The world needs more “Green FDI”—FDI that
contributes to environmental objectives and,
especially, the reduction of greenhouse gas
emissions. Governments and MNEs need to work
together to achieve this objective.
Aggressive goals and target dates have been set
by countries and MNEs to reduce emissions.
Nationally determined contributions under the
Paris
Agreement contain commitments to do so.
To support meeting these commitments—and to
encourage additional MNEs to reduce emissions
throughout their supply chains—proactive
policies and measures are needed. Host countries
should take the following priority actions:
- Incentivize—if
need be, require—foreign affiliates to
be/become carbon neutral for MNEs of a
certain size. Reporting and publishing
information for these firms’ affiliates’
carbon footprints should be mandated.
- Incentivize
carbon-neutral FDI through financial and
non-financial measures (preferably linked to
countries’ nationally determined
contributions), including through creating a
category of “Recognized Sustainable
Investor” (RSI).[1]
Criteria designating an RSI could include
becoming carbon neutral or even climate
positive. Once designated as an RSI,
investors would receive preferential
treatment, such as shorter timeframes for
approvals, a “green channel” for imports and
exports, or “red carpet” treatment for
aftercare.
- Link
taxes to the level of carbon emissions in
investment projects: the lower the carbon
footprint, the lower taxes. Governments can
also facilitate tapping green finance (now
in the trillions of dollars) as a source of
capital for carbon-neutral FDI projects,
supported by development finance
institutions and international support
mechanisms (e.g., a new Clean Development
Mechanism).
- Host
countries should create a pipeline of such
projects, promoted through a (preferably
multilateral) platform that helps connect
capital to investment opportunities, and
investment authorities to cooperate on
two-way FDI flows.
Home countries also have a responsibility to
promote Green FDI, including by linking outward
FDI support to the observance of home-country
climate standards, combined with requiring their
outward investors to publish the carbon content
of large-scale FDI projects.
[2]
Home-country measures—for instance, political
risk insurance or guarantees—can be linked to
carbon content: lower-carbon investments should
receive more favorable insurance and guarantee
terms. Home countries should not allow the
relocation of high carbon-emitting industries to
elsewhere. Home and host countries should link
financing to the level of carbon emissions in
investment projects: the lower the carbon
footprint, the more preferential the financing.
Such carbon-emission reduction efforts should be
supported—in the context of encouraging Green
FDI in general—by international investment
agreements (IIAs) that include provisions
facilitating Green FDI, focusing on large MNEs.
[3] For
example:
“Each Party shall encourage the facilitation
of green foreign direct investment that
assists the Parties to become carbon neutral,
including by promoting renewable energy,
energy efficient investments and appropriate
technologies, and taking other measures that
help the transition to a carbon-neutral,
sustainable and climate-resilient economy”.
[4]
In the context of a
WTO
Investment Facilitation for Development
agreement, such a provision would create the
basis for technical assistance and capacity
building to facilitate carbon-neutral FDI.
A more ambitious approach would be to include
carbon-neutral FDI as one of the components of
the contribution-to-development criterion of the
Salini
criteria (used to define “investment”); to
make it (given its significance) an autonomous
criterion additional to the Salini criteria; or
to allow governments to deny protection to
investments that fall short of carbon
neutrality, through a denial-of-benefits clause.
Joint committees increasingly foreseen in IIAs
could set mutually applicable Green FDI
standards (covering also carbon-neutral FDI) for
investors and investments from each country in
the territory of the other.
The private sector has begun to undertake
carbon-neutral FDI. For example,
Robert
Bosch Inc. has declared that it is carbon
neutral with respect to direct emissions from
owned or controlled sources, and the firm has
committed to reducing upstream and downstream
emissions by 15% by 2030.
Apple has
committed to be 100% carbon neutral
throughout its supply chain and products by
2030, and
Toyota is
working with dealers and suppliers to
eliminate emissions by 2050. In fact, over 100
companies have committed to net-zero carbon
emissions by 2040.
[5]
MNEs will be further encouraged to move to
carbon neutrality through court decisions, as
highlighted by a 2021
Dutch court
ruling. The court decided that Royal Dutch
Shell’s emission-reduction targets of 20% by
2030, 45% by 2035, and net zero emissions by
2050 were not sufficient; it ruled that Shell
must reduce its carbon emissions by at least net
45% by the end of 2030, from 2019 levels.
This decision shows that the time is ripe for
governments and firms to work together to ensure
that FDI flows become increasingly green.
Determined national and international efforts,
as well as pioneering company actions and
public-private cooperation, are needed.
