CORPORATE SOCIAL RESPONSIBILITY CLAUSES IN INVESTMENT TREATIES: A PANACEA OR A PLAGUE?
- Ayodeji Akindeire
Keywords: CSR, Clauses, IIAs, ISDS
Corporate Social Responsibility (CSR) is a concept that has not only gained prominence in the socio-environmental interplay of corporate activities within a state, but has also taken a place of pride in international investment law. Within the context of this article, CSR refers to rules and practices that multinational enterprises (MNEs) follow, to limit the negative socio-environmental impact(s) of their operations in the host-states[i].
It is noteworthy that in investor-state dispute settlement (ISDS) cases, tribunals have shown little or no recognition to treaties and obligations that are not directly related to the investment subject matter in dispute, especially on grounds of lack of jurisdiction to entertain such. As a result, investors seem to gain a measure of inordinate immunity from acts that may constitute breach of CSR obligations whilst States in turn embark on a reprisal voyage of breaching its obligation under the treaties. To address this concern and to be mindful of the far-reaching human rights implications that may continue to ensue, States have, in more recent history adopted the practice of including CSR provisions in their international investment agreements (IIAs), of course, by way of treaties. Some of these treaties direct States to encourage investors to voluntarily incorporate into their internal policies, those internationally recognized standards, guidelines and principles of CSR,[ii] or directly encourage investors and their investments to strive to make maximum feasible contributions to the sustainable development of the host State.[iii] However, most IIAs impose a duty on the investors and/or investments to respect the international environmental, labor and human rights obligations that are binding on the host state.[iv] This, indeed is a strong departure from the common practice of the majority of existing IIAs which are more or less silent on these provisions.
At this juncture. it is imperative to expatiate a little on the two categories of obligations created under the IIAs as succinctly stated in the preceding paragraph to wit: the mandatory obligation and the voluntary or ‘maximum efforts’ obligation. Whilst the mandatory clauses have, in unmistakable terms, imposed a CSR obligation on the investors and their investments with the attendant compliance expectations, the maximum efforts clauses in some IIAs are by their very nature far from being encouraging. For example, Article 15 of Southern African Development Community (SADC) Model BIT provides in part that investors and their investments: “shall undertake or cause to be undertaken….” (Article 15.1); “shall act in accordance with….” (Article 15.2); “shall not establish, manage or operate….” (Article 15.3). The operative word ‘shall’ is a strong indication that the agreement intends a very strict compliance on the part of the investors with respect to the CSR obligations contained therein rather than just being discretionary, or leaving it to the regulatory compliance purview of the host-State, which is not without its own challenges. To say the least, this provision as well as similar provisions contained in some other IIAs are indeed commendable.
On the other hand, the provisions of the Argentina-Japan BIT 2018 for instance, as well as the Morocco-Nigeria BIT 2016 which stipulates the “maximum efforts” obligation are merely discretionary. For example, Article 17 of the Argentina-Japan BIT 2018 enjoins host-States to encourage investors to voluntarily incorporate CSR principles into their internal policies. Similarly, Article 24 of the Morocco-Nigeria BIT 2016 uses the phrase ‘strive to’ in all its provisions. As ambitious as these provisions may seem, their compliance and perhaps, eventual enforcement may, at best, become a grope in the dark before an arbitral tribunal and the reason is not far-fetched. The host-State would have to adduce evidence to clearly establish that the investor has indeed failed in good faith to take all reasonable steps towards upholding the provision of the treaty. This entails weighing the various options available to the investor at the time of compliance with the treaty obligations and whether the option chosen could be considered as the best at that material time. This burden of proof is not only onerous but unimaginably daunting. In this circumstance, it is not uncommon that an investor would most likely find an inroad of escape from this obligation.
In light the above, it becomes expedient that for CSR obligations to become binding and enforceable under IIAs and before arbitral tribunals alike, such an agreement wherein they are contained must provide for mandatory obligations expected of an investor rather than mere discretionary obligations. It would be recalled that series of codes of conduct, guidelines and regulations have been formulated by some international organizations such as the Organization for Economic Co-operation and Development (OECD), United Nations Conference on Trade and Development (UNCTAD), amongst others. However, these instruments, being voluntary codes of conducts, have been less effective and by far inefficient in addressing the need to make CSR obligations enforceable against an investor in cases of violation- which is why discretionary wordings of these obligations in IIAs would further weaken rather than strengthen the jurisprudence of enforceability.
Further to the foregoing, it goes without saying that whilst having these CSR obligations provided for in most IIAs is a good panacea, it however would become a plague if there are no viable enforcement mechanisms to infuse life into them. Although it is admitted that the list of applicable measures is inexhaustible, applying the following measures would be steps in the right directions: (a.) as earlier discussed, IIAs should make provisions covering CSR obligations mandatory rather than a voluntary or maximum efforts obligation; (b.) as contained in the Morocco-Nigeria BIT 2016[v] for example, IIAs can include provisions subjecting an investor to civil actions before the courts of the host-State; (c.) allowing the host-State to initiate an arbitration proceedings or file a counter-claim against an investor that is in breach of any of these obligations; (d.) an investor’s breach of CSR obligation can be made to limit the investor’s access to jurisdiction of an arbitral tribunal by making compliance with such obligation a legality requirement;[vi] (e.) tribunals can take the investor’s conduct into account when calculating the compensation payable. For example, Article 23 of the Dutch Model BIT 2018 incorporates that in determining the amount of compensation, arbitral tribunals may take into consideration the investor’s non-compliance with its commitment under the United Nations Guiding Principles on Business and Human Rights (UNGPB) and OECD Guidelines. Although arbitral tribunals are not under obligation to apply the principles contained in the guidelines referred to under the Dutch Model BIT 2018 or ensure their compliance by an investor, it however lends credence to how CRS obligations could also determine the measure of damages to be awarded in ISDS cases.
In conclusion, CSR is a concept that has come to stay in international investment law. It is not out of place to begin to have a policy reform on the various ways through which these environmental, labor and human rights obligations can be better recognized in IIAs to make them mandatory obligations rather than being accorded a maximum or best effort approach. This reform should also be extended to the enforcement mechanisms of these obligations. In terse, CSR clauses in IIAs are a panacea to the growing concern of environmental, labor and human right issues in international investment law; however, it may as well become a plague if the international arbitration community fail to undertake the needed policy reforms.
Ayodeji Akindeire is an International Arbitration, International Trade and Investment Law legal practitioner currently based in Washington DC, United States, and an alumnus of the prestigious American University Washington College of Law.
Preferred Method of Citation – Ayodeji Akindeire, ‘Corporate Social Responsibility Clauses in Investment Treaties: A Panacea or A Plague? (ICAR, 10 November, 2020)<https://www.investmentandcommercialarbitrationreview.com/post/corporate-social-responsibility-clauses-in-investment-treaties-a-panacea-or-a-plague>.
 For instance, See Articles VI, V, VI of OECD Guidelines for Multinational Enterprises 2011 Edition https://www.oecd.org/daf/inv/mne/48004323.pdf  See: Article 17 Argentina-Japan BIT 2018  See: Article 24 Morocco-Nigeria BIT 2016  See: Article 15 Southern African Development Community (SADC) Model BIT 2012; Article 14 Brazil-Ethiopia BIT 2018  See: Article 20  See: Cortec Mining V. Kenya (ICSID Case No. ARB/15/29), where the Tribunal, after considering the relevant provisions of the Kenya-United Kingdom BIT, declined jurisdiction to entertain the investor’s claims on the ground that the investor had failed to comply with the environmental impact assessment requirements imposed for the mining projects under Kenyan law.
The views and opinions expressed in the article are those of the author(s) solely and do not reflect the official position of the institution(s) with which the author(s) is /are affiliated. Further, the statements of the author(s) produced herein should not be construed as legal advice.