   internationally recognized CSR standards, including the OECD Guidelines.
   While often incorporated as soft law references to date, a growing body of
   work aims at expanding these references to hard law (in IIAs, domestic laws
   and international contracts), to enhance their impact. This CSR approach
   reflects a broader reorientation of IIAs, toward recognizing the
   responsibilities of investors in general.

Governments are intensifying efforts to attract sustainable investment.
Operational IIA provisions favoring sustainable investment for sustainable
development would support these efforts—to help achieve the SDGs.

Columbia FDI Perspectives are a forum for public debate. The views
expressed by the author(s) do not reflect the opinions of CCSI or Columbia
University or our partners and supporters. Columbia FDI Perspectives (ISSN
2158-3579) is a peer-reviewed series.*
Karl P. Sauvant ([log in to unmask]) is Resident Senior Fellow at the
Columbia Center on Sustainable Investment, a joint center of Columbia Law
School and the Earth Institute at Columbia University. The author is
particularly grateful to Catharine Titi for her contribution to this
*Perspective*, and he wishes to thank Howard Mann, Makane Moïse Mbengue and
Armand de Mestral for their helpful peer reviews.
Karl P. Sauvant and Howard Mann, “Towards an indicative list of FDI
sustainability characteristics” (Geneva: ICTSD and WEF, 2017), p. 2.
Gordon et al., “Investment treaty law, sustainable development and
responsible business conduct”, *Columbia FDI Perspectives*, no. 157,
September 28, 2015
For example, the Morocco-Nigeria BIT
Costruttori S.p.A. and Italstrade S.p.A. v. Morocco**, *ICSID Case No.
ARB/00/4*, Decision on Jurisdiction, 23 July 2001*, para. 52.
Sauvant and Mann, op. cit.
See the Pan-African Investment Code
*The material in this Perspective may be reprinted if accompanied by the
following acknowledgment: “Karl P. Sauvant, ‘Promoting sustainable FDI
through international investment agreements,’ Columbia FDI Perspectives,
No. 251, May 6, 2019. Reprinted with permission from the Columbia Center on
Sustainable Investment (***
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,
Marion A. Creach, [log in to unmask]

*Most recent Columbia FDI Perspectives*

   - No. 250, Qianwen Zhang, “The next generation of Chinese investment
   treaties: A balanced paradigm in an era of change,” April 22, 2019
   - No. 249, Andrew Kerner, “How to analyze the impact of bilateral
   investment treaties on FDI,” April 8, 2019
   - No. 248, Stephan W. Schill and Geraldo Vidigal, “Investment dispute
   settlement à la carte within a multilateral institution: A path forward for
   the UNCITRAL process?,” March 25, 2019

*All previous FDI Perspectives are available at *
*. *

*Other relevant CCSI news and announcements*

   - CCSI is hiring two Researchers on SDG-aligned Practice in Energy and
   Agribusiness Sectors. *Please see our website here
   more information and to apply.*
   - *On May 6, 2019*, CCSI begins the new semester of the free, popular
   massive open online course (MOOC) on Natural Resources for Sustainable
   Development: The Fundamentals of Oil, Gas and Mining Governance
   Now in its sixth edition, this joint course was developed by CCSI, the
   Natural Resource Governance Institute, the World Bank, and the United
   Nations Sustainable Development Solutions Network and has enrolled
   thousands of participants from all over the world. Click here
   enroll. Watch the trailer here
   - *In April 2019*, CCSI released two new Working Papers: Alternatives to
   Investor-State Dispute Settlement
    and Investment Treaties, Investor-State Dispute Settlement and

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 © 2019 Columbia Center on Sustainable Investment (CCSI), All
rights reserved.*
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*Karl P. Sauvant, PhD*

*Resident Senior Fellow*
*Columbia Center on Sustainable Investment*
Columbia Law School - The Earth Institute, Columbia University
435 West 116th St., Rm. JGH 825, New York, NY 10027
| p: (212) 854 0689 | cell: (646) 724 5600 e: [log in to unmask]
| w: | t: @CCSI_Columbia

"Determining Quality FDI", "The State of the International Investment Law
and Policy Regime", "Towards G20 Guiding Principles on Investment
Facilitation for Sustainable Development", "Five Key Considerations for the
WTO Investment-facilitation Discussions, Going Forward", "Arriving at
Sustainable FDI Characteristics", "Putting FDI on the G20 Agenda",
"International Investment Facilitation: By Whom and for What?", "Moving the
G20's Investment Agenda Forward", "Emerging Markets and the International
Investment Law and Policy Regime", "Sustainable FDI for Sustainable
Development", "Towards an Investment Facilitation Framework: Why? What?
When?", "Beware of FDI Statistics!", "Towards an Indicative List of FDI
Sustainability Characteristics", "The Next Step in Governance: The Need for
Global Micro-regulatory Frameworks", and "The Evolving International
Investment Law and Policy Regime: Ways Forward" *are* available at and

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