Category Archives: Environment

Sustainable development target for future treaties

Reform of the international investment agreement (IIA) regime was discussed at a recent Expert Meeting hosted by the United Nations Conference on Trade and Development (UNCTAD) in Geneva. On 25-27 February 2015, more than 250 participants including governmental representatives, academics, business organizations and other civil organizations engaged in constructive discussions on how to enhance investments and sustainable development. The Stockholm Chamber of Commerce delegations were also present, which were the Trade Policy Advisor and the Legal Counsel of the Arbitration Institute.

The point of departure of the discussion is that a large number of IIAs will expire soon – and in parallel to that, there are negotiations of mega-regional investment pacts such as the TTIP and TPP. This recent development opens up the opportunity to further develop the IIA and ISDS regime, essentially to promote sustainable development. The meeting sought insights and expertise from participants to achieve this goal.

For the substantive part, provisions of early IIAs have been viewed as broad and vague. The discussions revolved around whether to specify these provisions (such as indirect expropriation and fair and equitable treatment) or to leave the issues to be developed through case laws.

For the procedural part, participants still voiced strong supports for ISDS.

The question is how to design ISDS to be more cost-efficient and to safeguard consistency in the outcome of the cases. Options such as establishment of appellate mechanism and international investment court were discussed, even though participants still differed to a great extent on whether these reform options will address the problems or will add the problems.

There was however a broader consensus that it is rather more difficult to reform the IIA regime as it is not codified in one single system, for instance such as the WTO.

A good note to take home was a reminder from participants that the design of the new IIA and ISDS regime should focus on the main purpose of the regime, which is to promote investment, most importantly investment in sustainable development. To this end, government representatives agreed to learn from one another’s best practices and to continuously seek expertise from the UNCTAD.

The environment needs more investment protection – not less

Does investment protection represent a threat against the environment? On the contrary; there is a good argument to be made that investment protection – with the support of ISDS – can be used to enhance measures to mitigate climate change.

In a recent report by Calvert Investments, Ceres and the WWF global investments in renewable energy is discussed. In the report it is shown that a large number of the world’s biggest companies invest significantly in renewable energy as it simply makes good business sense. But the report also identifies several potential obstacles to these investments. In addressing the concerns, future investment protection treaties such as TTIP could play an important role, for example by safeguarding stable and predictable environments for investments in renewable energy.

The key point is this. Investment protection treaties offer states a great potential to set the standard for environmental development. While the substantive protection is important when drafting future treaties – what should states offer in order to attract investments in the renewable sector? – ISDS plays an integral part because having neutral, third-party adjudication is an essential aspect of providing confidence and security.

The potential to use investment treaties to combat climate change is currently discussed a lot in academic circles, but so far it has failed to enter the general public discussion. Let’s help each other – and the environment – by changing this and unlocking this potential for development.

ISDS is not a threat to environmental protection

Arguments against ISDS are triggered by assumptions and careless readings of the outcomes of some ‘controversial’ cases. In these cases – some of which do not even have an outcome yet – investors brought a claim against governments to ISDS stemming from environmental measures. Therefore, according to these arguments, ISDS as a whole is therefore a threat to environmental protection.

These assumptions are, at best, ignorant – at worse, false.

Investment agreements provide commitment of two (or more) governments to accord treatment according to international law to investors from its treaty partner. When an investor alleged that this standard of protection has not been fulfilled, it has the right to submit a claim to ISDS.

The fact that this claim may also cover those stemming from an environmental measure does not mean that governments cannot regulate for environmental protection.

First, ISDS as a legal procedural mechanism does not define policy. It does not regulate the substance of environmental regulation governments can have and levels of environmental standards governments can impose.

Second, in no case will the government be required to change its policy since ISDS do not provide injunction as a remedy.

Third, as a matter of fact, the number of cases stemming from measure with environmental motives has been small.

Fourth, the claims typically do not concern legislative acts.

Most of the challenged measures are administrative in nature, for instance treatment under certain permits, licenses and contracts which gives specific right to investors. When a government has given a specific right under an administrative instrument to a foreign investor, such investor has the right to reasonably rely upon it. As a matter of legal principle, the same right goes to any other actors, including a domestic investor.

Fifth, case law suggests that when environmental concerns have been found justified,  and investment protection standards were fulfilled, claims against governments have not been successful. Tribunals have found that governments do not have to compensate investors for  measures with justified environmental concern. This includes measures which are, among others, non-discriminatory, transparent, does not violate a specific commitment given by the government, and which are supported by a certain degree of scientific evidence (see among others, Methanex v US, Glamis Gold v US, Chemtura v US, Emilio Agustin Maffezini v Spain, Saar Papier v Poland available on italaw.com).

The chosen description of a claim as ‘environmental’ is not a decisive factor to assess whether ISDS poses a threat to environmental protection. It is the content that matters. As in any system governed by the rule of law.

Who is the investor?

The description of the investor in the ISDS debate has grown to almost mythical proportions. For an outside observer it would be easy to get the impression that the beneficiaries of investment treaty protection treaties – and the users of investor-state dispute settlement – are a narrow group of multinational companies, who use treaties to bully states. This assumption is simply not supported by the basic facts.

Investment protection treaties, be they bilateral or multilateral like the NAFTA or the TTIP that is now being negotiated, generally put no lower threshold on the size of investment to be protected. The treaties’ definitions of which types of investments are protected in practice presuppose some kind of risk-taking and long-term commitment in the host state but apart from that, definitions are wide and include a wide range of activities. As a matter of principle, investors small and big, get the same protection.

In reality, about one fourth of all ISDS claims have been brought by individuals or very small corporations, according to a comprehensive OECD study. This share of the caseload increases significantly if also medium-sized companies are included. Conversely, the same survey found that the very large multinational companies count for only 8% of the known cases.

Unlike the impression often painted in the debate, a minority of claims relate to public health or environmental protection. By way of example, one of the sectors with most ISDS claims launched in the last few years is the renewable energy sector, as many states have recently withdrawn different incentives for renewable energy investments. Some international investors claim that these measures violate the Energy Charter Treaty, which has led to over 20 arbitration cases.  Many of these solar and wind power companies are relatively small.

It also deserves pointing out that a large number of investment treaty claims have been launched by private persons (see cases listed at www.italaw.com).