Developments in International Investment Law Herald Enhanced CSR Obligations for Investors

Foley Hoag LLP - Global Business and Human Rights
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Foley Hoag LLP - Corporate Social Responsibility

The protection of a company’s investments abroad could soon be linked to that company’s compliance with its CSR obligations. This is what the new Dutch draft model bilateral investment treaty (BIT) heralds. If other countries adopt the Netherlands’ approach, then international arbitration tribunals hearing claims that investors bring against foreign governments may also scrutinize the investors’ CSR track record.

CSR obligations are most relevant to the compensation a tribunal can award the investor. Article 23 of Dutch draft model BIT explicitly permits international investment tribunals to consider an investors’ “non-compliance … with its commitments under the UN Guiding Principles on Businesses and Human Rights, and the OECD Guidelines for Multinational Enterprises” in deciding the amount of compensation the investor is due, if the investor wins its case against the host State. The draft agreement also “encourage[s] investors … to voluntarily incorporate into their internal policies … internationally recognized standards, guidelines and principles of corporate social responsibility” (Article 7).

This development follows two recent cutting-edge international investment arbitration decisions on CSR obligations of foreign investors. In both cases, Urbaser v. Argentina and Burlington v. Ecuador, the respondent State brought counterclaims against the foreign investor for human rights and environmental violations. In the case against Argentina, decided in December 2016, the tribunal ruled that foreign investors could have human rights obligations, and that the non-compliance with those obligations could be the subject of a counterclaim. And in the Ecuador case, decided in February 2017, the tribunal awarded $41 million to Ecuador on its counterclaim for environmental harm.

Both decisions, and now the Dutch draft model BIT, highlight the developing expectation in international investment law that investors will go beyond complying with local law by adhering to guidelines outlined in instruments like the UN Guiding Principles. This development underscores the need for globally-focused companies to adopt and implement robust CSR policies.

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