Research Handbook on Environment and Investment Law 2018960952, 9781784714635, 9781784714628

Table of contents :
Front Matter
Copyright
Contents
List of contributors
1. International investment law and the environment: introduction
Part I: Environmental issues and investment law
2. Foreign investment and the environment in international law: current trends
3. Sustainable development and international investment law
4. Water and investment
5. Combating climate change through the promotion of green investment: from Kyoto to Paris without regime-specific dispute settlement
6. International investment law and biodiversity
7. Environment and human rights in an investment law frame
Part II: Disputes, procedure and practice in the field
8. Treatment standards in environment-related investor-state disputes
9. Procedural issues and innovations in environment-related investor-state disputes
10. The use of science in environment-related investor-state arbitration
11. Green multilateralism: ‘mega FTAs’ and the changing interface between environmental regulation and investment protection
12. Does the green economy need investor-state dispute settlement?
Part III: Regional perspectives
13. Going green? The evolution of environmental provisions in India’s investment treaties
14. Stabilization clauses in long-term investment contracts in the energy sector in Africa
15. Environmental concerns and China’s international investment agreements
16. Balancing economic objectives and environmental considerations in new EU investment agreements: a brave new world?
17. Investment claims against Latin American states: environmental protection and the applicable law
Part IV: Identity, critique and conceptualisation
18. Environment, foreign investment and gender
19. Natural resources and indigenous cultural heritage in international investment law and arbitration
20. Local communities, environment and development: the case of oil and gas investment in Africa
21. Socially and environmentally responsible investment
Index

Citation preview

RESEARCH HANDBOOK ON ENVIRONMENT AND INVESTMENT LAW

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RESEARCH HANDBOOKS IN ENVIRONMENTAL LAW This highly topical series addresses some of the most important questions and areas of research in Environmental Law. Each volume is designed by a leading expert to appraise the current state of thinking and probe the key questions for future research on a particular topic. The series encompasses some of the most pressing issues in the field, ranging from climate change, biodiversity and the marine environment through to the impacts of trade, regulation, and sustainable development.  Each Research Handbook comprises specially-commissioned chapters from leading academics, and sometimes practitioners, as well as those with an emerging reputation and is written with a global readership in mind. Equally useful as reference tools or high-level introductions to specific topics, issues and debates, these Handbooks will be used by academic researchers, post-graduate students, practising lawyers and lawyers in policy circles.   Titles in the series include: Research Handbook on Climate Change Adaptation Law Edited by Jonathan Verschuuren Research Handbook on Climate Change Mitigation Law Edited by Geert Van Calster, Wim Vandenberghe and Leonie Reins Handbook of Chinese Environmental Law Edited by Qin Tianbao Research Handbook on International Marine Environmental Law Edited by Rosemary Rayfuse Research Handbook on Biodiversity and Law Edited by Michael Bowman, Peter Davies and Edward Goodwin Research Handbook on Fundamental Concepts of Environmental Law Edited by Douglas Fisher Research Handbook on Freshwater Law and International Relations Edited by Mara Tignino and Christian Bréthaut Research Handbook on Environment and Investment Law Edited by Kate Miles

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Research Handbook on Environment and Investment Law

Edited by

Kate Miles Fellow and Lecturer in Law, Gonville and Caius College, Cambridge, UK

RESEARCH HANDBOOKS IN ENVIRONMENTAL LAW

Cheltenham, UK • Northampton, MA, USA

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© Kate Miles 2019 All rights reserved. No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form or by any means, electronic, mechanical or photocopying, recording, or otherwise without the prior permission of the publisher. Published by Edward Elgar Publishing Limited The Lypiatts 15 Lansdown Road Cheltenham Glos GL50 2JA UK Edward Elgar Publishing, Inc. William Pratt House 9 Dewey Court Northampton Massachusetts 01060 USA

A catalogue record for this book is available from the British Library Library of Congress Control Number: 2018960952 This book is available electronically in the Law subject collection DOI 10.4337/9781784714635

ISBN 978 1 78471 462 8 (cased) ISBN 978 1 78471 463 5 (eBook)

06

Typeset by Servis Filmsetting Ltd, Stockport, Cheshire

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Contents List of contributorsvii   1. International investment law and the environment: introduction  Kate Miles

1

PART I  ENVIRONMENTAL ISSUES AND INVESTMENT LAW   2. Foreign investment and the environment in international law: current trends  Jorge E. Viñuales

12

  3. Sustainable development and international investment law Andrea K. Bjorklund

38

  4. Water and investment Ursula Kriebaum

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  5. Combating climate change through the promotion of green investment: from Kyoto to Paris without regime-specific dispute settlement  Freya Baetens

107

  6. International investment law and biodiversity Anastasia Telesetsky

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  7. Environment and human rights in an investment law frame Elliot Luke

150

PART II  DISPUTES, PROCEDURE AND PRACTICE IN THE FIELD   8. Treatment standards in environment-related investor-state disputes Chester Brown and Domenico Cucinotta   9. Procedural issues and innovations in environment-related investor-state disputes  Judith Levine and Nicola Peart 10. The use of science in environment-related investor-state arbitration Jacqueline Peel 11. Green multilateralism: ‘mega FTAs’ and the changing interface between environmental regulation and investment protection Sam Luttrell 12. Does the green economy need investor-state dispute settlement? Kyla Tienhaara

175

209 244

264 292

v

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vi  Research handbook on environment and investment law PART III  REGIONAL PERSPECTIVES 13. Going green? The evolution of environmental provisions in India’s investment treaties  Romesh Weeramantry and Montse Ferrer

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14. Stabilization clauses in long-term investment contracts in the energy sector in Africa Sotonye Frank

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15. Environmental concerns and China’s international investment agreements Danni Liang

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16. Balancing economic objectives and environmental considerations in new EU investment agreements: a brave new world?  Rumiana Yotova

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17. Investment claims against Latin American states: environmental protection and the applicable law  Gabriel Bottini and Elisa Méndez Bräutigam

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PART IV  IDENTITY, CRITIQUE AND CONCEPTUALISATION 18. Environment, foreign investment and gender Rachel J. Anderson

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19. Natural resources and indigenous cultural heritage in international investment law and arbitration Valentina Vadi

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20. Local communities, environment and development: the case of oil and gas investment in Africa Ibironke T. Odumosu-Ayanu

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21. Socially and environmentally responsible investment  Benjamin J. Richardson

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Index525

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Contributors Rachel J. Anderson is Professor of Law at the William S. Boyd School of Law, University of Nevada, Las Vegas. She is a member of the Board of Directors of the American Society of Comparative Law and the Executive Committee of the American Association of Law School’s Comparative Law Section.  Her scholarly focus includes foreign investment and corporate governance as well as gender issues.  Freya Baetens (Cand. Jur./Lic.Jur. (Ghent); LLM (Columbia); PhD (Cambridge)) is Professor of Public International Law at the PluriCourts Centre of Excellence (Faculty of Law, Oslo University). She is also affiliated with the Europa Institute (Faculty of Law, Leiden University). As a Member of the Brussels Bar, she regularly acts as counsel or expert in international disputes. She is listed on the Panel of Arbitrators and Conciliators of the International Centre for the Settlement of Investment Disputes (ICSID), the South China International Economic and Trade Arbitration Commission (Shenzhen Court of International Arbitration) and the Hong Kong International Arbitration Centre (HKIAC). She specialises in the law of treaties, responsibility of states and international organisations, law of the sea, WTO and investment law, energy law and sustainable development. Andrea K. Bjorklund is Full Professor and the L. Yves Fortier Chair in International Arbitration and International Commercial Law at McGill University Faculty of Law. In 2017 she was named one of McGill’s Norton Rose Scholars in International Arbitration and International Commercial Law. In addition to serving as an adviser to the American Law Institute’s project on restating the US law of international commercial arbitration, she is a member of the Advisory Board of the Investment Treaty Forum of the British Institute for International and Comparative Law. She is on the NAFTA Chapter XIX panel of arbitrators. Her scholarly work focuses on international investment law, commercial and investment arbitration, and the intersection of public and private international law. Gabriel Bottini is a partner at the law firm Uría Menéndez and a member of the firm’s international arbitration practice. He also acts as arbitrator. He is the former National Director of International Affairs and Disputes of the Treasury Attorney-General’s Office of Argentina. The Treasury Attorney General’s Office defends Argentina before international arbitral tribunals. Dr Bottini has extensive experience in ICSID, UNCITRAL and ICC arbitration. He teaches public international law at the University of Buenos Aires, has lectured at many universities and international organisations around the world on issues of investment arbitration and international law and has published extensively on such matters. Dr Bottini holds a law degree magna cum laude from the University of Buenos Aires, an LLM from New York University School of Law, and a PhD from the University of Cambridge. Chester Brown is Professor of International Law and International Arbitration at the University of Sydney Law School, and Co-Director of the Sydney Centre for vii

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viii  Research handbook on environment and investment law International Law. He is also a barrister at 7 Wentworth Selborne Chambers, Sydney, and an overseas associate of Essex Court Chambers, London, and Maxwell Chambers, Singapore. He teaches and researches in the fields of public international law, international dispute settlement, international arbitration, international investment law and private international law. He also maintains a practice in these fields, and has been involved as counsel in proceedings before the International Court of Justice, the Iran–United States Claims Tribunal, inter-State and investor-State arbitral tribunals, inter-State conciliation proceedings and international commercial arbitrations. Domenico Cucinotta is Associate in the International Arbitration Group of White & Case LLP, based in the Paris office. He is also Assistant Editor of the ICSID Review – Foreign Investment Law Journal. Previously, Domenico was an assistant legal counsel at the Permanent Court of Arbitration in The Hague where he provided administrative assistance to arbitral tribunals in inter-State, investor-State and contractually based arbitrations involving States, State-owned entities and NGOs. Domenico obtained his Bachelor of Laws (Hons I) from the University of Sydney and his Master of Laws (Distinction) from King’s College, London. Montse Ferrer is a New York-qualified lawyer currently pursuing a dual degree midcareer programme at Harvard Kennedy School and the Graduate Institute of International and Development Studies, Geneva. She previously worked in the New York, Singapore, Hong Kong and Washington DC offices of Clifford Chance for more than six years. Sotonye Frank is Lecturer-at-Law, Rivers State University of Science and Technology, Port Harcourt, Nigeria, and Senior Associate, Ntephe, Smith & Wills, Port Harcourt, Rivers State, Nigeria. Dr Frank provides legal and business advisory services in energy and mining law, corporate and commercial law and sustainable development law. He has worked on and consulted for governments and IOCs regarding energy law and policy, as well as environmental, human rights and sustainable development issues in the energy sector. He also provides legal and research support to several corporate and governmental bodies. Dr Frank teaches petroleum and international economic law modules to postgraduate students at the Rivers State University of Science and Technology in Port Harcourt. Ursula Kriebaum is Professor of Public International Law at the University of Vienna. Professor Kriebaum received her legal education at the University of Vienna (Austria) and the University of Bourgogne (Dijon, France). She received the Diploma of the International Human Rights Institute – Strasbourg in 1995, her Dr jur (JD) with distinction in 1999 and her Dr jur habil in 2008 (both from the University of Vienna). Her roles include Member of the Permanent Court of Arbitration, Alternate Member of the Court of Conciliation and Arbitration within the OSCE, Expert for the Human Dimension Mechanism of the OSCE appointed by Austria, Member of the Arbitration panel for the Protocol on Cultural Cooperation to the Free Trade Agreement between the European Union and its Member States and the Republic of Korea. She teaches international law, investment law and human rights law at the University of Vienna and acts as a legal expert in international investment law and human rights law cases. Judith Levine is Senior Legal Counsel at the Permanent Court of Arbitration, where she serves as Registrar in interstate arbitrations and assists tribunals in investor-state, contract

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Contributors  ix and business and human rights disputes. She is a visiting fellow at the Sydney University Centre for International Law and a visiting lecturer on global climate law at King’s College London, and has previously practised in the international arbitration group of White & Case LLP in New York. Danni Liang is Associate Professor, Faculty of Law, School of Law, Sun Yat-Sen University. She completed her PhD in international law at Wuhan University, China, in 2006 and also obtained a Master of Laws and an LLB from Sun Yat-Sen University. She was a visiting scholar at Vermont School of Law, United States, in 2008. From 2012 to 2014, she was a member of the delegation group of the Chinese government taking part in the consultation on the UNCITRAL Transparency Rules and Mauritius Transparency Convention, and also the negotiation of the China–US BIT. Elliot Luke is an Associate in the International Arbitration Group of Freshfields Bruckhaus Deringer based in Washington, DC. He has previously practiced in the international arbitration and commercial litigation teams of law firms in Melbourne, Paris and London. From 2012 to 2014, he was a research fellow at Melbourne Law School, where his research focused on international human rights law. He has been Scholar in Residence at the Center for Human Rights and Global Justice at NYU School of Law on two occasions, in 2013 and 2014. He holds an LLM from the University of Cambridge, an MSc in Development Studies from the London School of Economics and Political Science, a JD from the University of Melbourne and a BA from University College London. Sam Luttrell is Partner in the International Arbitration Group at Clifford Chance, based in Perth. His practice covers international commercial arbitration and investor-State arbitration, with a focus on disputes in the energy and resources sectors. He is individually ranked in Chambers Global (Band 1 – Arbitration) and recognised for his expertise in all major legal industry guides. In addition to his work as counsel, Sam is a member of the ICC Commission on Arbitration and ADR and has published extensively on international arbitration and international investment law. Elisa Méndez Bräutigam is an LL.M. student and international arbitration fellow at Georgetown University Law Center. Previously, she worked as junior associate at the law firm Uría Menéndez Abogados SLP. She worked in the international commercial arbitration and international investment arbitration department under the supervision of Dr Gabriel Bottini and Dr Miguel Virgós. During her law degree, she gained experience in the arbitration field by working in international law firms in Germany and Spain. Elisa passed the Spanish Bar Exam in May 2017. Kate Miles is a Fellow and Lecturer in Law at Gonville and Caius College, Cambridge. Specialising in international investment law and international environmental law, she is also a Fellow of the Lauterpacht Centre for International Law, University of Cambridge, and a Fellow of the Cambridge Centre for Environment, Energy and Natural Resource Governance (C-EENRG). Dr Miles has served on the International Law Association’s Study Group on the Role of Soft Law Instruments in International Investment Law and coordinated the international investment law network for the Society of International Economic Law (SIEL). She previously served as the Deputy Director of the Australian Centre for Climate and Environmental Law, University of Sydney, and has acted as

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x  Research handbook on environment and investment law a consultant to APEC, the United Nations Conference on Trade and Development (UNCTAD) and the International Development Law Organization (IDLO) on matters related to investor-state arbitration and climate change. Ibironke T. Odumosu-Ayanu is Associate Professor at the College of Law, University of Saskatchewan. She was previously Sessional Lecturer at the Faculty of Law, University of British Columbia where she earned her PhD in Law. Dr Odumosu-Ayanu has served as a consultant for the United Nations University (UNU) on a UNCTAD/UNU project. She has served on boards, including in the role of Vice President of the Canadian Law and Society Association. Dr Odumosu-Ayanu has received several research grants, including a Social Sciences and Humanities Research Council (SSHRC) Standard Research Grant, a SSHRC Insight Development Grant and a SSHRC Connections Grant. She serves on the editorial boards of a number of journals. Nicola Peart is a barrister specialising in international arbitration and public international law. She was formerly Assistant Legal Counsel at the Permanent Court of Arbitration, where she assisted with a number of interstate and mixed arbitrations on matters relating to energy and natural resources, environmental law and the law of the sea. Jacqueline Peel is Professor of Law at Melbourne Law School, University of Melbourne, Australia and Associate Director of the Law School’s Centre for Resources, Energy and Environmental Law. She has written widely on topics in the environmental and climate law fields, including on the role of science in environmental dispute resolution and in international risk regulation. Benjamin J. Richardson is Professor of Environmental Law at the University of Tasmania. Outside of academia he is active in Tasmania in a variety of community environmental organisations and citizen science projects caring for nature. Anastasia Telesetsky is Professor at the University of Idaho College of Law in the Natural Resources and Environmental Law Program. She is Co-chair of the American Bar Association’s International Environmental Law Committee and a member of the International Union for Conservation of Nature’s World Commission on Environmental Law. Kyla Tienhaara is  Canada Research Chair in Economy and Environment at Queen’s University, Canada. She is the author of The Expropriation of Environmental Governance: Protecting Foreign Investors at the Expense of Public Policy (Cambridge University Press, 2009) and Green Keynesianism and the Global Financial Crisis (Routledge, 2018). Valentina Vadi is Professor of International Economic Law at Lancaster University, United Kingdom and a Grotius Research Fellow at Michigan Law School, United States (2018–19). She was formerly a reader in International Business Law at the same university (2013–15), an Emile Noël Fellow at the Jean Monnet Centre for International and Regional Economic Law at New York University (2013–14) and a Marie Curie postdoctoral fellow at Maastricht University (2011–13). She has published more than 80 articles in various areas of public international law in top journals including Harvard International Law Journal, Vanderbilt Journal of Transnational Law and Columbia Human Rights Review. She is the coeditor (with Hildegard Schneider) of Art, Cultural Heritage

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Contributors  xi and the Market: Legal and Ethical Issues (Springer, 2014) and (with Bruno De Witte) of Culture and International Economic Law (Routledge, 2015), and the author of Cultural Heritage in International Investment Law and Arbitration (Cambridge University Press, 2014). Jorge E. Viñuales is Harold Samuel Professor of Law and Environmental Policy at the University of Cambridge, where he founded the Cambridge Centre for Environment, Energy and Natural Resource Governance (C-EENRG). He is also Chairman of the Compliance Committee of the UNECE/WHO-Europe Protocol on Water and Health, a member of the Panel of Arbitrators of the Shanghai International Arbitration Centre, the Director-General of the Latin American Society of International Law, and an Of Counsel with Lalive. Prior to joining Cambridge University, he was the Pictet Chair of International Environmental Law at the Graduate Institute, Geneva, where he keeps a limited affiliation as Adjunct Professor of Public International Law. Romesh Weeramantry is Counsel at Clifford Chance in Singapore, specialising in investment treaty disputes and crossborder commercial arbitrations. His publications include Treaty Interpretation in Investment Arbitration (Oxford University Press, 2012) and International Commercial Arbitration: An Asia-Pacific Perspective (Cambridge University Press, 2011).  He is General Editor of the Asian Dispute Review and Adjunct Professor of Law at the University of Hong Kong.    Rumiana Yotova is a Fellow and Lecturer in Law at Gonville and Caius College, Cambridge, and Affiliated Lecturer at the Faculty of Law, University of Cambridge. She practises as a door tenant at Thomas More Chambers. Rumiana completed her PhD in Cambridge under the supervision of Professor James Crawford. Her research interests are in the areas of general international law, international dispute settlement, investment law and EU external relations.

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1. International investment law and the environment: introduction Kate Miles

Public international law forms an umbrella framework under which its various substantive areas of law sit. The fragmentation this represents is a well-known phenomenon in international law and its implications are manifold.1 A key aspect of this fragmentation and increasing specialisation is the potential for competing norms to encounter each other within the international legal space. There seem to be several mechanisms for resolution of this available in theory, and not a great deal of consistency in practice. One area of contestation in particular has attracted controversy, largely due to the public interest issues implicated, the asymmetries in dispute settlement approaches and the prioritising of one set of norms over another – environmental law, policy and protection objectives and international investment law. The environment/investment nexus became a high-profile international issue through a number of coinciding, parallel channels. On one level, the damaging effects of the activities of multinational corporations on the environment and the health and well-being of local communities formed the backdrop against which international legal issues would be played out. Catastrophic examples of this mode of encounter included the Bhopal disaster, the ‘dieback’ experienced downstream from the BHP copper and gold mine at Ok Tedi and Chevron/Texaco’s leaching of crude oil into the Amazonian ecosystem. At the same time as such micro-level incidents were occurring, global environmental issues that involved multinational corporate operations, such as climate change and the need for the widespread adoption of policies aimed at achieving sustainable development, were appearing in international instruments. The environment/investment nexus also became particularly visible in the late 1990s in the context of investor-state arbitration, when environment-related investment disputes began to be filed with international tribunals, which then triggered extensive protests regarding the negotiation of a Multilateral Agreement on Investment under the auspices of the Organisation for Economic Co-operation and Development (OECD). From that point onwards, the interaction between the treatment of environmental issues and norms and the rules contained within international ­investment agreements remained controversial. The multiplicity of forms taken by that interaction is the core theme of this book. What emerges out of these chapters is a sense that we are still very much in the process of articulating the exact nature of the relationship between environmental protection and foreign investment protection and that there persists a need to ascertain where on the scale 1   See, for example, the International Law Commission, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission, finalised by M. Koskenniemi, UN Doc. A/CN.4/L.682 (13 April 2006).

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2  Research handbook on environment and investment law of contestation a ‘balanced’ approach should lie. At its core, it remains a debate about the way in which the ‘public’ and the ‘private’ should be reconciled within international law, but it is also clear that the discourse in the environment/investment field has shifted to a deeper, more indepth and sophisticated level. It has moved beyond identifying the issues to a general recognition that there are problems and to an interrogation of the detail, engaging with the complexities, nuance and variance within subareas of environmental issues and exploring options for resolution of conflicting objectives and outcomes. The discourse now also acknowledges the difference in perspectives among stakeholders and commentators, and that there is room for divergence in interpretation and proposed solutions. This book is an illustration of the capacity to encompass that varied landscape. In fact, it is fascinating to see the possible diversity of viewpoints on well-known cases and principles. Where the same disputes are discussed in several chapters, very different perspectives are brought to the analysis by the different authors, each taking a distinct angle for their enquiry or situating the dispute within the context of the subject of their individual chapters. In this sense, there are, at times, substantive overlaps, but there is also variance in interpretations, viewpoints and stances on those issues. This is precisely a reflection of the more sophisticated place at which the discourse has now arrived, and those chapters represent a cross-section of approaches to key cases that involve the interaction of environmental protection and investment law. The structure of the volume is designed to excavate the environment/investment nexus in such a way as to reflect the multiple angles from which we can understand its nature. For this reason, each of the chapters can stand alone as an indepth analysis of a specific issue. But they also all interact and create a cohesive whole, providing a comprehensive account of the interaction between the environment and investment law. Part I of the volume takes as its starting point an environmental platform, analysing the relationship from the angle of specific environmental issues. It opens with a chapter by Professor Jorge Viñuales examining the current ‘state of play’ in the interaction between environmental protection objectives and international investment law. In particular, he examines what he calls ‘the trends that have moved from forecast to reality’, and in that process also engages in further forecasting. To this end, he discusses environmental clauses in international investment agreements, the surge in investment claims with environmental components and more progressive modes of interpretation, all of which contribute to a normalising of environmental reasoning in investment jurisprudence. A key theme of Professor Viñuales’ chapter is that mainstream actors in international investment law and arbitration are increasingly aware of the significance of environmental matters within the investment context and that this is indicative of a change in ‘mindset’ within the field. Furthermore, with a view to the future, Professor Viñuales considers that the space for consideration of environmental protection within international economic law is a continuously expanding and evolving one. Having set the stage with an assessment of general trends in the field in Chapter 2, Part I continues with a detailed examination of individual environmental issues. Professor Andrea K. Bjorklund considers that most fundamental of relationships in the investment and environment nexus – sustainable development and international investment law. She explores the initiatives states are taking to reconcile the protection of investment with principles of sustainable development and the protection of human, animal and plant life and health. In the course of her discussion, Professor Bjorklund articulates the nature of sustainable

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International investment law and the environment  3 development as a concept and principle and the incorporation of non-economic objectives into investment treaties. She analyses the tensions and potential synergies between international investment law and sustainable development through the lens of an iconic case, Bilcon v Canada.2 Mirroring the conclusions of Professor Viñuales, Professor Bjorklund argues that treaty drafters, investors and tribunals in investor-state disputes are unquestionably more cognisant of the need to consider the principle of sustainable development, but she also points to a series of challenges that remain. In particular, she highlights the inherent intrusion into state sovereignty represented by investment treaties and the decisions of investment tribunals, and the difficulties of differentiating between permissible and undesirable constraint of state action; she explores the complexities of competing interests and different ‘sustainabilities’ of separate stakeholders requiring protection; and she suggests the need for more proactive engagement to promote closer harmonising of objectives. The remaining chapters of Part I are linked through the shared approach that is taken by each author, namely a close examination of the interrelationship of a key sub-area of environmental law and policy with international investment law – water, climate change, biodiversity and biotechnology, and environment and human rights. A recurring theme throughout these chapters is the exploration of the current space within investment treaty regimes for non-investment considerations, and this is very much reflected in Chapter 4 by Professor Ursula Kriebaum, examining water. She emphasises the multifaceted nature of water as a vital source of life, a commodity and a scarce resource; as such, she paints a picture of an entity that not only has environmental implications and holds commercial value, but also incites an emotional response from humans. Professor Kriebaum delineates the types of investment cases that have an impact on water, being those that have arisen out of privatisation in the water sector and those that arise in a variety of industries that have a potential to degrade water quality or have a negative impact on the marine environment. In her chapter, she traverses the international legal framework for water, explores requirements for access to clean water and assesses the way in which investment tribunals have approached the complex, layered nature of water-related cases. As with water, climate change is also a particularly controversial area in which the investment and environment fields meet. Again, the theme of reconciling the needs of both private investment and public interest is very much to the fore in Chapter 5, by Professor Freya Baetens. She examines the way in which climate change-related investment disputes are addressed within the generic investor-state arbitral framework rather than any regime-specific climate dispute settlement system. She considers investment projects implemented under the Kyoto Protocol, the role envisaged for private investment under the Paris Agreement and the potential conflicts between investment protection standards and domestic measures implementing climate change mitigation objectives. Professor Baetens then explores climate-related investment disputes that have already arisen both in a contract and a treaty context. In terms of a way forward and a more harmonised approach, she essentially argues for shifts in future treaty drafting and cautious climate-friendly reinterpretations of existing principles and investment protection standards by arbitral tribunals.

2   William Ralph Clayton et al and Bilcon of Delaware, Inc. v Government of Canada, UNCITRAL, Award on Jurisdiction and Liability (17 March 2015).

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4  Research handbook on environment and investment law A subset of the environment/investment relationship that is perhaps less frequently examined is that of the implications for biodiversity and biotechnology. Associate Professor Anastasia Telesetsky fills that gap in Chapter 6, exploring the multiple dimensions to this mode of interaction. She first considers how investment law might shape future investments in emerging biodiversity-reliant industries, before setting out the potential investment implications of state strategies to conserve biodiversity, such as the creation of protected areas. She analyses the concluding of ‘access and benefit sharing agreements’ as a formal investment mechanism in sustainable biodiversity. She also examines private investment in biodiversity protection through the provision of ecosystem services and initiatives such as habitat banking, biodiversity offsets and ‘biobanking’. Again, much like each of the authors in this volume, Professor Telesetsky moves beyond identification of the contentious issues to provide an indepth analysis of their implications and the potential avenues for reconciliation of competing interests, in this case through better biodiversity management and more accountable international investment. The final chapter in this first part of the book examines the complex three-way intersection of the environment and investment with human rights. As a very concrete illustration of this juncture, Elliot Luke begins his analysis with the Indonesian forest fires of 2015 and the speculation at the time that the environmental destruction could give rise to investment arbitration as well as constituting a violation of Indonesia’s international human rights obligations. From this standpoint, Luke reviews the development of the separate substantive regimes and then presents a sketch of the way in which investment law accounts for the links between the environment and human rights. In so doing, he considers various proposals to integrate different fields within international law and applies those approaches to the environment/investment and human rights interconnection. Part II of this book focuses on specific areas of engagement encompassed within a framework of ‘Disputes, Procedure and Practice in the Field’. In contrast to Part I, this section takes as its starting platform investment law perspectives. This includes a comprehensive exposition on investment treatment standards in environment-related investor-state disputes, the role played by procedure in the environment/investment nexus, the increasing significance of science in environment-related investment disputes, the controversies surrounding notions of ‘green multilateralism’ and the interplay of investor-state arbitration and the green economy. Each chapter addresses contentious issues that have arisen in the course of experiencing the environment and investment law relationship in practice and in treaty-drafting. Opening this section, Professor Chester Brown and Domenico Cucinotta provide a full account of what the core investment treatment standards entail. In this chapter we find a detailed analysis of the guarantees of protection against expropriation, the obligation to accord fair and equitable treatment to investors and the requirements to provide most-favoured-nation treatment and national treatment. Recognising the potential for conflicting demands on states between fulfilling these obligations and those under international environmental agreements, the authors look to rules of public international law, such as those contained in the Vienna Convention on the Law of Treaties,3 as a possible source through which to reconcile those

3   Vienna Convention on the Law of Treaties, opened for signature 23 May 1969, 1155 UNTS 311 (entered into force 27 January 1980).

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International investment law and the environment  5 competing obligations. The chapter then appraises a series of key investment disputes that have raised environmental considerations and gives particular attention to the way in which arbitral tribunals have sought to rationalise their decision-making. In this way, the discussion embodies Part II’s emphasis on the practice of dispute resolution in the field and the experience of the environment/investment interlinking as an outcome of arbitral proceedings. A further key component of such an analysis is, of course, the procedural framework that shapes the context for the hearing of those disputes, which is the angle adopted in the next chapter in Part II. In recent years, the importance of procedure in investor-state arbitration has become more widely appreciated – and it is no different for the environment/investment nexus. With this in mind, in Chapter 9 Judith Levine and Nicola Peart articulate the significance of procedural developments for environment-related investment disputes, identifying particular procedural issues that relate to two characteristics common in environmentrelated cases, being the public interest and technical evidence. In reviewing individual claims, the authors focus on aspects of transparency and confidentiality, the involvement of non-parties, the appointment of technical experts, the conduct of site visits and the management of costs. They also reflect upon evolving procedural innovations that may be particularly relevant for environment-related investment disputes, including the development of subject-specific, bespoke arbitral rules and specialist arbitrator panels; alternative methods of dispute resolution; and the monitoring of post-award compliance. The core message from this chapter is the adaptability of arbitration as a dispute settlement tool and its suitability for the resolution of environmental disputes. The discussion in this chapter on the significance of procedure, and in particular on the use of technical experts for environment-related investor-state arbitration, leads into detailed examination of one aspect of this area in Chapter 10. In this regard, Professor Jacqueline Peel looks specifically at the use of science in such cases. Given the specialist expert knowledge required to understand complex environmental systems and impacts, scientific data plays an inherent and central role in disputes with an environmental component. Professor Peel explores the way in which international courts and tribunals have had to make sense of such technical information and to engage with questions that go to the heart of the relationship between law and science. In the practice of investor-state arbitration, tribunals determining disputes with an environmental element have also had to confront similar questions around the appropriate use of science. Professor Peel examines the different approaches to the role of science that can be discerned from these cases and the methods adopted by tribunals for evaluating the scientific evidence and risk assessments used by states to justify their environmental regulatory measures. In so doing, she also brings into the discussion the role of the precautionary principle in managing scientific uncertainty and proof of harm, and the part experts play in advising arbitrators and informing arbitral decisions. In analysing well-known cases – Metalclad v Mexico,4 Methanex v United States,5 Bilcon v Canada6 – through   Metalclad Corporation v Mexico (ICSID Case No ARB(AF)/97/1, Award of 30 August 2000).   Methanex Corporation v United States (Final Award on Jurisdiction and Merits of 3 August 2005). 6   William Ralph Clayton et al and Bilcon of Delaware, Inc. v Government of Canada, UNCITRAL, Award on Jurisdiction and Liability (17 March 2015). 4 5

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6  Research handbook on environment and investment law the lens of their use of science, Professor Peel not only draws out a new understanding of these specific cases, but also adds another layer to environment-related investor-state arbitration more broadly. The negotiation of high-profile multilateral free trade and investment agreements has been particularly contentious. One of the most recent is the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11) and this is the prism through which Dr Sam Luttrell analyses the relationship between environmental protection and investment law in Chapter 11. In particular, he argues that the two objectives of protecting the environment and promoting economic development are being balanced in the new generation of multilateral investment treaties as exemplified by TPP11. As a practitioner in the field of investor-state arbitration, Dr Luttrell provides a valuable perspective for those seeking to understand the implications of the environment/investment nexus for advising clients, whether states or investors. With this in mind, he sets out treaty frameworks the practitioner will encounter, including a sketch of the history of bilateral investment treaties and multilateralism. Dr Luttrell then focuses on the substantive treaty protections of expropriation and fair and equitable treatment and defences available under customary international law, following which he moves to a close analysis of the TPP11, describing it as ‘the most recent expression of green multilateralism’. He explains how the TPP11 states have drafted provisions so as to preserve their rights to regulate in key areas, including protection of the natural environment, and then considers in detail the investment chapter of the treaty. He also speculates on the increasing centralisation of investor-state dispute settlement and argues that the prospect of standing international investment courts can only be a positive development for the consideration of environmental protection in investment disputes. The final chapter of Part II assesses the workings of the investor-state dispute settlement system from the angle of facilitating the transition to a green economy. Assistant Professor Kyla Tienhaara evaluates claims that investor-state arbitration can make a positive contribution to environmental protection through its capacity to incentivise the injection of foreign capital into renewable energy projects, because it provides security for investors against regulatory change and therefore assists with building a low-carbon, ‘green’ economy. Assistant Professor Tienhaara focuses particularly on assertions that have been made in light of disputes filed against Canada regarding wind energy projects and Spain’s solar cases. She explores the different understandings of what a green economy means and argues that, on any conceptualisation, there is little evidence to suggest that the investor-state dispute settlement system has a positive role to play in supporting the emergence of a green economy. In fact, she argues, the need for wind and solar investments specifically to receive protection from investment treaties is now limited and declining. Having examined the issues from more generalised environmental and investment viewpoints in Part I and II, the book takes a different path in Part III. Appreciating that geographic considerations can result in very different perspectives on the environment/ investment nexus, Part III explores regional approaches to the relationship between environmental protection and international investment law. This section begins with a discussion by Dr Romesh Weeramantry and Montse Ferrer on the shift in emphasis of India’s more recent investment treaties and their increasingly prevalent exceptions for environmental regulation. The authors provide a detailed account of India’s 2015 Model

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International investment law and the environment  7 BIT and examine the impact of a particularly significant award made against India, White Industries v India,7 which was a contributing factor in subsequent changes to treaty drafting designed to ensure greater regulatory space for India. They also explore India’s current environmental concerns, energy needs and economic development objectives and how these tensions converge in the investment context. In particular, they draw attention to the future ‘flash point’, as these competing interests increasingly meet, that is likely to occur around the provisions in India’s latest investment treaties that expressly carve out discretion for the government to regulate the environment. The convergence of energy, environment and local community needs is also a theme in Chapter 14, as Dr Sotonye Frank examines an aspect of the environment/investment relationship that is of particular concern for many states in Africa – the use of stabilisation clauses in long-term investment contracts in the energy sector. Dr Frank articulates the heightened political risk and vulnerability of investments in the oil, gas and electricity industries because they tend to involve projects of a particularly capital intensive and long-term nature. He argues that it is therefore common for investors in this sector to seek out stabilisation clauses to ensure that the regulations governing their investment will not change to their detriment, and that this is particularly so for projects in Africa, where the perception of risk is higher than for other regions. He points to the potential implications of such clauses for host state regulatory space and, in particular, for the sustainable development trajectories of African states. Dr Frank analyses the types and scope of stabilisation clauses used in Africa’s energy sector, concluding that there is little evidence that a willingness to provide stabilisation clauses correlates to an increase in foreign investment inflows in this region and that although a wide variety of approaches are being adopted in stabilisation clauses, there is also currently a distinct move away from the more expansive forms to narrower models that exclude changes in environmental and health regulation. In other words, African states are increasingly offering clauses that allow for more flexibility so as to create greater space for host state regulatory needs. The meeting of interests in energy, development, environment and investment is a potentially contentious mix in yet another setting – in Chapter 15, that of China. In her chapter, Associate Professor Danni Liang conveys a sense of the complex modes of interaction that are evident in the environment/investment relationship from China’s perspective. Encompassing both the positive and negative effects of foreign investment in China, Associate Professor Liang’s chapter discusses the rapid economic growth experienced in China and its accompanying environmental degradation, particularly the concerns expressed at the levels of air and water pollution in the country. Against this backdrop, she considers the different phases in the drafting of China’s international investment treaties and tracks the appearance of environmental concerns in such agreements. She identifies the increasing insertion of text relating to environmental protection that goes beyond preambular language and contains substantive obligations. Such provisions include requirements to maintain environmental standards, the preservation of environmental regulatory space, environment-related expropriation clauses and carve-outs containing general exceptions or more specific exceptions for public welfare regulation. Associate

7   White Industries Australia Limited v Republic of India, UNCITRAL, Award of 30 Nov. 2011, Final Award.

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8  Research handbook on environment and investment law Professor Liang argues that this new generation of China’s investment treaties indicates a steadily increasing appreciation of the need for express integration of environmental concerns into investment treaties. She then considers the way in which, through a focus on sustainable development, China’s future treaty-drafting decisions could reconcile still further the needs of both investment and environmental protection in China’s investment agreements. In a similar vein to Associate Professor Liang’s assessment of China’s approach to its investment treaties, in Chapter 16 Dr Rumiana Yotova discusses the extent to which new European Union (EU) investment agreements balance economic protection and environmental considerations. She explains that the content of the new generation of EU investment treaties needs to be seen in the context of states responding to the early awards of investor-state tribunals that did not take adequate account of noninvestment interests and that this is an attempt to remedy that failure through treaty drafting. In considering a series of reform agendas, Dr Yotova first examines the Founding Treaties of the EU for their approach to balancing the competing interests of environmental protection and investment. She also explains how the EU’s internal institutional structures impact on its approach to the environment/investment nexus and the formulation of the new EU International Investment Policy, focusing in particular on the acts of the European Commission, the European Parliament and the Council of the EU. A detailed analysis of key EU investment treaties follows, pointing to a general trend in the strengthening of environmental protection references within such agreements, but suggesting that they are perhaps not as strong or progressive as might have been expected. Latin American states have been respondents in a substantial number of investor-state arbitrations; this is also a region particularly rich in biodiversity. Accordingly, the final chapter in Part III considers the environment/investment linking from a Latin American perspective. Dr Gabriel Bottini and Elisa Méndez Bräutigam examine the defences relating to environmental protection that have been advanced by Latin American states in investment arbitration and unpick the legal tension between such arguments and investment protection obligations. The authors provide a thorough, state-by-state description of the environment-related investment claims that have been faced by states in Latin America. They then focus on questions around the extent to which non-investment national or international law may feature in determining whether an investment treaty obligation has been breached. In particular, they analyse general principles of international law, including rules relating to ascertaining the applicable law in international disputes, and argue that it is consistent with those general principles for tribunals to consider environmental obligations that are binding on the host state when deciding the merits of investment treaty claims. Part IV of the volume takes a more atypical look at the environment/investment law convergence and explores issues that have in some respects perhaps received less attention in the mainstream literature to date. In this section, the authors examine not solely the relationship between environmental issues and investment protection, but that relationship as it pertains to other important, but less traversed, considerations. Its framing is that of ‘identity and perspective; critique and conceptualisation’ so as to encapsulate the varied, yet also fundamentally shared, approaches taken by the authors in this section. Opening the enquiry, in Chapter 18 Professor Rachel J. Anderson investigates specifically

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International investment law and the environment  9 the relationship between environment, foreign investment and gender. She identifies the ways in which women and girls are both affected by and influence foreign investment and the environment and argues that this mode of interaction is currently underrepresented and undervalued in international legal research. Her chapter seeks to contribute to a remedying of that state of affairs. She draws attention to the problem of genderblindness in research, where gender is not considered to be an important factor in legal and policy decisions and outcomes. Professor Anderson also points to the inaccuracy of the widely held assumption that men and women experience the same impacts from foreign investment and environmental considerations, showing that gender in fact plays numerous and varied roles in regulation, policies and outcomes in both environmental and foreign investment law and policy. In Chapter 19, Professor Valentina Vadi then takes the discussion into a consideration of the treatment of natural resources and indigenous cultural heritage in international investment law and arbitration. She examines the United Nations Declaration on the Rights of Indigenous Peoples,8 and the entwining of indigenous cultural identity, human rights and environmental identity. Professor Vadi sets out the ways in which indigenous cultural identity, particularly the dimensions relating to relationships with land and natural resources, have been engaged in investor-state arbitration and examines the approaches adopted by tribunals in key cases. She argues that cultures collide in the encounter of international investment law and indigenous cultural heritage and that that collision renders it all the more important to strengthen current regimes protecting indigenous heritage, including ensuring the participation of indigenous peoples in the decisions that affect them and their heritage. The themes of the critique of international investment law and its relationship with the environment taken up in Professor Vadi’s chapter continue into the analysis provided in Chapter 20, but here they are considered specifically from a development perspective. Associate Professor Ibironke T. Odumosu-Ayanu examines the environment/investment nexus as an issue interlinking local communities, environmental considerations and development objectives, and analyses these connections through a particularly significant case study – that of oil and gas investment in Africa. Acknowledging the contested nature of the concept of ‘development’, Associate Professor Odumosu-Ayanu focuses on the perspective of the local community, as the stakeholder most impacted by such projects and, at the same time, the group most marginalised in decision-making. She illustrates her arguments through a dissection of the Chad–Cameroon Petroleum Development and Pipeline Project, which promised ‘development’ and ‘poverty alleviation’ as well as environmental integrity. Her analysis points to the adoption of a hierarchical approach to local community engagement in projects of this kind that defeats the objectives of development. Exploring the implementation of modes of resistance and mechanisms for local community engagement, Associate Professor Odumosu-Ayanu makes the point that investor-state awards demonstrate ‘an unease with the place of local communities in the foreign investment and environmental protection conversation’. She highlights how crucial it is to incorporate the voices of local communities into not only the design of

8   United Nations Declaration on the Rights of Indigenous Peoples, G.A. Res. 61/295, UN Doc. A/RES/61/295 (13 September 2007).

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10  Research handbook on environment and investment law largescale oil and gas projects that inherently implicate environmental and development considerations, but also the international investment law that governs such projects. Chapter 21 offers yet another conceptualisation of the environment/investment fusion, in this instance engaging with notions of socially and environmentally responsible investment, and examines the shaping of the relationship between environmental and economic performance by the financial sector. Professor Benjamin J. Richardson first sets out the environmental impacts of financial markets and institutions themselves and argues for a more extensive role for finance in the promotion of sustainable development. He delineates the concept of ‘socially and environmentally responsible investment’, or ‘SRI’, and identifies current barriers to the wider embracing of the SRI market. Professor Richardson then explores areas to enhance the relevance of SRI and suggests ways in which those barriers can be overcome. Ultimately, he discusses the positive message on SRI that needs to be promoted beyond solely better financial returns, particularly that it contributes to a ‘more just society, a better economy and a healthier environment’. This book draws out the complex and multilayered dimensions of the relationship between environmental protection, foreign investment and international law. Seeking to provide a detailed account of those dimensions, the individual chapters move beyond generalisations and merely identifying modes of interaction between these fields. In fact, a full volume dedicated to the subject including multiple authors allows not only for indepth investigations, but also for the multiplicity of perspectives that exist in this area. In addressing a specific issue, position or standpoint, each chapter examines the precise concerns relevant for that manifestation of the environment/investment connection, together with their implications, possible pathways for reform and likely future directions. And, as a whole, these chapters knit together so as to present a comprehensive exploration of the relationship between environmental protection and international investment law. It is clear from this enquiry that the character of that relationship is still being drawn and its articulation is an involved and ongoing process. As treaty-drafters, policy-makers, arbitrators, states, investors and stakeholders continue to contend with the full spectrum of approaches to the mixing of public and private within international law, it is also clear that the diversity of views will enrich that discourse, deepen our understanding of the issues and generate ever more sophisticated responses – ultimately, that interaction is not relevant solely for the environment and investment fields, but also speaks to the engagement of investment law with other non-investment areas, as well as for the issue of competing interests and conflicting norms within international law more generally. It is hoped that the chapters in this volume will contribute in a meaningful way to those conversations.

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PART I ENVIRONMENTAL ISSUES AND INVESTMENT LAW

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2.  Foreign investment and the environment in international law: current trends Jorge E. Viñuales*

1.  INTRODUCTION Several years have passed since the relationship between the laws governing foreign investment and environmental protection first started to receive well-deserved attention.1 What was foreseeable then is clear now. The increased momentum to move from a resource-inefficient and polluting socioeconomic model to one with a lower environmental footprint is resulting in significant regulatory change, and much more is coming. One major objective of such change is to harness the financial and technological strength of the private sector to promote environmental protection, which, despite the prevailing ‘synergistic’ discourse, can unfortunately not be achieved without some significant tensions arising from cost internalisation or investment shifting measures that adversely affect economic operators. Yet, the transition from a brown to a green economy is in motion, and its fine print, including the regulatory and litigation risks it entails, is taking an increasingly recognisable shape. This chapter is about trends that have moved from forecast to reality. It is also about more forecasting. And it is, above all, about understanding how environmental protection is gaining ground in the international law of foreign investment and in the mindset of those whose profession is to clarify it and apply it. The analysis is structured into *  Harold Samuel Professor of Law and Environmental Policy, University of Cambridge, and Of Counsel, Lalive. Any views expressed herein are in my academic capacity only. The chapter takes into account developments until October 2017. 1   For specific studies see M. Montini, Investimenti internazionali, protezione dell’ambiente, e sviluppo sostenibile (Giuffre, 2015); K. Miles, The Origins of International Investment Law. Empire, Environment and the Safeguard of Capital (Cambridge University Press, 2013); S. di Benedetto, International Investment Law and the Environment (Edward Elgar, 2013); A. Romson, Environmental Policy Space and International Investment Law (PhD dissertation, University of Stockholm, 2012); J.E. Viñuales, Foreign Investment and the Environment in International Law (Cambridge University Press, 2012); S. Robert-Cuendet, Droits de l’investisseur étranger et protection de l’environnement. Contribution à l’analyse de l’expropriation indirecte (Martinus Nijhoff, 2010); J.E. Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’ (2009) 80 British Yearbook of International Law 244–332. Some edited volumes have been devoted to this connection: Y. Levashova, T. Lambooy and I. Dekker (eds), Bridging the Gap between International Investment Law and the Environment (Eleven International Publishing, 2015); P.-M. Dupuy and J.E. Viñuales (eds), Harnessing Foreign Investment to Promote Environmental Protection: Incentives and Safeguards (Cambridge University Press, 2013); M.-C. Cordonier-Segger, M.W. Gehring and A. Newcombe (eds), Sustainable Development in World Investment Law (Kluwer, 2010). There are, in addition, many articles and chapters on this issue. See in particular the dossier devoted to the topic by the Journal of World Investment and Trade, vol. 18/1 (2017) (edited by D. Behn and O.K. Fauchald) and by the Yearbook of International Environmental Law, vol. 17/1 (2007) (edited by O.K. Fauchald).

12

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Foreign investment and the environment in international law  13 four s­ ections. The first three sections chart the main developments from an empirical perspective. Based on a dataset of 117 investment claims with environmental components compiled by the author, as well as on a number of important reports issued by organisations such as the UNCTAD and OECD, these sections update the three trends identified in my previous work on the subject, namely: increasing reference to the role of the private sector in international environmental negotiations (section 2); the mirror effect that can be detected in international investment agreements (IIAs), which include more and more references to environmental protection in their wording (section 3); and the surge in investment claims with environmental components (section 4). I then turn to legal analysis proper and focus on the legal meaning that can be derived from the practice charted in the previous sections (section 5). Specifically, my purpose is to capture, through an analysis of the investment jurisprudence, a shy yet sufficiently discernible change of mindset regarding the place given to environmental considerations in investment litigation. This subtle, ongoing mindset change is consolidating what I have called an ‘upgraded’ traditional approach to the relations between international investment law and environmental protection, namely one where environmental protection evolves within the space granted to it by international economic law but, unlike in a merely ‘traditional’ approach, such space is constantly growing.2 Section 6 of the chapter concludes, summarising the main current trends regarding foreign investment and the environment in international law.

2. THE ROLE OF PRIVATE INVESTMENT IN THE 2030 AGENDA FOR SUSTAINABLE DEVELOPMENT By the end of 2011, the great emphasis placed on the concept of ‘green economy’ by influential organisations such as the United Nations Environment Programme (now UN Environment) or the World Bank suggested that the rationale for environmental protection was moving from the mere internalisation of negative environmental externalities to a more resolute focus on green industrial policy emphasising green business opportunities. As I wrote then, whereas sustainable development was about doing as well as possible in economic terms while respecting the environment, the promise of the green economy was to do better in economic terms by focusing on green business. According to some organisations, freedom of investment was to be ‘harnessed’ or investment (although mostly public investment) shifted to promote ‘green growth’.3 This message has been echoed by some reports, such as Better Growth, Better Climate, which emphasised the synergies between policies aimed at both prosperity and decarbonisation.4 Yet, at the same time,

2   See J.E. Viñuales, ‘The Environmental Regulation of Foreign Investment Schemes under International Law’, in Dupuy/Viñuales, above n 1, pp.273–320. 3   See Organisation for Economic Co-operation and Development (OECD), Harnessing Freedom of Investment for Green Growth, Freedom of Investment Roundtable, 14 April 2011, available at: www.oecd.org (visited on 2 September 2017); United Nations Environment Programme (UNEP), Towards a Green Economy: Pathways to Sustainable Development and Poverty Eradication (2011), available at: www.unep.org/greeneconomy (visited on 2 September 2017). 4   See e.g. Global Commission on the Economy and Climate, Better Growth, Better Climate. The

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14  Research handbook on environment and investment law other organisations have warned that liberalising and protecting foreign investment could in fact thwart environmental protection at the domestic level by placing excessive bounds on States’ regulatory activity.5 Such warnings, which many foreign investment practitioners have tended to underestimate, became more pressing in the context of the negotiation of several megaregional agreements, and particularly the Trans-Atlantic Trade and Investment Partnership (TTIP) between the United States and the EU. This is the broad context that must be kept in mind when assessing the role envisioned for foreign investment in the main outcome of sustainable development negotiations, namely in the document entitled Transforming Our World: The 2030 Agenda for Sustainable Development (the ‘2030 Agenda’).6 Let me briefly describe this instrument before focusing on the role of foreign investment. The 2030 Agenda has four main components: a short preamble, a ‘Declaration’, a set of 17 ‘Sustainable Development Goals’ (SDGs) and a set of observations on implementation (both through means of implementation and a review system). The preamble states the core components of the 2030 Agenda, which are remarkably similar to those of the Rio Declaration on Environment and Development; namely, these are an overall framework given by ‘peace’ and ‘partnership’ (cooperation), within which social development (‘people’), environmental protection (‘planet’) and economic growth and development (‘prosperity’) are to be pursued. The Declaration further spells out these core components. Importantly, in a section devoted to ‘Our shared principles and commitments’, the Declaration emphasises the role of international law,7 as well as of the principles of the Rio Declaration (mentioned twice), and particularly the common but differentiated responsibilities principle.8 There is much that could be said about this rather long Declaration but, for present purposes, I shall add only two observations. First, the Declaration specifically highlights what has become the main use of international public finance in the environmental arena, namely ‘to catalyse additional resource mobilization from other sources, public and private’.9 Second, the Declaration provides the context to the main component of the 2030 Agenda, namely the SDGs. There are 17 SDGs overall; 16 are of a substantive nature and the last, SDG 17, focuses on implementation. Each SDG is broken down into a number of targets, with a total

New Climate Economy Report (2014), available at: http://2014.newclimateeconomy.report/ (visited on 2 September 2017). 5   See United Nations Commission on Trade and Development (UNCTAD), World Investment Report. Towards a New Generation of Investment Policies (2012), chapter IV (Investment Policy Framework for Sustainable Development). See also the report specifically on the IPFSD, available at: http://unctad.org/en/PublicationsLibrary/diaepcb2012d5_en.pdf (visited on 2 September 2017); International Institute for Sustainable Development (IISD), IISD Draft Model International Agreement on Investment for Sustainable Development (2005), available at: www.iisd.org (visited on 2 September 2017). 6   See United Nations, Transforming Our World: The 2030 Agenda for Sustainable Development, available at : https://sustainabledevelopment.un.org/post2015/transformingourworld (visited on 2 September 2017). 7   Ibid, Declaration, para. 10. 8   Ibid, Declaration, para. 12. 9   Ibid, Declaration, para. 43.

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Foreign investment and the environment in international law  15 number of 169 targets which have been further clarified through specific indicators for measuring performance. Broadly speaking, SDGs have five main characteristics: (1) they are expressly presented as integrated and indivisible, thus no hierarchy must be derived from the order in which different issues are addressed; (2) they are country-based, which means that, while recognising the importance of global, regional and subregional efforts, they place the essential responsibility at the national level; (3) they concern all countries, not just developing countries (an important difference between the SDGs and the Millennium Development Goals, or MDGs); (4) they emphasise the different positions of countries and the ensuing need for differentiation; and (5) they emerge from a truly inclusive and open process (which, again, is an important difference from the topdown approach followed to draw the MDGs). Finally, the 2030 Agenda specifically addresses the means of implementation, including finance, technology transfer and performance review. The latter two are provided institutional solutions in the form of, first, a Technology Facilitation Mechanism,10 and, second, a system of performance review featuring the High Level Political Forum created at the Rio 2012 Summit.11 The financial component is particularly important in order to understand the role envisioned for private investment. In this regard, one can generally identify three main aspects of this role. The first, as noted above, is the recognition of private finance leveraged by international public funds.12 Most of the funds mobilised by the Global Environmental Facility were, indeed, the result of leveraging, and the World Bank’s private sector engagement practice has also privileged this approach.13 The second aspect is the reference to private sector investment in the 2030 Agenda document. In addition to the references in targets 17.3 (‘mobiliz[ing] additional financial resources for developing countries from multiple sources’) and 17.5 (‘[a]dopt[ing] and implement[ing] investment promotion regimes for least developed countries’), three substantive targets relating to food security, energy and inequality among countries specifically refer to the promotion of ‘investment’.14 At the same time, perhaps as a result of the high-profile debate over investment arbitration and regulatory chill, target 17.15 of the Agenda specifically highlights, as a ‘systemic issue’ under SDG 17, the need to ‘[r]espect each country’s policy space and leadership to establish and implement policies for poverty eradication and sustainable development’.15 The third aspect is found in an extension of the 2030 Agenda to incorporate a document adopted earlier in 2015, namely the Addis Ababa Action Agenda arising from the Third International Conference on Financing for Development.16 The 2030 Agenda contains an   Ibid, Means of Implementation and the Global Partnership, para. 70.   Ibid, Follow Up and Review, paras 82–90. 12   Ibid, Declaration, para. 43. 13   See Viñuales (2012), above n 1, pp. 42–45, 50. 14   2030 Agenda, above n 6, SDGs, targets 2.a, 7.a, and 10.b. 15   See also ibid, Means of Implementation and the Global Partnership, para. 63, which after affirming the need to ‘respect each country’s policy space and leadership to implement policies for poverty eradication and sustainable development’ adds ‘while remaining consistent with relevant international rules and commitments’. 16   Addis Ababa Action Agenda of the Third International Conference on Financing for Development (Addis Ababa Action Agenda), UNGA Resolution 69/313, 27 July 2015, UN Doc. A/RES/69/313, Annex. 10 11

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16  Research handbook on environment and investment law express renvoi to the Addis Ababa Agenda, which is thereby considered to be ‘an integral part of the 2030 Agenda for sustainable development’.17 Among the many references to private investment made in the Addis Ababa Agenda, the most important is the ‘Action area’ devoted to ‘Domestic and international private business and finance’. Paragraph 35 opens this section as follows: Private business activity, investment and innovation are major drivers of productivity, inclusive economic growth and job creation. We acknowledge the diversity of the private sector, ranging from microenterprises to cooperatives to multinationals. We call upon all businesses to apply their creativity and innovation to solving sustainable development challenges. We invite them to engage as partners in the development process, to invest in areas critical to sustainable development and to shift to more sustainable consumption and production patterns. We welcome the significant growth in domestic private activity and international investment since Monterrey. Private international capital flows, particularly foreign direct investment, along with a stable international financial system, are vital complements to national development efforts.

This paragraph is complemented by two others, which make more direct reference to the legal dimension of foreign investment: We recognize the important contribution that direct investment, including foreign direct investment, can make to sustainable development, particularly when projects are aligned with national and regional sustainable development strategies . . . We will encourage investment promotion and other relevant agencies to focus on project preparation. We will prioritize projects with the greatest potential for promoting full and productive employment and decent work for all, sustainable patterns of production and consumption, structural transformation and sustainable industrialization, productive diversification and agriculture. Internationally, we will support these efforts through financial and technical support and capacity-building and closer collaboration between home and host country agencies. We will consider the use of insurance, investment guarantees, including through the Multilateral Investment Guarantee Agency, and new financial instruments to incentivize foreign direct investment to developing countries, particularly least developed countries, landlocked developing countries, small island developing States and countries in conflict and post-conflict situations . . . We note with concern that many least developed countries continue to be largely sidelined by foreign direct investment that could help to diversify their economies, despite improvements in their investment climates. We resolve to adopt and implement investment promotion regimes for least developed countries. We will also offer financial and technical support for project preparation and contract negotiation, advisory support in investment-related dispute resolution, access to information on investment facilities and risk insurance and guarantees such as through the Multilateral Investment Guarantee Agency, as requested by the least developed countries.18

This is a clear endorsement of the possible synergies between foreign investment and sustainable development, including environmental protection. It is perhaps the most significant recognition of such synergies made in a sustainable development instrument so far.

17 18

  2030 Agenda, above n 6, Means of Implementation and the Global Partnership, para. 62.   Addis Ababa Action Agenda, above n 16, paras 45–46.

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Foreign investment and the environment in international law  17

3. ENVIRONMENTAL CONSIDERATIONS IN FTAS AND MEGAREGIONALS The increasing integration of private investment in sustainable development instruments is mirrored by the increasing reference to sustainable development and, more specifically, environmental considerations in international investment agreements. To assess this trend – which was already noticeable in the 2000s and even earlier, impelled by NAFTA,19 as well as the Uruguay Round, one can refer to a number of studies conducted under the aegis of UNCTAD and the OECD.20 I have discussed the increasing reference to environmental considerations in IIAs in some detail elsewhere.21 The trend towards the inclusion of environmental clauses is very clear. Although only a minority of all IIAs contain such clauses, a significant part of those concluded in recent years do so. More specifically, an OECD report published in 2011 and covering 1623 IIAs (approximately half of all IIAs) found that only 8.2 per cent of IIAs analysed included express references to environmental concerns,22 but since the mid 1990s ‘the proportion of newly concluded IIAs that contain environmental language began to increase moderately, and, from about 2002 onwards, steeply . . . reaching a peak in 2008, when 89% of newly concluded treaties contain[ed] reference to environmental concerns’.23 Two other reports issued in 2014 confirmed this trend and provided further details on, first, the contribution of FTA practice as well as the negotiation of so-called megaregional agreements, and, second, the main drivers of the increasing integration of environmental concerns.24 Regarding the first point, an UNCTAD Report analysing 18 IIAs (11 BITs and 7 FTAs) that were concluded in 2013 shows that the majority of these treaties contain environmental references in the form of preambular language or GATT-like exceptions, or anti-race-to-the-bottom provisions. A minority (5 out of 18) also contain a reference to corporate social responsibility (CSR) standards in the form of either a separate clause or preambular language. Importantly, a variety of clauses and mechanisms are also part of the negotiation of megaregional agreements. Among these, the above UNCTAD Report mentions, in addition to the familiar GATT-like exceptions, CSR promotion clauses and regulatory cooperation mechanisms involving exchange of draft laws/regulations and trade/investment conformity evaluations. Another, more finegrained study discusses the

  North American Free Trade Agreement, 17 December 1992, 32 ILM 296.   See OECD, Environment and Regional Trade Agreements (OECD, 2007) (‘OECD 2007’); J. Bourgeois, K. Dawar and S.J. Evenett, A Comparative Analysis of Selected Provisions in Free Trade Agreements (2007), available at: www.kamaladawar.com (visited on 2 September 2017); UNCTAD 2012, above n 5; UNCTAD, World Investment Report 2014. Investing in the SDGs (2014) (‘UNCTAD 2014’), available at: www.unctad.org (visited on 2 September 2017); C. George, ‘Environment and Regional Trade Agreements: Emerging Trends and Policy Drivers’, OECD Trade and Environment Working Papers, 2014/02 (‘OECD 2014’), available at: http://dx.doi.org/10.1787/5jz0v4q45g6h-en (visited on 2 September 2017). 21   Viñuales (2012), above n 1, pp.14–17. 22   K. Gordon and J. Pohl, ‘Environmental Concerns in International Investment Agreements: A Survey’ (2011) OECD Working Papers on International Investment No 2011/1 (‘OECD 2011’), p.8. 23   Ibid, p.8. 24   OECD 2014 and UNCTAD 2014, both above n 20. 19 20

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18  Research handbook on environment and investment law sustainable development provisions/chapters included in the generation of EU FTAs adopted since 2007,25 on the basis of the mandate given by the 2006 Global Europe Communication,26 on the one hand, and the 2006 Renewed Sustainable Development Strategy (‘SDS’), on the other.27 These provisions/chapters, included in a number of EU economic partnership agreements such as those with CARIFORUM States, South Korea, Central America, Colombia and Peru, present several commonalities: essentially, a reference to ‘context and objectives’ followed by provisions on the right to regulate, the role of MEAs, the obligation not to lower environmental regulation to attract trade and investment, the promotion of green trade and investment, cooperation and implementation mechanisms, among others.28 Moving to the second point, a 2014 OECD Report devoted to environmental considerations in FTAs (hence not specifically to investment) sheds light on the reasons underpinning the integration of such considerations in treaty practice. One such reason is the ‘commitment’ made by several countries or trade blocks, in either domestic legislation or policy instruments, to integrate environmental considerations in their trade negotiations. I mentioned earlier the impulsion provided in the EU context by the 2006 SDS and the Global Europe Communication. The 2014 OECD Report surveys other similar commitments in countries or trade areas such as Australia, Canada, Chile, the European Free Trade Association, Japan, New Zealand, Switzerland and the United States.29 But underpinning these commitments are more fundamental policy objectives, which can be considered as the true drivers of environmental integration. The Report identifies four such objectives: ‘(1) to contribute to the overarching goal of sustainable development; (2) to ensure a level playing field among Parties to the agreement; (3) to enhance co-operation in environmental matters of shared interest; and (4) pursuing an international environmental agenda.’30 Interestingly, and perhaps unsurprisingly, the policy objective more frequently pursued is ‘to ensure a level playing field among Parties to the agreement’, or in other words to protect the environment for instrumental – competition – reasons. This is what arises from the answers provided by ten delegations (representing 31 countries) of the OECD Joint Working Programme on Trade and Environment to a questionnaire circulated by the authors of the Report.31 The promotion of sustainable development follows competitiveness closely, with a slight difference. The quantification of policy rationales underpinning certain provisions or their link to one of the aforementioned drivers is a delicate exercise that leaves room for different interpretations. This said, 25   R. Zvelc, ‘Environmental Integration in EU Trade Policy: The Generalised System of Preferences, Trade Sustainability Impact Assessments and Free Trade Agreements’, in E. Morgera (ed.), The External Environmental Policy of the European Union; EU and International Law Perspectives (Cambridge University Press, 2012), pp.174–203. 26   Commission, ‘Communication – Global Europe: Competing in the World: A Contribution to the EU’s Growth and Jobs Strategy’, COM (2006) 567. 27   Council, ‘Review of the EU Sustainable Development Strategy (EU SDS) – Renewed Strategy’, 26 June 2006, p.21, available at: http://register.consilium.europa.eu/doc/srv?l=EN&f=ST%2010917%​ 202006%20INIT (visited on 3 September 2017). 28   Zvelc, above n 25, pp.195–200. 29   OECD 2014, above n 20, pp.14–19. 30   Ibid, p.14. 31   Ibid, pp.11–12.

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Foreign investment and the environment in international law  19 the 2014 OECD Report provides important evidence that the inclusion of environmental provisions in FTAs is not merely a matter of green ideology. Quite to the contrary, economic liberalisation remains a major – perhaps the main – policy driver. Despite the increasing use of different provisions integrating environmental considerations, their actual operation in investment dispute settlement has only recently started to be addressed. Indeed, aside from trade litigation concerning GATT Article XX exceptions,32 which may shed some light on how similarly worded exceptions in FTAs would operate, other types of provisions, most appropriately characterised as ‘carveouts’, have so far been discussed in only two cases,33 namely Al Tamimi v. Oman,34 referring to Article 10.10 of the US–Oman FTA,35 and Spence International Investments et al v. Costa Rica, which concerns Annex 10-C(4)(b) of CAFTA-DR.36 I will discuss these cases later in the chapter. For present purposes, suffice it to conclude that the trend towards increasing integration of environmental considerations in IIAs has intensified in recent years. As we shall see next, the analysis of investment jurisprudence points in a similar direction.

4. THE SURGE IN INVESTMENT CLAIMS WITH ENVIRONMENTAL COMPONENTS The most visible confirmation of the difficult relationship between the laws governing foreign investment and environmental protection is the surge in foreign investment disputes with environmental components in the last five years. This phenomenon is difficult to capture because on the one hand, it is unclear what cases must count as investment disputes with environmental components, and on the other, some of the information needed to clarify the trend is confidential or otherwise unavailable.37 This section is based on a set   General Agreement on Tariffs and Trade (1994), 1867 UNTS 187.   A potential exception to this statement is the 2000 partial award in S.D. Myers v. Canada, where the tribunal discussed the operation of Article 104 (and its Annex) of the NAFTA without applying it in casu. See S.D. Myers Inc. v. Canada, NAFTA Arbitration (UNCITRAL Rules), Partial Award (13 November 2000), paras 214–15 and 255–6. 34   Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Case No ARB/11/33, Award (3 November 2015). 35   Oman–United States Free Trade Agreement, 1 January 2009, available at: http://oman. usembassy.gov/fta-texts.html (visited on 4 September 2017). 36   Spence International Investments, LLC, Bob F. Spence, Joseph M. Holsten, Brenda K. Copher, Ronald E. Copher, Brette E. Berkowitz, Trevor B. Berkowitz, Aaron C. Berkowitz and Glen Gremillion v. Costa Rica, ICSID Case No UNCT/13/2 (‘Spence International Investments v. Costa Rica’). See Dominican Republic–Central America–United States Free Trade Agreement (initially concluded by and between the United States, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, later joined the Dominican Republic), 5 August 2004, 43 ILM 514. The tribunal issued an interim award on 25 October 2016 and then another version of the interim award, dated 30 May 2017, with some factual errors corrected. But for present purposes, the most relevant aspect of the dispute are the briefs of the nondisputing parties, which convey an ‘authentic interpretation’ of the CAFTA-DR. 37   According to the anonymised figures presented by a PCA (Permanent Court of Arbitration) legal counsel at a workshop in Oslo in early November 2015, several confidential cases have been brought in connection with the application of emissions reduction purchase agreement (ERPAs) under the Clean Development Mechanism set up by Article 12 of the Kyoto Protocol, Kyoto 32 33

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20  Research handbook on environment and investment law of 117 cases with environmental components filed between 1970 and 2015,38 which I have compiled over the past few years, drawing upon a variety of sources. Following previous work, by ‘investment disputes with environmental components’ I understand disputes that arise from the operations of investors: (a) in environmental markets (for example, landfilling, waste treatment, garbage collection, pesticides/chemicals, energy efficiency, renewable energy, emissions reduction, biodiversity compensation, and so on) and/or (b) in other activities where their impact on the environment or on certain minorities is part of the dispute (for example, tourism, extractive industries, pesticides/chemicals, water extraction or distribution) and/or (c) in disputes where the application of domestic or international environmental law is at stake.39 Almost half of the cases in the 117-strong set are still pending. Figure 2.1 lists the 65 cases that have either been concluded (whether decided, settled or discontinued) or where an environmentally relevant decision has been rendered. In many cases, environmental matters are dealt with marginally; sometimes they are avoided altogether, even when the proceedings have reached the merits phase. Figure 2.1 provides a simplified overview of the disputes and the type of environmental components at stake. However, given the large number of disputes that are still pending, one must use a different metric to better visualise the current trend, namely the number of disputes filed (rather than concluded) per year. Figure 2.2 describes the evolution in the number of investment disputes with environmental components filed per year for the entire set of 117. Figure 2.2 shows a steep increase in the number of investment disputes with environmental components filed in the period from 2012 to October 2015. A total of 60 such disputes have been filed since 2012, which amounts to nearly half of the entire set of 117. A significant proportion of these new disputes arise from energy transition policies, particularly the introduction and management of renewable energy policies in Spain, the Czech Republic and elsewhere. But there are also other types of disputes, mostly relating to environmental permitting, water, waste and the impact of extractive industries. Figure 2.3 provides an overview of the main type of areas where such disputes have emerged. As with any attempt at aggregating complex factual configurations into a limited number of simple labels, there is some margin of appreciation as to the category under which a dispute may be classified. Analytical charts are selective and they seek to highlight some features of the topography at the risk of obscuring others. Figure 2.3 is no exception. A more finegrained analysis would no doubt be required, but it is beyond the bounds of this chapter. The trend described by these figures is likely to further intensify in the future. The policy changes in the areas of water, food, energy and waste envisioned in instruments such as

Protocol to the United Nations Framework Convention on Climate Change, Kyoto, 11 December 1997, 2303 UNTS 148. 38   The dataset was correct as of October 2015. New data added to the included list (2016–present) does not modify the trends presented in the figures in this chapter, which are based on the 1970–2015 dataset. 39   Viñuales (2012), above n 1, p.17.

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Foreign investment and the environment in international law  21 Environment-related disputes decided in 1972 International Bank of Washington v. OPIC (1972) 11 I.L.M. 1216

Environmental component(s) Dispute concerning an alleged indirect expropriation as a result of forestry regulation

Environment-related disputes decided in 1992 Southern Pacific Properties (Middle East) Limited (SPP) v. Arab Republic of Egypt, ICSID Case No ARB/84/3, Award (20 May 1992)

Environmental component(s) Dispute relating to a touristic real estate development blocked by the listing of the pyramids site in the World Heritage List (WHL)

Environment-related disputes decided in 1995 Saar Papier Vertriebs GmbH v. Republic of Poland, UNCITRAL Rules, Award (16 October 1995)

Environmental component(s) Dispute relating to the prohibition of imports of waste paper based on a domestic environmental law

Environment-related disputes decided in 1998 Ethyl Corporation v. Government of Canada, NAFTA (UNCITRAL), Preliminary Award on Jurisdiction (24 June 1998)

Environmental component(s) Dispute concerning a Canadian environmental regulation banning trade in a gasoline additive

Environment-related disputes decided in 1999 Environmental component(s) Dispute concerning the cancellation of a Robert Azinian, Kenneth Davitian and Ellen Baca v. United Mexican States, ICSID Case No ARB(AF)/97/2, concession relating to waste collection and disposal Award (1 November 1999) Environment-related disputes decided in 2000 Compañía del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No ARB/96/1, Award (17 February 2000) Metalclad Corp. v United Mexican States, ICSID Case No. ARB(AF)/97/1, Award (25 August 2000) S.D. Myers Inc. v. Canada, NAFTA Arbitration (UNCITRAL Rules), Partial Award (13 November 2000) Emilio Agustín Maffezini v. Kingdom of Spain, ICSID Case No. ARB/97/7, Award (13 November 2000)

Environmental component(s) Dispute concerning the expropriation of land to establish a natural preserve Dispute concerning the refusal of permit to build a landfill and the subsequent reclassification of the land as an ecological preserve Dispute concerning trade measures interfering with the investor’s waste treatment activities Dispute concerning a chemical plant the construction of which started before completion of an environmental impact assessment

Environment-related disputes decided in 2003 Environmental component(s) Dispute concerning the nonrenewal of the Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No ARB(AF)/00/2, Award operational permit of a waste treatment facility (29 May 2003) Environment-related disputes decided in 2004 Waste Management Inc. v. United Mexican States, ICSID Case No ARB(AF)/00/3, Award (30 April 2004) MTD Equity Sdn Bhd and MTD Chile SA v. Republic of Chile, ICSID Case No ARB/01/7, Award (25 May 2004)

Environmental component(s) Dispute concerning the operation of a landfill

Environment-related disputes decided in 2005 Empresa Lucchetti S.A. and Lucchetti Peru S.A. v. Republic of Peru, ICSID Case No ARB/03/4, Award (7 February 2005) Methanex Corporation v. United States of America, NAFTA (UNCITRAL), Award (3 August 2005)

Environmental component(s) Dispute concerning the annulment of permits necessary for the operation of a food factory on the basis of environmental reasons Dispute concerning the adoption of an environmental regulation indirectly banning the product of the investor

Environment-related disputes decided in 2007 Bayview Irrigation District v. United Mexican States, ICSID Case No ARB(AF)/05/1, Award (19 June 2007)

Environmental component(s) Dispute concerning water rights arising from a treaty between the US and Mexico

Dispute concerning the refusal of a permit based on local zoning regulations

Figure 2.1 Investment disputes with environmental components – decided/settled/ discontinued

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22  Research handbook on environment and investment law Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No ARB/05/8, Award (11 September 2007)

Dispute concerning the construction of a parking lot affecting a UNESCO protected site

Environment-related disputes decided in 2008 Canadian Cattlemen for Fair Trade v. United States of America, NAFTA Arbitration (UNCITRAL Rules), Award on Jurisdiction (28 January 2008) Plama Consortium Ltd. v. Republic of Bulgaria, ICSID Case No ARB/03/24, Award (27 August 2008)

Environmental component(s) Dispute concerning certain bans and other restrictions on the imports of Canadian cattle under the US Animal Health Protection Act Dispute concerning a change in the domestic environmental laws rendering the investor liable for environmental remediation

Environment-related disputes decided in 2009 Glamis Gold Ltd. v. The United States of America, NAFTA Arbitration (UNCITRAL), Award (16 May 2009)

Environmental component(s) Dispute concerning delays and legislative/ regulatory action, based on considerations of environmental and cultural protection, that thwarted the investor’s mining operations

Environment-related disputes decided in 2010 Georg Nepolsky v. The Czech Republic, UNCITRAL Arbitration, Award (February 2010) Chevron Corporation and Texaco Petroleum Company v. Republic of Ecuador, PCA Case No. 34877 (UNCITRAL Rules), Partial Award on the Merits (30 March 2010), Final Award (31 August 2011) Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No ARB/03/17, Decision on liability (31 July 2010)  Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. The Argentine Republic, ICSID Case No ARB/03/19, Decision on liability (31 July 2010) Chemtura Corporation (formerly Crompton Corporation) v. Government of Canada, UNCITRAL, Award (2 August 2010) Piero Foresti, Laura de Carli and others v. Republic of South Africa, ICSID Case No ARB(AF)/07/1, Award (4 August 2010)

Environmental component(s) Dispute concerning a water extraction concession

Environment-related disputes decided in 2011 Grand River Enterprises Six Nations, Ltd, et al v. United States of America, NAFTA Arbitration (UNCITRAL Rules), Award (12 January 2011) Vattenfall AB, Vattenfal Europe AG, Vattenfall Europe Generation AG v. Federal Republic of Germany, ICSID Case No ARB/09/6 Award (11 March 2011) Commerce Group Corp and San Sebastian Gold Mines, Inc v. Republic of El Salvador, Award, ICSID Case No ARB/09/17, Award (14 March 2011) Sergei Paushok, CJSC Golden East Company and CJSC Vostokneftegaz Company v. The Government of Mongolia, UNCITRAL Rules, Award on Jurisdiction and Liability (28 April 2011) Dow Agrosciences LLC v. Government of Canada, NAFTA Arbitration (UNCITRAL Rules) (settled on 25 May 2011)

Environmental component(s) Dispute concerning alleged special economic rights held by indigenous peoples

Dispute concerning the release of liability for environmental damage in an agreement between the investor and the host State Dispute concerning a water distribution concession with consequences for the right to water Dispute concerning a water distribution concession with consequences for the right to water Dispute concerning a phaseout of certain pesticides on health/environmental grounds Dispute concerning the effects of post-apartheid redistribution policies based on economic, social and cultural rights

Dispute concerning the delays and the refusal of operational and water permits for the operation of a coalfired electricity generation plant Dispute concerning the refusal of an environmental permit to conduct gold mining operations Dispute concerning the alleged violation of environmental restoration obligations by an investor in gold mining Dispute concerning a phaseout of a pesticide on health/environmental grounds

Figure 2.1  (continued)

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Foreign investment and the environment in international law  23 William J. Greiber and Malbaie River Outfitters Inc. (Les pourvoiries malbaie inc.) v. Government of Canada, UNCITRAL Rules. Withdrawal Letter (10 June 2011) Vito G. Gallo v. Government of Canada, NAFTA (UNCITRAL), Award (15 September 2011) Konsortium Oeconomicus v. Czech Republic, UNCITRAL Rules, Decision for Termination of the Proceedings (5 December 2011) Société Française d’Etudes et de Conseil (SOFRECO) v. Republic of Chad, EDF Rules, Award (2011)

Dispute relating to the change in a lottery system allocating fishing permits for a touristic scheme

Environment-related disputes decided in 2012 Marion Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/08/1, Award (16 May 2012) Reinhard Unglaube v. Republic of Costa Rica, ICSID Case No. ARB/09/20, Award (16 May 2012) Accession Eastern Europe Capital AB and Mezzanine Management Sweden AB v. Republic of Bulgaria, ICSID Case No ARB/11/3, Procedural order of discontinuance (23 July 2012) Naftrac Limited v. National Environmental Investment Agency (Ukraine), PCA Arbitration (Optional Environmental Rules), Award (4 December 2012)

Environmental component(s) Dispute concerning the creation of a natural preserve in foreign-owned lands Dispute concerning the creation of a natural preserve in foreign-owned lands Dispute concerning the cancellation of waste collection and street-cleaning contracts

Environment-related disputes decided in 2013 St Marys VCNA, LLC v. Government of Canada, NAFTA (UNCITRAL Rules), Consent Award (29 March 2013) Abengoa, S.A. y COFIDES, S.A. v. United Mexican States, ICSID Case No ARB(AF)/09/2, Award (18 April 2013) Niko Resources (Bangladesh) Ltd. v. People’s Republic of Bangladesh, Bangladesh Petroleum Exploration and Production Company Limited (‘Bapex’) and Bangladesh Oil Gas and Mineral Corporation (‘Petrobangla’), ICSID Cases No. ARB/10/11 and ARB/10/18, Decision on Jurisdiction (19 August 2013) Michael McKenzie v. Vietnam, UNCITRAL Rules, Award (11 December 2013)

Environmental component(s) Dispute concerning the issuance of a water permit for a stone quarry project

Environment-related disputes decided in 2014 Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/09/1, Award (22 September 2014)

Environmental component(s) Dispute concerning the conditioning and subsequent revocation of a construction permit relating to a gold mining project allegedly for environmental reasons

Environment-related disputes decided in 2015 Renée Rose Levy and Gremcitel S.A. v. Republic of Peru, ICSID Case No ARB/11/17, Award (9 January 2015) Chevron Corporation and Texaco Petroleum Company v. Republic of Ecuador, PCA Case No 2009-23 (UNCITRAL Rules), First Partial Award on Track I (17 September 2013), Decision on Track 1B (12 March 2015)

Environmental component(s) Dispute arising in relation to a touristic real estate development nearby a cultural protected site Dispute concerning the treatment by Ecuadorian courts of an environmental liability claim for damage caused by Texaco during its oil extraction operations

Dispute concerning the cancellation of permits to convert an abandoned mine into a landfill Dispute concerning financial guarantees given by the Czech Ministry of the Environment to project to build a waste incineration plant Dispute arising from a drinking water project funded by the European Development Fund

Dispute concerning a Kyoto joint implementation project

Dispute concerning the refusal of a construction permit of a waste treatment facility Dispute relating to governmental action linked to the investor’s environmental liability for two gas blowouts

Dispute concerning a touristic real estate development affected by the granting of mining rights in a beach nearby

Figure 2.1  (continued)

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24  Research handbook on environment and investment law William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton, and Bilcon of Delaware, Inc. v. Government of Canada, NAFTA (UNCITRAL), Award (17 March 2015) Gambrinus, Corp. v. Bolivarian Republic of Venezuela, ICSID Case No ARB/11/31, Award (15 June 2015)

Dispute concerning an allegedly flawed environmental assessment of a basalt quarry and marine terminal project Dispute arising from the nationalisation of a group of companies producing fertilisers for food security reasons Dispute relating to environmental damage arising from the investor’s conduct in addressing oil spills

Perenco Ecuador Ltd. v. The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6, Decision on remaining issues of jurisdiction and on liability (12 September 2014); Interim Decision on the Environmental Counterclaim (11 August 2015) Adel A Hamadi Al Tamimi v. Sultanate of Oman, ICSID Dispute relating to the enforcement of Case No ARB/11/33, Award (3 November 2015) environmental law against a limestone quarry project Environment-related disputes decided in 2016 Charanne BV and Construction Investments S.A.R.L. v. Kingdom of Spain, ECT Arbitration 062/2012 (SCC Rules), Award (21 January 2016) [Spanish] Mesa Power Group, LLC v. Government of Canada, UNCITRAL, PCA Case No 2012-17, Award (24 March 2016) Mamidoil Jetoil Greek Petroleum Products Société Anonyme S.A. v. Republic of Albania, ICSID Case No ARB/11/24, Award (30 March 2015) Crystallex International Corporation v. Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/11/2, Award (4 April 2016) Peter A. Allard (Canada) v. The Government of Barbados, PCA Case No 2012-06, Award (27 June 2016)

Environmental component(s) Dispute relating to regulatory changes in the laws governing renewable energy subsidies Dispute relating to a feed-in tariff scheme for renewable energy Dispute relating to the failure to obtain certain permits, including an environmental permit

Dispute relating to the refusal of a permit to operate despite the approval on the required environmental impact assessment Dispute relating to an ecotourism investment and the alleged failure by the host State to protect the surrounding environment The Renco Group, Inc. v. The Republic of Peru, ICSID Dispute relating to environmental harm caused by Case No UNCT/13/1, Partial Award (15 July 2016) a metallurgical complex Isolux Netherlands, BV v. Kingdom of Spain, SCC Case Dispute relating to regulatory changes in the laws V2013/153, Award (17 July 2016) [Spanish] governing renewable energy subsidies Windstream Energy LLC v. Government of Canada, PCA Dispute relating to a feed-in tariff scheme for Case No 2013-22, Award (27 September 2016) renewable energy Pac Rim Cayman LLC v. Republic of El Salvador, Dispute relating to the refusal of an environmental ICSID Case No ARB/09/12, Award (14 October 2016) permit for a gold mining project Spence International Investments, LLC, Bob F. Spence, Dispute relating to an alleged expropriation of land Joseph M. Holsten, Brenda K. Copher, Ronald E. Copher, included in a natural preserve Brette E. Berkowitz, Trevor B. Berkowitz, Aaron C. Berkowitz and Glen Gremillion v. Costa Rica, ICSID Case No UNCT/13/2, Interim Award (25 October 2016, corrected on 30 May 2017) Lieven van Riet, Chantal van Riet and Christopher van Dispute relating to zoning and environmental Riet v. Croatia, ICSID Case No. ARB/13/12, Award (2 permits for tourist resort November 2016) Urbaser S.A. and Consorcio de Aguas Bilbao Bizkaia, Dispute concerning a water distribution concession Bilbao Biskaia Ur Partzuergoa v. The Argentine Republic, with consequences for the right to water (raised in a ICSID Case No ARB/07/26, Award (8 December 2016). State counterclaim)

Figure 2.1  (continued)

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Foreign investment and the environment in international law  25 Blusun S.A., Jean-Pierre Lecorcie and Michael Stein v. Italy, ICSID Case No ARB/14/3, Award (27 December 2016)

Dispute relating to regulatory changes in the laws governing renewable energy subsidies

Environment-related disputes decided in 2017 Burlington Resources Inc. v. Republic of Ecuador, ICSID Case ARB/08/5, Decision on Counterclaims (7 February 2017) Eiser Infrastructure Limited and Energia Solar Luxemburgo S.a.r.l. v Kingdom of Spain, ICSID Case No ARB/13/36, Award (4 May 2017) [Spanish] Mr Jürgen Wirtgen, Mr Stefan Wirtgen, and JSW Solar (zwei) GmbH & Co. KG v. Czech Republic, UNCITRAL Arbitration, Award (11 October 2017)

Environmental component(s) Dispute relating to environmental damage arising from the investor’s conduct in addressing oil spills Dispute relating to regulatory changes in the laws governing renewable energy subsidies Dispute relating to the lawfulness of levies on electricity produced from renewable sources

Figure 2.1  (continued) the 2030 Agenda for Sustainable Development (and its SDGs), or the Paris Agreement,40 are so fundamental that it seems highly unlikely that they will be smooth and painless for economic operators committed to the current production matrix. In turn, international investment law offers a potentially important tool for such economic operators to resist or recover the costs of environmental regulatory change, hence the potential for conflicts. This leads me to another question, namely: what is the current state of the law in respect of such regulatory change?

5.  CONNECTING THE DOTS: DERIVING LEGAL MEANING 5.1  Consolidation of the Upgraded Approach To assess progress or regress in the way that international law addresses the complex relationship between foreign investment and environmental protection, it is useful, and

40   ‘Adoption of the Paris Agreement’, Decision 1/CP.21, 12 December 2015, FCCC/ CP/2015/L.9 (‘Decision’), paras 2–3. The Paris Agreement is appended as an Annex to the Decision. The agreement, technically a treaty under the international law of treaties (although it may not be qualified as such under some constitutional orders), was signed by 175 States on 22 April 2016. See ‘List of Representatives to High-Level Signature Ceremony’, available at: http:// newsroom.unfccc.int/paris-agreement/175-states-sign-paris-agreement/ (accessed on 28 August 2016). The authentic version of the Paris Agreement (hereafter ‘Paris Agreement’) is available at: http://unfccc.int/files/essential_background/convention/application/pdf/english_paris_agreement​ .pdf (accessed on 28 August 2016). Pursuant to Article 21(1), the Agreement required to enter into force ratification by ‘at least 55 parties to the Convention [i.e. the UNFCCC] accounting in total for at least an estimated 55 per cent of the total global greenhouse gas emissions’. These thresholds were reached in early October 2016 and the Agreement entered into force on 4 November 2016. See http://unfccc.int/paris_agreement/items/9485.php (accessed on 8 November 2016). Of particular note is the ratification by the world’s two main emitters, China and the United States (US). Although the current US President at the time of writing has announced his intention to withdraw, no formal steps have been taken so far and the ability to withdraw is subject to a temporal requirement.

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26  Research handbook on environment and investment law 20 18 16 14 12 10 8 6 4 2 2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2001

2000

1999

1998

1997

1996

1992

1984

0

Figure 2.2 Investment disputes with environmental components filed per year (including pending)41 Other 7%

41

Trade 3%

Water 9%

Waste 9%

Energy transition 36%

Environmental permitting 20%

Environmental damage/remediation 9%

Conservation 9%

Figure 2.3  Disputes by environmental dimension

41   The figure excludes the very first case, which predates the subsequent one by more than a decade, to facilitate the readability of the graph.

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Foreign investment and the environment in international law  27 perhaps unavoidable, to identify a benchmark or baseline that can serve as a comparator to assess how the relevant international norms and instruments had previously been applied. Such a baseline must summarise, in a condensed manner, a large body of jurisprudence relating to the relationship between foreign investment and environmental protection. As I have written elsewhere,42 for many years the ‘traditional approach’ was to consider all conflicts as legitimacy conflicts. The environmental measures adopted by host States were thus seen as ‘suspicious’ (unilateral protectionism in disguise) and in all events ‘subordinated’ to international (investment) law (by virtue of the rule that international law prevails over domestic law). This view, which may have reflected the specific factual configurations of some early cases (for example, Metalclad v. Mexico,43 CDSE v. Costa Rica,44 Tecmed v. Mexico45), has sometimes been extrapolated to the assessment of genuinely environmental and even internationally induced measures, with the unfortunate result that environmental considerations have remained legally subordinated to purely economic considerations. At the opposite side of the spectrum, a more ‘progressive’ approach would be possible, considering conflicts as ‘normative conflicts’. Under this view, most domestic environmental measures would be seen as required or justified by environmental treaties, hence standing on an equal footing with other international norms (such as investment disciplines) and reflecting multilateral action (defeating the suspicion of unilateral protectionism). This view would, in fact, apply a different set of conflict rules, including specific environmental clauses in IIAs, to different types of conflicts (‘legitimacy’ and ‘normative’ conflicts) and, more generally, defuse the suspicion and mistrust that some tribunals still display, despite the rise of environmental awareness at the global level as a starting point in the analysis of environmental regulation. In practice, a number of decisions suggest that investment tribunals have followed and will continue to follow a middle way, a sort of ‘upgraded’ traditional approach under which conflicts are still seen as ‘legitimacy conflicts’ (with environmental ­measures considered as essentially domestic and not driven by or based on international environmental law), but where environmental considerations are given increasing room and importance through the interpretation of legal concepts such as the police powers doctrine, the definition of ‘like circumstances’, the level of reasonableness required from investors or the use of emergency and necessity clauses. Thus, in Chemtura v. Canada, the tribunal considered that a measure banning the production and commercialization 42   Viñuales, above n 2. The summary in this section relies on P.-M. Dupuy and J.E. Viñuales, International Environmental Law (Cambridge University Press, 2015), pp.386–9. 43   Metalclad Corp. v. United Mexican States, ICSID Case No ARB(AF)/97/1, Award (25 August 2000) (‘Metalclad v. Mexico’). The decree creating a natural preserve for the protection of cacti came very late in the dispute, calling into doubt its genuine environmental purpose. 44   Compañía del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No ARB/96/1, Award (17 February 2000) (‘CDSE v. Costa Rica’). The decree formally expropriating the land owned by investors did not refer to any of the potentially applicable environmental treaties. 45   Técnicas Medioambientales Tecmed S.A. v. United Mexican States, ICSID Case No ARB(AF)/00/2, Award (29 May 2003) (‘Tecmed v Mexico’). Despite genuine environmental concerns, the refusal to renew the operation permit for the investor’s waste treatment facility followed growing public opposition regarding the scheme.

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28  Research handbook on environment and investment law of an environmentally harmful pesticide was a valid exercise of the police powers of Canada and therefore rejected the investor’s claim for compensation.46 In Parkerings v. Lithuania, the tribunal rejected a claim for breach of the most favoured nation clause (a nondiscrimination standard) on the grounds that the project of the claimant had an adverse impact on a UNESCO protected site and, as a result, was not in ‘like circumstances’ with the project of the other investor identified as the comparator.47 In Plama v. Bulgaria, the tribunal considered that a change in the domestic environmental laws placing the financial burden of decontaminating a site on the investor was not in breach of the applicable investment agreement because the investor should have been aware, had it deployed all the due diligence that could be expected from it, that such a regulatory change was being discussed in the Bulgarian parliament at the time it made the investment.48 Finally, in some cases against Argentina, particularly in the one brought by LG&E, the tribunal considered that the violation of an investment treaty by Argentina was justified by the need to ensure the affordability of some basic public services during an economic and social crisis.49 This upgraded approach has been confirmed by recent developments. Importantly, the reasoning of investment tribunals integrates environmental considerations in an increasingly clear and open form, even when the relevant environmental measures are found to be in breach of investment law. The purpose of the following analysis is to draw a jurisprudential line connecting a number of recent developments, including the decisions in Unglaube v. Costa Rica,50 Clayton and Bilcon v. Canada,51 Gold Reserve v. Venezuela,52

46   Methanex Corporation v. United States of America, NAFTA (UNCITRAL), Award (3 August 2005), part IV, chap. D, para. 7; Chemtura Corporation (formerly Crompton Corporation) v. Government of Canada, UNCITRAL, Award (2 August 2010) (‘Chemtura v. Canada’), para. 266. The tribunal referred to its analysis of the claim under Article 1105, which explained that the measure adopted by Canada was consistent with its obligations under multilateral environmental agreements. 47   Parkerings-Compagniet AS v. Republic of Lithuania, ICSID Case No ARB/05/8, Award (11 September 2007) (‘Parkerings v. Lithuania’), para. 392. 48   Plama Consortium Ltd. v. Republic of Bulgaria, ICSID Case No ARB/03/24, Award (27 August 2008), paras 219–21. 49   LG&E v. Argentina, ICSID Case No ARB/02/1, Decision on Liability (13 October 2006) (‘LG&E v. Argentina’), paras 234–7, 245. In two other cases, the arbitral tribunals considered that the provision of water and sanitation services was an ‘essential interest’ of States in the meaning of the necessity rule codified in the 2001 ILC Articles on State Responsibility. See Suez, Sociedad General de Aguas de Barcelona S.A. and InterAguas Servicios Integrales del Agua S.A. v. The Argentine Republic, ICSID Case No ARB/03/17, Decision on Liability (30 July 2010), para. 238; Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. The Argentine Republic, ICSID Case No ARB/03/19, Decision on Liability (30 July 2010), para. 260. 50   Marion Unglaube v. Republic of Costa Rica, ICSID Case No ARB/08/1 and Reinhard Unglaube v. Republic of Costa Rica, ICSID Case No ARB/09/20, Award (16 May 2012) (‘Unglaube v. Costa Rica’). 51   William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton, and Bilcon of Delaware, Inc. v. Government of Canada, NAFTA (UNCITRAL), Award (17 March 2015) (‘Clayton and Bilcon v. Canada’). 52   Gold Reserve Inc. v. Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/09/1, Award (22 September 2014).

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Foreign investment and the environment in international law  29 Perenco v. Ecuador,53 Al Tamimi v. Oman,54 Spence International Investments v. Costa Rica55 and Burlington v. Ecuador.56 This line highlights the increasing mainstreaming or ‘normality’ of environmental reasoning in investment jurisprudence and calls for a proper treatment of such considerations in policy, transactional, prelitigation and litigation practice. 5.1.1  Footprints of a mindset change A mindset change can be conveyed in different manners. The ‘footprints’ that I will be tracking here take three main forms. The first is the reference to environmental considerations as a matter of course, as an obvious reference point, when discussing the operation of common legal concepts of foreign investment law. The second is the inclusion of obiter dicta highlighting the importance of environmental considerations. The third is the use of some techniques tailored to address the specificities of environmental disputes, again, without much ad hoc justification, so as to stress the normality of resorting to such techniques. Tracking footprints is a difficult exercise that requires both close scrutiny of the relevant materials and dispassionate judgement of what, in fairness, the potential findings genuinely convey. I hope the reader will find the following remarks sufficiently balanced. The first decision, rendered in respect of two joined cases, appears to add little to the traditional approach as expressed in CDSE v. Costa Rica. On the surface, the configuration of facts in Unglaube v. Costa Rica is, indeed, quite similar to that in CDSE v. Costa Rica. Both cases concern the tension between environmental protection through the creation of natural preserves and real estate development for touristic purposes and, in both cases, the tribunals found that Costa Rica had expropriated property of the claimants in breach of the applicable investment treaties. Yet, on closer inspection, beyond the many differences in the specific facts relating to each dispute, there is a noticeable – and telling – difference in how the tribunal approaches environmental protection. One may recall the deficient treatment given to such considerations in the CDSE v. Costa Rica case, confined in essence to two paragraphs and a footnote,57 despite the emphasis that the respondent had placed on them in arguing its case.58 By contrast, in Unglaube v. Costa Rica, the tribunal gave environmental considerations specific practical impact. The difference of treatment is noticeable, despite the measured language used by the tribunal, in the assessment of compensation. In CDSE v. Costa Rica, the tribunal noted that ‘the compensation to be paid should be based upon the fair market value of the Property calculated by reference to its “highest and best use”’59 and then added that: 53   Perenco Ecuador Ltd. v. The Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (Petroecuador), ICSID Case No ARB/08/6, Interim Decision on the Environmental Counterclaim (11 August 2015). 54   Al Tamimi v. Oman, above n 34. 55   Spence International Investments v. Costa Rica, above n 36. 56   Burlington Resources Inc. v. Republic of Ecuador, ICSID Case ARB/08/5, Decision on Counterclaims (7 February 2017). 57   CDSE v. Costa Rica, above n 44, paras 71–2 and footnote 32. 58   See C. Brower and J. Wong, ‘General Valuation Principles: The Case of Santa Elena’, in T.  Weiler (ed.) International Investment Law and Arbitration: Leading Cases from the ICSID, NAFTA, Bilateral Treaties and Customary International Law (2005) 764. 59   CDSE v. Costa Rica, above n 44, para. 70 (italics added).

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30  Research handbook on environment and investment law While an expropriation or taking for environmental reasons may be classified as a taking for a public purpose, and thus may be legitimate, the fact that the Property was taken for this reason does not affect either the nature or the measure of the compensation to be paid for the taking. That is, the purpose of protecting the environment for which the Property was taken does not alter the legal character of the taking for which adequate compensation must be paid. The international source of the obligation to protect the environment makes no difference.60

The tribunal in Unglaube v. Costa Rica also considered the fair market value of the property by reference to the ‘highest and best use’, as prompted by the claimants’ expert. Yet, it characterised such standard in the light of environmental considerations: If, as Claimants’ expert has suggested, it is appropriate, in determining fair market value, to identify the highest and best use of this particular property, it seems plain to the Tribunal that that can only be the highest and best use subject to all pertinent legal, physical, and economic constraints. In this case, it obviously should refer not to high density usage – appropriate to a large city or factory area – but rather to a usage appropriate to the environmentally-sensitive ­surroundings – including residential home construction, with a density comparable to that permitted by the guidelines set forth in the 1992 Agreement.61

At this point in the decision, the factual elements of the case (particularly the acknowledged difficulty in deciding on an expropriation date) become controlling, but the fact remains that the understanding of the standard of compensation for expropriation is environmentally sensitive. A parallel can be attempted here with the approach followed by the tribunal in SPP v. Egypt,62 according to which the valuation of the property expropriated had to take into account the fact that, once the Pyramids site had been listed in the World Heritage List, the activities projected by the claimant would have become illegal. In addition, the tribunal in Unglaube v. Costa Rica gave other indications of a mindset more attuned to the current understanding of environmental protection needs, including references to the diligence expected from the investor,63 to the deference that tribunals should recognise to States in their regulatory activities (beyond the context of expropriation)64 and,   Ibid, para. 71 (italics added).   Unglaube v. Costa Rica, above n 50, para. 309 (italics added). 62   Southern Pacific Properties (Middle East) Limited (SPP) v. Arab Republic of Egypt, ICSID Case No ARB/84/3, Award (20 May 1992), para. 191. 63   Unglaube v. Costa Rica, above n 50, para. 258 (‘As intelligent and experienced investors, Claimants were, of course, required, as part of their due diligence, to become familiar with Costa Rican law and procedure. The Tribunal understands that the workings of the courts and administrative agencies of Costa Rica surely involve noticeable differences from those with which Claimants may be more familiar. But, because governments are accorded a considerable degree of deference regarding the regulation/administration of matters within their borders, such differences are not significant, insofar as this Tribunal is concerned, unless they involve or condone arbitrariness, discriminatory behavior, lack of due process or other characteristics that shock the conscience, are clearly “improper or discreditable” or which otherwise blatantly defy logic or elemental fairness.’). 64   Ibid, paras 246–7 (the tribunal makes the following reference to deference in the context of fair and equitable treatment: ‘Where, however, a valid public policy does exist, and especially where the action or decision taken relates to the State’s responsibility “for the protection of public health, safety, morals or welfare, as well as other functions related to taxation and police powers of states,” such measures are accorded a considerable measure of deference in recognition of the right 60 61

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Foreign investment and the environment in international law  31 significantly, to the relevance of environmental considerations in granting differential treatment to different entities.65 As discussed next, deference to environmental regulatory action is being more explicitly addressed – however paradoxically – in the reasoning of other investment tribunals. The decision in Clayton and Bilcon v. Canada has raised much controversy. The case concerned the denial of a permit to conduct mining activities in Nova Scotia following the recommendation of an environmental review panel. The majority of the tribunal concluded that the review panel had acted in breach of Canadian environmental law, which in turn amounted to a breach of the international minimum standard of treatment enshrined in Article 1105 of NAFTA. This is problematic because Canadian courts were not seized to ascertain the breach of Canadian environmental law and it is generally ­considered – including by the three NAFTA parties – that a mere breach of domestic law (and even more so a breach that has not been properly ascertained) is not, as such, sufficient to reach the demanding threshold for a breach of Article 1105 of NAFTA.66 However, for present purposes, the interest of Clayton and Bilcon v. Canada lies elsewhere, namely in the great efforts made by the majority to portray the decision as environmentally responsible and deferent. Among the different indications of such efforts, the decision includes a number of obiter dicta of particular significance. For example, in paragraph 531, after reaching the conclusion that the ‘community core values’ standard used by the environmental review panel was inadequate, the tribunal adds: To avoid any possible misunderstanding, the Tribunal has absolutely no doubt that the extent to which community members value various assessable components can be an entirely legitimate

of domestic authorities to regulate matters with their borders . . . This deference, however, is not without limits. Even if such measures are taken for an important public purpose, governments are required to use due diligence in the protection of foreigners and will not be excused from liability if their action has been arbitrary or discriminatory’). 65   Ibid, para. 264. 66   See Clayton and Bilcon v. Canada, above n 51, Dissenting Opinion of Professor Donald McRae, para. 40. See also the submissions of Mexico and the United States as nondisputing parties in the context of Mesa v. Canada (Mesa Power Group, LLC v. Government of Canada, UNCITRAL Rules, PCA Case No 2012-17). In this case, the tribunal asked the parties and nondisputing parties to take a position on the relevance of the award in Clayton and Bilcon v. Canada. In its submission (Second Submission of Mexico pursuant to Article 1128, 12 June 2015), Mexico stated the following: ‘Mexico concurs with Canada’s submission that, as noted in the dissenting opinion, the majority in Bilcon failed to engage in a proper analysis of customary international law when it apparently determined that failure to comply with applicable domestic law amounted to a failure to meet the minimum standard of treatment at international law. A tribunal only has the authority to decide whether the claimant has established, on the basis of state practice and opinio juris, that the conduct complained of amounts to a violation of the international law minimum standard. Making a determination that the international law minimum standard has been breached on the basis of purported non-compliance with domestic law amounts to a failure to apply the proper law of the arbitration’ (para. 11). Similarly, in its submission (Second Submission of the United States of America, 12 June 2015), the United States concluded that ‘A failure to satisfy requirements of national law, moreover, does not necessarily violate international law. Rather, “something more than simple illegality or lack of authority under the domestic law of a State is necessary to render an act or measure inconsistent with the customary international law requirements of Article 1105(1)”’ (para. 22).

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32  Research handbook on environment and investment law part of an environmental assessment. If some or all members of a community place a significant value on auditory quiet or a view of nature unmarred by development, or the ability to continue engaging in traditional economic or recreational activities, or community cohesion, these effects might be included in an assessment under the laws of Canada, and in fact in appropriate cases could lead to a finding of likely significant adverse effects after mitigation.

Later on, at the end of its analysis of the claim for breach of Article 1105, the tribunal made a lengthy obiter dictum which, given its limited integration with the rest of the text, appears as a last-hour addition reacting to the dissenting opinion appended by one of the arbitrators. I will quote parts of this obiter dictum because it clearly conveys the impression of the majority that they need to justify their decision on more than just law: The Tribunal notes that this case involves environmental regulation, and that there is substantial concern among the public and state authorities that investor-state treaty provisions not be used as obstacles to the maintenance and implementation of high standards of protection of environmental integrity. The Tribunal therefore wishes to make several points very clear . . .   The concepts of promoting both economic development and environmental integrity are integrated into the [NAFTA] Preamble’s endorsement of the principle of sustainable development.   Environmental regulations, including assessments, will inevitably be of great relevance for many kinds of major investments in modern times. The mere fact that environmental regulation is involved does not make investor protection inapplicable. Were such an approach to be adopted – and States Parties could have chosen to do so – there would be a very major gap in the scope of the protection given to investors . . .   In arriving at its conclusion in this case, the Tribunal is not suggesting that there is the slightest issue with the level of protection for the environment provided in the laws of Canada and Nova Scotia. Each is free under NAFTA to adopt laws that are as demanding as they choose in exercising their sovereign authority. Canada and Nova Scotia have both adopted high standards.   There can be absolutely no issue with that under Chapter Eleven of NAFTA. The Tribunal’s concern is actually that the rigorous and comprehensive evaluation defined and prescribed by the laws of Canada was not in fact carried out . . .   The Tribunal would further reiterate that under the laws of Canada and Nova Scotia, social impacts can be within the scope of a valid assessment. Furthermore, the value placed by members of a community on distinctive components of an ecosystem can be taken into account in an assessment under the laws of Canada and Nova Scotia. The Tribunal has respectfully taken issue with only the distinct, unprecedented and unexpected approach taken by the JRP to ‘community core values’ in this particular case.67

Other obiter dicta are made at the end of the decision, this time explicitly responding to the dissenting opinion.68 This opinion highlighted, among others, two broader implications of the award, namely a potential change in the manner in which environmental reviews are conducted, which would now be less concerned with facts and more with becoming legally bulletproof (a variant of the so-called regulatory chill), and the overestimation of technical aspects (particularly mitigation measures) over public preferences on the use of the environment.69 Both are important points. But the great pains taken by the majority to make the decision acceptable from a public policy perspective are no less remarkable. They clearly convey a changing mindset. Those acquainted with the inner workings of

  Clayton and Bilcon v. Canada, above n 51, paras 595–601.   Ibid, paras 735–8. 69   Dissenting Opinion McRae, above n 66, paras 44–51. 67 68

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Foreign investment and the environment in international law  33 investment tribunals will perhaps gather the impression that the case turned on its specific facts, which the legal reasoning failed to capture entirely or persuasively. Such failure can be contrasted with the more confident approach taken in Gold Reserve v. Venezuela, where the tribunal made a much shorter obiter dictum in connection with the need to protect the environment,70 because the evidentiary record clearly suggested that environmental protection had not been the main factor driving the challenged measure.71 Be it as it may, the decision in Clayton and Bilcon v. Canada is arguably unprecedented in its attempt at stressing – at least as a principle – the importance of environmental protection in investment disputes. To move from abstract praise of environmental protection to the actual impact it may have in a foreign investment dispute, one must turn attention to two recent developments. One concerns the operation of environmental clauses (‘carveouts’) in investment agreements, whereas the other addresses the implications of environmental mismanagement by a foreign investor and, more specifically, its resulting liability. The operation of an environmental clause is a major question both in Al Tamimi v. Oman and in some aspects of the procedure in Spence International Investments v. Costa Rica, brought under the CAFTA-DR. It is convenient to start the analysis with the discussion of the latter. The facts are broadly similar to those in Unglaube v. Costa Rica but, unlike the treaty applicable in the latter case, the CAFTA-DR contains an annex shielding environmental regulation from expropriation claims. Paragraph 4(b) in Annex 10-C of the CAFTA-DR (chapter 10) provides: ‘Except in rare circumstances, nondiscriminatory regulatory actions by a Party that are designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, do not constitute indirect expropriations.’ In its defence, Costa Rica referred to this annex as excluding the measures challenged from the scope of the expropriation clause in Article 10.7 (Expropriation and Compensation) of the CAFTA-DR.72 Aside from the parties’ positions, an indication of how such a clause would operate in practice is provided by the submissions of two nondisputing parties: first, El Salvador;73 second, the United States.74 According to El Salvador, paragraph 4(b) must be construed, by its very wording, as a presumption of conformity with Article 10.7, with the consequence that ‘a claimant would have the burden

70   Gold Reserve v. Venezuela, above n 52, para. 595 (‘The Tribunal acknowledges that a State has a responsibility to preserve the environment and protect local populations living in the area where mining activities are conducted. However, this responsibility does not exempt a State from complying with its commitments to international investors by searching ways and means to satisfy in a balanced way both conditions’). 71   Ibid, para. 580 (‘In the Tribunal’s view, the reasons for the termination of the Brisas, Unicornio and El Pauji Concessions are not limited to those officially stated by MIBAM in the Resolutions of 25 May 2009, 17 June 2010 and 22 May 2009, respectively. Rather, they are to be found in the change of political priorities of the Administration’). 72   Spence International Investments v. Costa Rica, above n 36, Respondent’s Memorial on Jurisdiction and Counter-Memorial on the Merits, para 187–9. 73   Spence International Investments v. Costa Rica, above n 36, Non-Disputing Party Submission of the Republic of El Salvador, 17 April 2015 (‘Submission – El Salvador’). 74   Spence International Investments v. Costa Rica, above n 36, Submission of the United States of America, 17 April 2015 (‘Submission – US’).

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34  Research handbook on environment and investment law to rebut the strong presumption created in CAFTA-DR that a State’s nondiscriminatory regulatory measures designed to protect the environment do not constitute an indirect expropriation’.75 The United States sees this provision only as ‘additional guidance in determining whether an indirect expropriation has occurred’.76 Importantly, both nondisputing parties exclude the characterisation of paragraph 4(b) as an ‘exception’, which would come into play to justify a previously ascertained breach and that would have to be established by the respondent, perhaps under a restrictive interpretation test. These are some of the significant differences that must be kept in mind in deciding whether a clause is to be treated as a carveout or as an exception.77 Exceptions are narrow justifications that would provide little room for the expression of environmental concerns in foreign investment law, as suggested by the still restrictive practice of trade panels in connection with Article XX of the GATT.78 The approach of the nondisputing parties has been confirmed in a different (yet broadly similar) normative context, namely the US–Oman FTA, at stake in the Al Tamimi v. Oman case. In this case, which concerned the enforcement of environmental law with respect to a limestone quarry investment, the tribunal referred both to Article 10.10 (an environmental provision in the investment chapter of the treaty with wording similar to Article 1114 of NAFTA) and to chapter 17 (the environmental chapter of the treaty) as a means to interpret the international minimum standard of treatment (Article 10.5). Importantly, it noted that ‘[w]hen it comes to determining any breach of the minimum standard of treatment under Article 10.5, the Tribunal must be guided by the forceful defence of environmental regulation and protection provided in the express language of the Treaty’.79 This consideration was instrumental in the tribunal’s decision to reject the claim for breach of Article 10.5. And the interpretation of at least some investment disciplines may potentially rely not only on environmental provisions of the same treaty but also, more generally, on the provisions of environmental treaties concluded by the host State, as suggested by the decision of the tribunal in Allard v. Barbados.80 The latter point is correct but nevertheless remarkable. Environmental treaties concluded by the host State are part of the law of this State and, therefore, govern the relations between the investor and the host State. Yet, tribunals have been reluctant to acknowledge the effects of environmental treaties in investment disputes, perhaps based on the misguided understanding – or inarticulate impression – that only environmental treaties binding upon both the host and home States are relevant under the customary rules of treaty interpretation or that environmental treaties do not create obligations to investors.   Submission – El Salvador, above n 73, para. 24.   Submission – US, above n 74, para. 31. 77   See further J.E. Viñuales, ‘Seven Ways of Escaping a Rule: Of Exceptions and Their Avatars in International Law’, in L. Bartels and F. Paddeu (eds), Exceptions in International Law (Oxford University Press, 2018). 78   See S. Zleptnig, Non-Economic Objectives in WTO Law (Kluwer, 2010). 79   Al Tamimi v. Oman, above n 34, para. 389 (italics added). 80   Peter A. Allard (Canada) v. The Government of Barbados, PCA Case No 2012-06, Award (27 June 2016), para. 244 (‘The fact that Barbados is a party to the Convention on Biological Diversity and the Ramsar Convention does not change the standard under the BIT, although consideration of a host State’s international obligations may well be relevant in the application of the standard to particular circumstances’). 75 76

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Foreign investment and the environment in international law  35 The second development that deserves attention is the decisions rendered in connection with an environmental counterclaim brought by the respondent in Perenco v. Ecuador81 and Burlington v. Ecuador.82 The case concerns the environmental impact of oil extraction activities by Perenco in the Ecuadorian part of the Amazonian rainforest. The tribunal assessed Perenco’s liability for damage caused to the environment under both strict liability and fault-based liability regimes laid out in Ecuadorian law and incorporated into the applicable contractual framework. For present purposes, the two paragraphs (34–5) with which the tribunal opens its analysis of the counterclaim are particularly noteworthy: Ecuador presented the environmental counterclaim on the basis that its experts had determined the existence of an ‘environmental catastrophe’ in the two oil blocks situated in the country’s Amazonian rainforest that had been worked by the consortium under Perenco’s operatorship. Ecuador viewed this as an extremely serious matter deserving the most careful consideration by the Tribunal. On this point, the Tribunal cannot but agree. Proper environmental stewardship has assumed great importance in today’s world. The Tribunal agrees that if a legal relationship between an investor and the State permits the filing of a claim by the State for environmental damage caused by the investor’s activities and such a claim is substantiated, the State is entitled to full reparation in accordance with the requirements of the applicable law.   The Tribunal further recognises that a State has wide latitude under international law to prescribe and adjust its environmental laws, standards and policies in response to changing views and a deeper understanding of the risks posed by various activities, including those of extractive industries such as oilfields. All of this is beyond any serious dispute and the Tribunal enters into this phase of the proceeding mindful of the fundamental imperatives of the protection of the environment in Ecuador.83

A detailed and balanced analysis of the factual record follows, in which the tribunal, far from adopting a ‘green’ stance, simply proceeds to a dispassionate assessment of domestic environmental law and of several instances suggesting negligence from the investor. The tribunal avoids the apologetic tone that one finds in the majority’s decision in Clayton and Bilcon v. Canada. Yet, it assertively applies environmental law and, in some cases, it resorts to specifically environmental techniques (such as reasoning that could be described as in dubio pro natura,84 the appointment of a tribunal’s expert,85 encouragement given to the parties to reach a settlement on the amount of damage86) without anything but the right amount of justification. As such, one may understand this decision as a further step in the direction of a change of mindset, or, more precisely, a footprint for what could be called normalisation. This step change is confirmed by the decision in Burlington v. Ecuador, where the tribunal, across more than 400 pages, patiently and resolutely analyses Burlington’s shortcomings in each one of the blocks and finds it liable for environmental harm under Ecuadorian law.87 In both cases, environmental considerations are not integrated into the reasoning as an extraneous factor or as a component of a progressive view; they are simply addressed as a requirement of normal operations in the extractive     83   84   85   86   87   81 82

Perenco v. Ecuador, above n 53. Burlington v. Ecuador, above n 56. Perenco v. Ecuador, above n 53, paras 34–5 (italics added). Ibid, paras 361, 470–3 and 495. Ibid, paras 569, 587–8, 611(8) and (17). Ibid, paras 593 and 611(9). Burlington v. Ecuador, above n 56.

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36  Research handbook on environment and investment law industries. No trace here of any attempt to look ‘green’. The new mindset seems well grounded. Environmental considerations seem a normal, even obvious, component of the reasoning, requiring no additional justification. Of course, in investment arbitration, decisions are the product of ephemeral tribunals with little or no representative power over what the jurisprudence may be in the future. Thus, decisions such as those in Al Tamimi v. Oman, Perenco v. Ecuador or Burlington v. Ecuador are at best additional footprints rather than definitive expressions of the state of the case law on this matter. But the jurisprudential line described in the preceding paragraphs provides a clear indication that environmental considerations do play an important role in the practice of investment arbitration. If such considerations are not only admitted but mainstreamed in the reasoning of investment tribunals, they should a fortiori be fully taken into account in policy, transactional, prelitigation and litigation practice. We are not (yet) in a context where international environmental law and international investment law are on an equal footing, as in the ‘progressive’ approach identified earlier. Although practitioners may tend to refer more frequently to international environmental law,88 the benefits of doing so are still perceived as indirect (through the interpretation of basic concepts of foreign investment law), as suggested by the upgraded model. This is, still, the current state of play as regards foreign investment and the environment in international law.

6.  CURRENT TRENDS The discussion in this chapter shows that the relationship between the laws governing foreign investment and environmental protection is increasingly dense and multifaceted. The main conclusions to be gathered from the foregoing remarks can be concisely stated. First, efforts towards sustainable development have incorporated the private sector and, more and more, foreign investment into the overall strategy to operate a transition from a brown to a green economy. The place devoted to private investment in both the 2030 Agenda for Sustainable Development and, particularly, the Addis Ababa Action Agenda suggests that foreign investment is a central component of sustainability efforts. Second, international investment agreements concluded in recent years tend to include an array of environmental provisions. This is particularly the case with newly concluded FTAs which frequently include preambular language referring to the environment, GATT-like exceptions and anti-race to the bottom provisions, as well as, in some cases, references to MEAs or to CSR duties. Moreover, the current landscape could be transformed by the conclusion of megaregional agreements with ambitious sustainable development chapters and mechanisms, as such agreements would replace many existing bilateral relationships concerning investment protection. Third, in the past few years there has been a surge in the number of investment disputes with environmental components. Out of a sample of 117 such disputes since the 1970s,

88   See Spence International Investments v. Costa Rica, above n 36, Respondent’s Memorial on Jurisdiction and Counter-Memorial on the Merits, para. 15 (referring to CITES and to environmental soft law).

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Foreign investment and the environment in international law  37 more than half have been filed since 2012. These disputes concern a variety of sectors and activities, including renewable energy, waste treatment, environmental permitting and environmental damage caused by extractive industries, among others. They concern, in short, the move from the old to the new production matrix. It is possible to infer from a number of recent decisions a jurisprudential line suggesting that environmental considerations are now normalised or ‘mainstreamed’ in the reasoning of investment tribunals. Even in cases where a breach of an investment treaty has been found, such as Unglaube v. Costa Rica, Gold Reserve v. Venezuela or Clayton and Bilcon v. Canada, tribunals have devoted significant attention to environmental concerns, going as far as adding (sometimes lengthy) obiter dicta to justify their decision from an environmental perspective. In addition, two important aspects of environmental integration have been addressed in the case law. In Al Tamimi v. Oman and Spence International Investments v. Costa Rica, the scope and operation of clauses reserving environmental policy space (Article 10.10 of the US–Oman FTA and Annex 10-C(4)(b) of the CAFTA-DR) began to be elucidated, whereas in Perenco v. Ecuador and Burlington v. Ecuador, the tribunal has heard an environmental counterclaim brought against the investor and found the latter liable for environmental damage arising from its oil extraction activities. In all these decisions as well as in previous ones, it is possible to identify a number of recurrent themes and issues, such as the diligence that can be expected from the investor, the deference that must be accorded to State authorities, the normality and legality of environmental regulatory change over time or environmental justifications for differential treatment. These questions resonate with concepts addressed in prior decisions, such as the police powers doctrine, environmental differentiation or investor’s diligence. As such, they consolidate what I have referred to, in previous work, as an upgraded traditional approach to environmental integration in that they interpret basic concepts and standards of foreign investment law in an environmental light. A trivial yet important consequence of these trends for practitioners is the need to fully integrate environmental law in the policy, transactional, prelitigation and litigation practice relating to foreign investment. At the policy level, environmental considerations should be part of project and policy assessments, public procurement processes, trade and investment negotiations and, last but absolutely not least, the preparation of international litigation departments. From the perspective of other actors, including private practitioners but also civil society and international organisations, the environmental dimensions of (State) contracts as well as the preparation and conduct of investment litigation should now feature prominently in their activities. We are far from the days when environmental protection was a marginal consideration easily discarded or downplayed. The corollary for academics is the need to properly train the current and future operators of the system.

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3.  Sustainable development and international investment law Andrea K. Bjorklund*

1. INTRODUCTION The principle of sustainable development is often viewed as sitting in opposition to international investment law. Most bilateral investment treaties (BITs) either do not address sustainable development or do so in aspirational but vague terms, often in the preamble, while the bulk of the document details the protections, both substantive and procedural, that host states promise to accord to foreign investors. The investment chapters in free trade agreements (FTAs) are not appreciably different, although some FTAs do contain provisions or even chapters on environmental and labor concerns—issues intimately linked to sustainable development. Moreover, the obligations that states undertake in investment treaties are usually not positive commitments to amend laws or policies, whether in light of sustainable development principles or not. For example, states promise to accord foreign investors, and their investments, national treatment or fair and equitable treatment, but those obligations become operational only when a state decides to take an affirmative step that affects a foreign investor or its investment. In other words, the BIT itself does not require a state to take any particular environmentally protective action, such as passing laws requiring that environmental impact assessments be conducted in connection with decisions about permitting particular foreign investments,1 or that investment be allowed only if compatible *  Full Professor and L. Yves Fortier Chair in International Arbitration and International Commercial Law, McGill University Faculty of Law. I thank Lukas Vanhonnaeker, Jonathan Brosseau, and Madhav Mallya for research assistance in the preparation of this chapter. I am also grateful to the PluriCourts Centre of Excellence at the University of Oslo for the invitation to participate in their November 2015 symposium on the resolution of international disputes involving environmental considerations. 1   The new Pan African Investment Code (PAIC) and the Southern African Development Community (SADC) Model BIT call for environmental impact assessments. SADC Model BIT, available at www.iisd.org/itn/wp-content/uploads/2012/10/SADC-Model-BIT-Template-Final.pdf, accessed Jun. 15, 2017, Article 13.1; Pan African Investment Code, E/ECA/COE/35/18/AU/STC/ FMEPI/EXP/18(II), Mar. 26, 2016, available at https://fr.scribd.com/doc/315280382/b11560526pdf ?secret_password=BMz9AOk1L69SGOmsVESm, accessed Jun. 15, 2017, Article 34. The implications of this approach are addressed in section 3.3 of this chapter. The Energy Charter Treaty (concluded Dec. 17, 1994, entered into force Apr. 16, 1998, 2080 UNTS 95, 34 ILM 360 (1995)) also has a provision (Article 19, outside the investment chapter) calling for an environmental impact assessment, but at least one tribunal has held that these obligations belong to the state and do not directly apply to investors; investors’ obligations would come into play if the state required an environmental impact assessment and the investor had failed to comply. See Blusun S.A., Jean-Pierre Lecorcier and Michael Stein v. Italian Republic, ICSID Case No ARB/14/3, Award (Dec. 27, 2016) paras 275–6.

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Sustainable development and international investment law  39 with sustainable development principles. If the state does enact such laws, however, they must be enacted and implemented in accordance with the investment treaty’s obligations; because the treaty’s obligations are thereby triggered, an investor can then challenge the manner in which a state implements environmental protections or other measures directed toward protecting human rights. A decision ensuing from the challenge that favors the investor is often regarded as disfavoring goals of sustainable development. This oppositional view is not fruitful; indeed, “facilitating investment is critical for achieving the Sustainable Development Goals (SDGs).”2 While it is true that most investment treaties focus on, and thereby apparently prioritize, the protection of investments, thus making it necessary for tribunals rendering awards to find avenues to introduce the host states’ other obligations into their decisions, tribunals have proved themselves capable of doing so.3 But it is also true that it would be desirable for investment treaties themselves more clearly to identify what policy priorities states would like to further, and what kind of hierarchy among those obligations the state envisions going forward. One of the goals of international investment law is to create a predictable framework for investments; because investments will inevitably be made in a complicated matrix of competing priorities, investors would benefit from having more information both about what protections investment law gives them and about what other domestic policies states favor or are likely to embrace in future. Thus, states should be and indeed are undertaking initiatives to more clearly reconcile the protection of investments with the protection of human, animal, and plant life and health, as well as with environmental protection. They are accomplishing this through amendments to investment treaties, although the most ambitiously amended treaties that would most successfully further the consideration of sustainable development principles have not been adopted.4 Nonetheless, incremental changes to investment treaties have given states more regulatory flexibility in the context of those treaties’ application and tribunals more flexibility in their decisions.5 Even in the absence of treaty amendments, however, tribunals have found ways to consider states’ extra-investment obligations. 2  UNCTAD, World Investment Report 2017 (United Nations 2017) 125; Jorge E. Viñuales, Foreign Investment and the Environment in International Law (Cambridge University Press 2012) 11–13. 3   Andrea K. Bjorklund, “The Necessity of Sustainable Development,” in Marie-Claire Cordonier Segger, Markus W. Gehring, and Andrew Newcombe (eds), Sustainable Development in World Investment Law (Kluwer Law International 2011) 376. See also Charles H. Brower, II, “Obstacles and Pathways to Consideration of the Public Interest in Investment Treaty Disputes,” in Karl P. Sauvant (ed.), Yearbook on International Investment Law & Policy 2008–2009 (Oxford University Press 2009), 347–78 and Campbell McLachlan, “The Principle of Systemic Integration and Article 31(3)(c) of the Vienna Convention” (2005) 54 International & Comparative Law Quarterly 279–320; Kate Miles, The Origins of International Investment Law (Cambridge University Press 2013) 298–335. 4   See Andrea K. Bjorklund, “NAFTA Chapter 11 and the Environment: An Assessment after Fifteen Years,” in Emmanuel Gaillard (gen. ed.) and Frédéric Bachand (ed.), Fifteen Years of NAFTA Chapter 11 Arbitration (Juris 2011) 205–10. 5   See generally Andreas Kulick, “State–State Investment Arbitration as a Means of Reassertion of Control: From Antagonism to Dialogue,” in A. Kulick (ed.), Reassertion of Control over the Investment Treaty Regime (Cambridge University Press 2017) 128–52; David A. Gantz, “Increasing Host State Regulatory Flexibility in Defending Investor-State Disputes: The Evolution of U.S. Approaches from NAFTA to the TPP” (2017) 50 International Lawyer 231; Lars Markert and

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40  Research handbook on environment and investment law Section 2 of this chapter makes some general observations on sustainable development and then elaborates on them in the particular context of investment law. Section 3 addresses the treaty-based amendments to which I just referred, charting an arc in favor of greater appreciation of noneconomic objectives, even though the primary focus of investment treaties remains investment protection. Section 4 offers a short summary of a recent iconic investment case—Bilcon v. Canada—to serve as a basis for discussion of the tensions and potential synergies between international investment law and sustainable development. Section 5 outlines some of those tensions, and the continuing challenges faced by those seeking to delineate and strengthen the role of sustainable development in the international investment law realm.

2.  SUSTAINABLE DEVELOPMENT A starting point for any discussion of sustainable development is defining the concept, although there is no uniform view about what sustainable development entails.6 The traditional definition is that found in the Brundtland Report: sustainable development “implies meeting the needs of the present without compromising the ability of future generations to meet their own needs.”7 Sustainable development is thus grounded in notions of the precautionary principle and intergenerational equity.8 As it has developed over the years, the principle of sustainable development assumes that economic growth is necessary, and even essential, to human wellbeing but that it cannot be pursued in isolation from other goals, in particular those relating to desirable societal functioning and environmental protection.9 Sustainable development can thus be regarded as encompassing the protection of human rights and even good governance and the rule of law.10 Sustainable development is often linked to environmental protection because

Catharine Titi, “States Strike Back—Old and New Ways for Host States to Defend against Investment Arbitrations,” in Andrea K. Bjorklund (ed.), Yearbook on International Investment Law & Policy 2013–2014 (Oxford University Press 2015) 401–36.  6   See generally Andreas R. Ziegler, “Special Issue: Towards Better BITs? Making International Investment Law Responsive to Sustainable Development Objectives” (2014) 15 Journal of World Investment and Trade 803, 808.  7   The World Commission on Environment and Development, Our Common Future (Oxford University Press 1987) 43 (UN, Report of the World Commission on Environment and Development: Our Common Future, Transmitted to the General Assembly as an Annex to document A/42/427— Development and International Co-operation: Environment).  8   Jutta Brunnée, “The Sources of International Environmental Law: Interactional Law,” in Jean d’Aspremont and Samantha Besson (eds), Oxford Handbook on the Sources of International Law (Oxford University Press 2017), available at https://papers.ssrn.com/sol3/papers.cfm?abstract_ id=2784731 at 9.  9   Tracey Strange and Anne Bayley, Sustainable Development: Linking Economy, Society, Environment (OECD Insights, OECD Publishing 2008) 25; James Zhan, “Investment Policies for Sustainable Development: Addressing Policy Challenges in a New Investment Landscape,” in Roberto Echandi and Pierre Sauvé (eds), Prospects in International Investment Law and Policy (Cambridge University Press 2013) 13, 15–16. 10   Strange and Bayley (n 9) 24 et seq. See also Anne van Aaken and Tobias A. Lehmann, “Sustainable Development and International Investment Law: A Harmonious View from

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Sustainable development and international investment law  41 of the likelihood that exploitation will deplete nonrenewable resources, but sustainable development concerns are crosscutting and can arise in virtually any context. Economic development is desirable, and even essential, for the creation of wealth and the improvement of living conditions of people in developing countries. How much economic interests should be emphasized to the detriment of other considerations is a matter of dispute even among ardent proponents of sustainable development.11 Those living closest to the area in which development is likely to take place might have significantly different conceptions of the desirability of the project and its sustainability than those living far away from the affected area. Indigenous peoples are often seen as highly vulnerable to development given their proximity to resource-rich areas and reliance on the land for traditional modes of subsistence.12 Sustainable development as described above is a principle rather than a rule.13 It thus tends to operate at a different level from the specific legal obligations—the rules—that states have adopted in international investment treaties. Investment treaties are meant to regulate the resolution of disputes by legal means. This is one of the points of tension between investment law and environmental law. The latter has tended to rely on a framework “conducive to promoting cooperation and progressively more ambitious norm building,”14 while the investment law regime is fairly fixed, with concrete obligations undertaken by states enforceable against them by private investors. In practice, concrete legal standards will tend to take precedence over more indeterminate principles or over soft law.15 Certainly, principles can inform the interpretation of the rules, but those

Economics,” in Echandi and Sauvé (n 9) 317, 318–19 and Laurence Boisson de Chazournes and Brian McGarry, “What Roles Can Constitutional Law Play in Investment Arbitration?” (2014) 15 Journal of World Investment and Trade 862. 11   See Ulrich Beyerlin, “Sustainable Development,” in Rüdiger Wolfrum (ed.), Max Planck Encyclopedia of Public International Law (Oxford University Press 2013). 12   Christina Binder, “Investment, Development, and Indigenous Peoples,” in Stephan W. Schill, Christian J. Tams, and Rainer Hofmann, International Investment Law and Development: Bridging the Gap (Edward Elgar 2015) 423–52. 13   Saverio Di Benedetto, International Investment Law and the Environment (Edward Elgar 2013) 221; cf. Tarcisio Gazzini, “Bilateral Investment Treaties and Sustainable Development” (2014) 15 Journal of World Investment and Trade 929, 931–2 (canvassing arguments that sustainable development is a “legal concept in the sense of a concept elaborated and defined in legal terms,” but noting that “its legal value remains controversial”). 14   Jutta Brunnée (n 8) 6. See also Kate Miles, “Soft Law Instruments in Environmental Law: Models for International Investment Law?” in Andrea K. Bjorklund and August Reinisch (eds), International Investment Law and Soft Law (Edward Elgar Publishing 2012) 82, 87: “[I]t is fair to say that international environmental law has been, and continues to be, shaped in fundamental ways by soft law instruments and other initiatives. In part because of its non-binding and flexible character, soft law is being used to perform a number of central functions in international environmental relations and law-making. In contrast to the lengthy processes entailed in the conclusion of treaties and the crystallization of rules of customary international law, the relative ease with which soft law instruments can be negotiated and altered renders them ideal mechanisms when a rapid response to global environmental issues is required” [footnote omitted]. 15   This is partly the case because tribunal authority is limited to deciding legal disputes. See, e.g., ICSID Convention (Convention on the Settlement of Investment Disputes Between States and Nationals of Other States, concluded Mar. 18, 1965, entered into force Oct. 14, 1966, 17 UST 1270, TIAS 6090, 575 UNTS 159), Article 25(1) (“The jurisdiction of the Centre shall extend to any

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42  Research handbook on environment and investment law interpretations are likely to be most important in cases of doubt or ambiguity, and less so in cases where the application of law to the facts is apparently straightforward. Another feature of investment treaties is their focus on creating a stable and predictable legal framework for investors.16 Stabilization clauses—specific provisions usually found in individual contracts or in domestic investment laws—are examples of a state’s commitment not to change its laws, or not to change particular laws, during the life of an investment.17 Even in the absence of specific commitments, though, investment law tends to favor stability over change, and in particular abrupt change. Indeed, the doctrine of “legitimate expectations” might be said to encapsulate this sentiment.18 This does not mean that legitimate expectations cannot encompass the expectation of even an abrupt change in the law. The Methanex tribunal famously referred to California as a jurisdiction in which it was “notorious” that “governmental environmental and health protection institutions at the federal and state level . . . continuously monitored the use and impact of chemical compounds and commonly prohibited or restricted the use of some of those compounds for environmental and/or health reasons.”19 Notwithstanding California’s acknowledged idiosyncrasies, sudden changes in governmental policy that embrace more rigorous regulatory measures to the detriment of foreign investors are going to be scrutinized and will need to be justified. Thus, a state that has undertaken investment obligations might have to face claims against it and bear the cost—at least initially—of an investment arbitration, even if ultimately the state is able to uphold the bona fides of its regulation. Indeed, investment treaties are intended to constrain state authority, and in so doing they require that states justify the measures that they have enacted. A government’s invocation of “sustainable development” principles as the reason for its having taken decisions with respect to particular investments will often attract scrutiny because of the balancing legal dispute arising directly out of an investment, between a Contracting State (or any constituent subdivision or agency of a Contracting State designated to the Centre by that State) and a national of another Contracting State, which the parties to the dispute consent in writing to submit to the Centre” [emphasis added]). The United States and Canada have been careful in their BITs and in the investment chapters in their FTAs to confine tribunal authority to deciding disputes alleging a breach of one of the enumerated articles in the treaty or, in the case of certain U.S. agreements, to specifically authorized contractual or investment authorization disputes. See, e.g., NAFTA (North American Free Trade Agreement, concluded Dec. 17, 1992, entered into force Jan. 1, 1994, 32 ILM 289, 605 (1993)), Articles 1116 and 1117. See also Article 24 of the 2012 U.S. Model Bilateral Investment Treaty and Articles 22 and 23 of the 2004 Canadian Model Agreement for the Promotion and Protection of Investments. 16   See Noah Rubins and N. Stephan Kinsella, International Investment, Political Risk and Dispute Resolution: A Practitioner’s Guide (Oceana 2005) 28 (“investment treaties represent an undertaking by signatory States that they will provide predictable conditions and an even playing field to qualifying foreign investors and investments”). 17   Ibid 50 et seq.; Jorge Daniel Taillant and Jonathan Bonnitcha, “International Investment Law and Human Rights,” in Cordonier Segger et al. (n 3) 57, 62–5; Audley Sheppard and Antony Crockett, “Are Stabilization Clauses a Threat to Sustainable Development?” in Cordonier Segger et al. (n 3) 333 et seq. 18   See Marc Jacob and Stephan W. Schill, “Fair and Equitable Treatment: Content, Practice, Method,” in Marc Bungenberg, Jörn Griebel, Stephan Hobe, and August Reinisch (eds) and Yun-I Kim (ass. ed.), International Investment Law (C.H. Beck—Hart—Nomos 2015) 723–31. 19   Methanex Corporation v. United States of America, UNCITRAL, Final Award of the Tribunal on Jurisdiction and Merits (Aug. 7, 2002), para. 9.

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Sustainable development and international investment law  43 considerations that are part of any assessment as to what constitutes “sustainable” development, or because of a change in the state’s judgment about what is sustainable and what is not. Sustainable development is not a moratorium on development, and development will quite likely bring with it the possibility of environmental harm or adverse societal impact. Those decisions inevitably require judgments and tradeoffs. Thus, a state’s decision to permit an investment notwithstanding those dangers means that it has at least some tolerance for the risk of environmental damage. For example, building an oil pipeline across the Amazon is a decision that increases the risk of environmental harm. No matter what precautions are taken, some damage could arise; required state-of-the art sensors that alert monitors to pipeline leaks demonstrate an expectation that parts of the pipe can fail and that the best that can be done is to minimize harm, rather than eliminate it. Should there be such harm and should a state revoke an investor’s operating permit because of it, there will almost inevitably be questions about the investor’s degree of culpability and whether it warranted the state’s response. To put it another way, by authorizing the investment the state agreed to tolerate some degree of risk; to claim later that it is authorized to shut down an investment’s operation simply because those risks came to fruition is likely to be unavailing for the state in its guise of respondent.20 Should the damage exceed the risks envisaged due to the negligence or behavior of the investor, the state would very likely win a case. Assessing this situation requires assessing what degree of risk was inherent in the initial operation. What state laws were complied with or ignored? If a state changes its tolerance for risk and thus its regulatory practice, different questions arise. Were the new measures legitimate or illustrative of disguised protectionism? Answering most of these questions requires examination of a state’s cost–benefit analyses either in permitting a specific investment or in creating a general regulatory climate that permitted certain kinds of investments, and this is likely to be at the heart of a fair and equitable treatment analysis.21 The classic trope just outlined pits an investor against a state seeking to limit unfettered development that does not honor sustainability principles. Investment law is proving itself ever malleable, however, and in several cases investors have instituted challenges against states whose policies regarding the encouragement of investment in renewable resources have changed.22 The best known of these are the Spanish solar cases, in which investors have sought damages resulting from Spain’s changes to its renewable energy scheme, including reductions in the feed-in tariff rates and the introduction of grid access fees. Similar cases have been brought against Italy and the Czech Republic, as well as regarding Ontario’s feed-in tariff scheme to promote renewable energy. In another case, the investor challenged the government’s failure to enforce domestic environmental laws to the

20   Cf. Åsa Romson, “International Investment Law and the Environment,” in Cordonier Segger et al. (n 3) 37, 42–3 (noting difficulty in dealing with risks in both environmental and investment law). 21   Ibid 42 (noting difficulty in applying simple cost-benefit analysis in the investment context, particularly when subjective estimations of future damage are at stake). 22   See Daniel Behn and Ole Kristian Fauchald, “Governments under Cross-Fire? Renewable Energy and International Economic Tribunals” (2015) 12(2) Manchester Journal of International Economic Law 117. Spain lost the first of the at-least 23 cases brought against it (ibid, pp.134–5). See Eiser Infrastructure Limited and Energía Solar Luxembourg S.à.r.l. v. Kingdom of Spain, ICSID Case No ARB/13/36, Final Award (May 4, 2017). It has also won two (see n 25 of this chapter for more detail).

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44  Research handbook on environment and investment law ­ etriment of the investor’s wildlife sanctuary.23 These shifts show the difficulty of taking d a one-dimensional view of sustainable development. As the Spanish solar cases indicate, investment law can be used as a sword as well as a shield when it comes to encouraging sustainable development.24 The government of Spain determined that subsidizing alternative energy sources was necessary in order to develop that economic sector, an important goal given the negative consequences of carbon-based fuel sources. Yet Spain miscalculated the number of investors who would take advantage of those subsidies and, in the interests of preserving its broader economic health and to ensure the sustainable development of its overall economy, it revoked the subsidies. Thus, one could view the sustainable development principle as justifying both the initial measure and the ensuing revocation of that measure. It is not impossible that this should be the case—circumstances change, and a state’s measures can change in response—and two tribunals have in fact upheld Spain’s actions.25 But the factual scenario there illustrates why it is difficult to create treaty provisions that ex ante ensure that any dispute whose underlying facts demonstrate an adverse impact on sustainable development principles will necessarily result in a victory for the state. As Diane Desierto notes, “Both ex post arbitral interpretation and ex ante IIA [international investment agreement] rule-making contend with difficulties arising from the inherent fluidity of the concept of ‘sustainable development’.”26 This chapter, like many focusing on sustainable development in the context of international investment law, will pay some attention to environmental law, given the frequency with which investment cases have raised environmental concerns.27 As Jorge Viñuales demonstrated in Chapter 2, 117 cases can be categorized as raising environmental issues;28 Daniel Behn and Ole Kristian Fauchald meanwhile identified 49 cases by using a metric limited to those cases that directly challenge a domestic environmental measure and in which the state argues that at least one of the measures taken is justified for environmental reasons.29 This environmental focus is not intended to negate the importance of other considerations—such as the payment of a living wage—to the creation of a polity that truly supports sustainable development in the broadest sense, and these other considerations will also form part of the discussion. 23   Peter A. Allard v. The Government of Barbados, PCA Case No 2012-06, Award (Jun. 27, 2016). 24   See Jeff Sullivan and Valeriya Kirsey, “Environmental Policies: A Shield or a Sword in Investment Arbitration?” (2017) 18 Journal of World Investment and Trade 100. 25   See to Charanne B.V. and Construction Investments S.A.R.L. v. The Kingdom of Spain, SCC Arbitration No 062/2012, Final Award (Jan. 21, 2016) and Isolux Infrastructure Netherlands B.V. v. Kingdom of Spain, SCC Arbitration, Award dated 2016 (not public). 26   Diane Desierto, “Deciding International Investment Agreement Applicability: The Development Argument in Investment,” in Freya Baetens (ed.), Investment Law within International Law: Integrationist Perspectives (Cambridge University Press 2013) 240, 242. 27   See generally Cordonier Segger et al. (n 3). 28   Jorge E. Viñuales, “Foreign Investment and the Environment in International Law: Current Trends,” in Kate Miles (ed.), Research Handbook on Environment and Investment Law (Edward Elgar 2019) 12, 20. 29   Daniel Behn and Malcolm Langford, “Trumping the Environment? An Empirical Perspective on the Legitimacy of Investment Treaty Arbitration” (2017) 18(1) Journal of World Investment and Trade 14, 18.

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Sustainable development and international investment law  45

3. SUSTAINABLE DEVELOPMENT IN INVESTMENT TREATIES The starting point for anyone seeking to ascertain the obligations states have undertaken   in investment agreements – whether in BITs or in the investment chapters of FTAs – is the treaty text. The easiest way to enhance a commitment to sustainable development in an investment treaty is to ensure that the treaty itself directs taking it into account. There is abundant literature offering suggestions for states seeking to revise their investment treaties to make them more hospitable to sustainable development principles. An entire issue of the Journal of World Investment and Trade was devoted to ideas for integrating sustainable development into international investment law,30 and several authors both in that volume and elsewhere have offered provocative ideas.31 UNCTAD, in its Investment Policy Framework for Sustainable Development (IPFSD), offers a menu of choices for states when they are negotiating treaties; these choices range from circumscribing standards of investment protection to including more reservations and exceptions.32 The IPFSD offers states an integrated approach to the formulation of investment policies that create a favorable investment climate but which maximize the likelihood of development gains from that foreign investment, alongside amendments to substantive treaty provisions and investor-state dispute settlement.33 Anthony VanDuzer,  Penelope Simons and Graham Mayeda wrote a report for the Commonwealth Secretariat that offers thoughtful guidance primarily directed toward developing country negotiators, and recommends options ranging from sustainability assessments to the inclusion of investor obligations and enhancement of the stringency of state obligations.34 Earlier ambitious efforts include the International Institute for Sustainable

30   “Special Issue: Towards Better BITs? Making International Investment Law Responsive to  Sustainable Development Objectives” (2014) 15 Journal of World Investment and Trade 795–1011. 31   A partial list includes: Markus W. Gehring and Avidan Kent, “International Investment Agreements and the Emerging Green Economy: Rising to the Challenge,” in Baetens (n 26) 187–216; Alessandra Asteriti, “Environmental Law in Investment Arbitration: Procedural Means of Incorporation” (2015) 16 Journal of World Investment and Trade 248; Karsten Nowrot, “How to Include Environmental Protection, Human Rights and Sustainability in International Investment Law?” (2014) 15 Journal of World Investment and Trade 612; Lorenzo Cotula, Foreign Investment, Law and Sustainable Development: A Handbook on Agriculture and Extractive Industries (2nd ed., IIED 2016); Miles (n 14) 100–2; Miles (n 3) 348–85; Graham Mayeda, “Sustainable International Investment Agreements: Challenges and Solutions for Developing Countries,” in Cordonier Segger et al. (n 3) 539–59. 32  UNCTAD, Investment Policy Framework for Sustainable Development (UNCTAD/DIAE/ PCB/2015/5, United Nations 2015). 33   Ibid 77 et seq. The IPFSD is also meant to be a “living document” that offers an open source platform enabling stakeholders to exchange their observations: Zhan (n 9) 29. See also http:// investmentpolicyhub.unctad.org. 34   J. Anthony VanDuzer, Penelope Simons, and Graham Mayeda, Integrating Sustainable Development into International Investment Agreements: A Guide for Developing Countries (Commonwealth Secretariat 2012) 251 et seq.

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46  Research handbook on environment and investment law Developments Model Investment Treaty, released in 2005,35 and the Norwegian Model BIT of 2007.36 Neither of these early efforts was taken up—indeed, the Norwegian Model BIT was withdrawn, but has been replaced by a new model with some interesting features.37 State takeup has been slow but increasing.38 For example, most of the 14 US FTAs and BITs entered into subsequent to NAFTA and prior to 2010 evince significant changes and advances in their approach to encouraging state parties actively to engage in environmental protection.39 The European Union carries out sustainability impact assessments of its free trade agreements.40 35   Howard Mann, Konrad von Moltke, Luke Eric Peterson, and Aaron Cosbey, IISD Model International Agreement on Investment for Sustainable Development (April 2005) available at www. iisd.org/pdf/2005/investment_model_int_agreement.pdf, accessed Jun. 19, 2017. 36   Agreement between the Kingdom of Norway and ----------- for the Promotion and Protection of Investments (2007) available at (last visited 5 May 2017).

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376  Research handbook on environment and investment law that China will embrace the broad sustainable development objectives in any future IIAs, including the BITs currently under negotiation with the US and EU. 4.2  Strengthen the Right to Regulate Another possible way in which China’s future IIAs may attempt to reconcile environmental protection with investment protection is through a strengthening of what is known as “the right to regulate.” The concept of the right to regulate has two aspects: one relates to admission requirements and involves the right to regulate inflows of FDI to promote domestic economic development, ensuring capital flows are directed into identified areas of need for the host State; the other is the right to regulate to realize public policy objectives, minimizing the possible negative effects of FDI, subject to the implementation of any such measures not amounting to discriminatory treatment of foreign investors and conforming to all other investment protection obligations under the relevant IIAs. It is not only in the area of treaty drafting, as previously discussed, that there are signs of a change in approach towards environmental protection and the right to regulate; they can also be seen in the way in which claims are being framed and tribunals are addressing environmental issues in awards. In the 2015 interim decision on an environmental counterclaim brought by Ecuador alleging Perenco had created an environmental catastrophe in the Amazon,52 the tribunal emphasized the importance of environmental protection, stating: proper environmental stewardship has assumed great importance in today’s world . . . a State has wide latitude under international law to prescribe and adjust its environmental laws, standards and policies in response to changing views and a deeper understanding of the risks posed by various activities, including those of extractive industries such as oilfields.53

As for Perenco’s defences, including retroactivity and the time bar of Ecuadorian environmental law, the tribunal sided with Ecuador with an interpretation favorable to environmental protection. Although such environmental counterclaims brought by host States are rare, they illustrate the cultural shift that has been occurring regarding the environment–investment nexus. It is clear that innovative mechanisms to protect the environment within the investment context will continue to be explored, that the right to regulate of host States is not just being recognized, but is being respected and implemented, and that the social responsibility of foreign investors is being explicitly acknowledged by international tribunals. 52   Perenco Ecuador Limited v Republic of Ecuador (ICSID Case No ARB/08/6). Ecuador brought its counterclaim against Perenco in 2011, in response to Perenco’s own claims that the host State violated the France–Ecuador BIT and two concession contracts. The tribunal found Ecuador liable for Perenco’s alleged damages in 2014. In its interim decision of 11 August 2015, the tribunal rules that it will appoint its own expert to reassess contamination in order to make a final determination of any liability that Perenco might bear under the counterclaim: available at www. icsid.org (last visited 2 September 2015). 53   Interim Decision on the Environmental Counterclaim (11 August 2015) of Perenco v Ecuador, 7.

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Environmental concerns  377 Strengthening the right to regulate is increasingly seen as a core element in attempts to reconcile the contradictions that rest within IIAs regarding the preservation of public policy space, including environmental protection, and the protection of private interests. It is also one of the methods used to relieve public anxiety at the apparently mounting compression of state sovereignty that accompanies broader and deeper investment protection obligations under IIAs,54 and at the growing number of ISDS cases challenging public policy measures of host States. Furthermore, another relevant issue for the investment–environment nexus in China arising from recent trends in newly signed IIAs is related to the prohibition of or strict controls on performance requirements, such as local content targets or export quotas,55 as a condition for the establishment, acquisition, expansion, management, conduct, or operation of an investment. The main capital-importing countries, especially less developed countries—including China—are inclined to set performance requirements as the preferable vehicle for directing investment into areas that will specifically support their sustainable development programmes and preserve the right to regulate incoming investment flows. This has been an important part of domestic macroeconomic policies and development strategies covering preestablishment and postinvestment stages for FDI into China in the last century. However, as China’s role in the global economy has shifted from solely the largest FDI-inflowing developing country to one of the largest FDI exporters in addition, there has been a change in emphasis in China’s recent IIAs, including reconsideration of the function and impact of performance requirements. Recognizing the distorting effect these can have on international trade and FDI, China phased out most such measures and legislation in the early twenty-first century and accepted prohibitions and restrictions on certain performance requirements provisions in the China–New Zealand FTA (2008), China–Japan–Korea IIA (2012), and China–Canada BIT (2012). In this way, China has effectively replaced performance requirements with other regulatory measures to achieve those same goals rather than restricting investors’ behavior, leaving the market for inbound FDI as the primary instrument for exercising constraints. It is also in this context of discarding performance requirements, however, that the critical element of strengthening the right to regulate in its other form—preserving that space once investments have been established—becomes so clear. Ensuring that China’s domestic policy space is not encroached upon in inappropriate ways by the obligations in IIAs also ensures that FDI makes an effective contribution to the economic and noneconomic goals of China. In China’s ongoing and future IIA negotiations, it will be necessary to ensure that the investment protection and promotion objectives of these agreements do not erode the right of Contracting Parties to regulate and implement public policy measures, including

54   In the European Commission’s draft negotiating text of the investment chapter of TTIP (16 September 2015), Article 2 ‘Investment and Regulatory Measures/Objectives’ states as follows: ‘the provisions of this section (investment protection) shall not be interpreted as a commitment from a Party that it will not change the legal and regulatory framework, including in a manner that may negatively affect the operation of covered investments or the investor’s expectations of profits.’ See European Commission draft text ‘TTIP—Investment’, 3, available at http://trade.ec.europa.eu/ doclib/docs/2015/september/tradoc_153807.pdf (last visited 17 September 2015). 55   Especially those IIAs signed by the United States and Canada.

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378  Research handbook on environment and investment law environmental protection. The right to regulate should be recognized and strengthened in China’s future IIAs, ideally not only embodied in the preamble or in substantive paragraphs, but safeguarded by the insertion of general exceptions clauses and national essential security provisions and by clarification or circumscription of critical provisions, including most favored nation treatment, national treatment, fair and equitable treatment, and indirect expropriation.

5. CONCLUSION As an active IIA negotiator, the Chinese government is reconsidering the purpose of IIAs, moving from solely investment protection to the creation of IIAs for sustainable development. This will constitute a primary basis for preventing the erosion of the State’s right to regulate in the public interest by expanding private interests. However, strengthening the government’s right to regulate in its future IIA regime does not mean sacrificing the objectives of investment protection, promotion, and liberalization; rather, it is a way of balancing those rights and obligations of States and investors, and ensuring the government’s right to regulate is exercised in conformity with their international obligation under IIAs. In addition, as the ambiguity and uncertainty surrounding existing substantive rules under IIAs has led to the filing of ISDS cases and to a crisis of regulatory chill, the rulemakers must now respond to this challenge by providing greater clarity and elaborating on the specifics of those obligations in order to preserve host State regulatory space to enact public policy. China has stipulated general exception clauses or carveouts in some core substantive provisions to preserve the space to regulate in the public interest. Furthermore, China has paid close attention to the systemic reformation of the ISDS regime, and has already introduced transparency rules in recent IIAs to relieve anxiety on the part of civil society about the lack of openness in ISDS procedures. These initiatives indicate that China is already taking part in those global trends that are seeking to enhance multilateral consensus to build a new IIA regime aiming at more sustainable development at both domestic and international levels. It is clear that if this trajectory continues, there will be a more positive outlook for the environmental protection component of the environment–investment nexus within China than has been the case in previous years.

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16.  Balancing economic objectives and environmental considerations in new EU investment agreements: a brave new world? Rumiana Yotova*

This chapter assesses whether and to what extent the new European Union (EU) investment agreements balance economic protection and environmental considerations. The EU acquired exclusive competence in the area of foreign direct investment (FDI) following the entry into force of the Lisbon Treaty,1 which entails at least two important consequences for the new EU investment agreements (IAs). The first is that it is for the EU, acting through the Commission, to lead the negotiation of these agreements with third States.2 This has implications for the strength of its negotiating position, as well as with respect to Member States’ ability to introduce tailored provisions, particularly in the areas of shared competences such as environmental policy. The Council of the EU, consisting of representatives of the Member States, has a role limited to the very beginning and end of the process – it authorises the opening of the negotiations, providing negotiation directives and the signing of the IAs.3 Notably, however, the recent holding of the Court of Justice of the EU (CJEU) on the EU–Singapore Free Trade Agreement clarified that the new EU IAs should be concluded as mixed, that is, by both the EU and the Member States, since the EU does not have exclusive competence over non-direct forms of investment or over agreeing to investor-State dispute settlement.4 In practice, this would entail that each Member State retains the power to refuse to ratify an EU IA, a scenario which was close to materialising with respect to the Canada–EU Comprehensive Economic and Trade Agreement (CETA) and Belgium’s initial reluctance to accept it. Second, these agreements have to comply with the EU’s own Founding Treaties, including the obligation to act in accordance with the principles and objectives of the Union’s external action.5 Notably, these principles include the fostering of sustainable economic and environmental development, the preservation and improvement of the quality of the environment and

*  The author wishes to express special thanks to Dr Kate Miles for inspiration and positive encouragement while writing this chapter. This chapter adopts a similar methodological approach to the author’s chapter ‘Balancing Economic Objectives and Social Considerations in the New EU Investment Agreements: Commitments v Realities’ in C Barnard, G de Baere et al (eds), A European Social Union after the Crisis (Cambridge University Press, 2017). 1   Treaty of Lisbon amending the Treaty on European Union and the Treaty Establishing the European Economic Community, 13 December 2007, 2007/C 306/01. See Art. 207, Treaty on the Functioning of the European Union (TFEU). 2   Art. 207(3) and (4) TFEU. 3   Art. 218(2), (5) and (6) TFEU. 4   Opinion 2/15 of the CJEU of 16 May 2017 (ECLI:EU:C:2017:376). 5   Art. 207(1) TFEU.

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380  Research handbook on environment and investment law the sustainable management of global natural resources.6 Indeed, the EU prides itself as a global leader in the protection of the environment, having some of the world’s highest environmental standards.7 Accordingly, it is both interesting and important to assess the extent to which environmental considerations match these high aspirations by being reflected in the new EU investment policy, and, indeed, in the actual IAs negotiated with third States. The assessment will be made by reference to the EU’s own Founding Treaties and the internal acts of its institutions relating to the new European International Investment Policy, as well as to the existing framework of investment agreements. The question of balancing economic and environmental considerations in the new EU IAs is part of the broader debate concerning the emergence of a new and reformed generation of IAs.8 These are characterised by the integration of non-economic public interest considerations, including environmental protection.9 The shift in treaty making is commonly associated with the 2004 US Model BIT, arguably motivated by the US experience of having its public interest regulatory measures (often taken for the protection of the environment) challenged in investment arbitrations instituted under the North American Free Trade Agreement (NAFTA).10 The US experience is not isolated, as investment tribunals’ approaches to balancing public interest considerations with economic protection are inconsistent: some take the view that the public interest can serve as a complete justification for good faith non-discriminatory regulation even where it affects the investment negatively;11 others have held that the public interest motivation of the regulation is irrelevant, and that only the economic effect of the measure determines whether compensation has to be paid.12 States and international organisations are responding to this regulatory challenge by modifying their IAs to strike a better balance between their economic and non-economic public interests. The new EU IAs should be seen and interpreted in this context.

 6   Art. 21 (2)(d) and (f), Consolidated version of the Treaty on European Union (TEU), 26 October 2012, OJ C 326.  7   European Commission, Directorate General ‘Environment’ at: http://ec.europa.eu/environ​ ment/international_issues/index_en.htm (visited 10 January 2016).  8   S. Spears, ‘The Quest for Policy Space in a New Generation of International Investment Agreements’ (2010) 13:4 Journal of International Economic Law 1037; J. Alvarez and K. Sauvant, The Evolving International Investment Regime: Expectations, Realities, Options (Oxford University Press, 2011); C. Henckels, ‘Protecting Regulatory Autonomy through Greater Precision in Investment Treaties: The TPP, CETA and TTIP’ (2016) 19 Journal of International Economic Law 27.  9   K. Gordon, J. Pohl and M. Bouchard, ‘Investment Treaty Law, Sustainable Development and Responsible Business Conduct: A Fact Finding Survey’, OECD Working Papers on International Investment, 2014/01. 10   J. Alvarez, ‘The Return of the State’ (2011) 20 Minnesota Journal of International Law 223, 234 et seq. 11   See e.g. Methanex Corp. v USA, Final Award, 3 August 2005, para. 410; S.D. Myers Inc v Canada, Partial Award, 13 November 2000, para. 281; Tecmed SA v United Mexican States, Award, 29 May 2003, para. 119. Notably, the measures challenged in all these cases had an environmental motivation. 12   See e.g. Southern Pacific Properties Limited v Arab Republic of Egypt, ICSID Case No ARB/84/3, Award on the Merits, 20 May 1992, paras 158–9; Metalclad Corp v Mexico, ICSID Case No ARB(AF) 97/1, Award, 30 August 2000, paras 103, 111; Compañía del Dessarrolo de Santa Elena SA v Costa Rica, ICSID Case No ARB/96/1, Final Award, 17 February 2000, paras 71–2.

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Balancing economic objectives  381 Given that investment treaties are a function of the global economic process,13 other factors catalysing the change include the increasing reciprocity of FDI flows between developing and developed States, as well as the global economic and financial crisis, in particular the responses of developed States and the correlated need to increase their regulatory space to protect their public interest.14 International law and the UN, with its specialised agencies, also provide an impetus for reform. For example, according to the UN Addis Ababa Action Agenda, investment agreements should be crafted ‘with appropriate safeguards so as not to constrain domestic policies and regulation in the public interest’.15 The United Nations Conference on Trade and Development (UNCTAD) warns that the standards of protection in IAs can have a stabilising effect on regulatory freedom to protect the public interest, stressing ‘the need to strengthen the development dimension of IIAs . . . preserving the right to regulate for sustainable development policies’.16 Finally, the Sustainable Development Goals affirmed at the 2015 UN Sustainable Development Summit stress the need to ‘decouple economic growth from environmental degradation’,17 highlighting the need to strike an appropriate balance between the two potentially competing considerations. Balancing environmental and economic considerations in IAs is particularly important in practice. According to quantitative studies, environmental standards are the non-economic public interest considerations most frequently referred to in investment arbitration, compared to labour standards, human rights and corruption, for example.18 Not surprisingly, the environment is also the non-economic public interest consideration most commonly accommodated in IAs globally, being found in around 10 per cent of the surveyed 2,107 IAs, compared to labour standards (5.5 per cent), anti-corruption (1.5 per cent) and human rights (0.5 per cent).19 Furthermore, environmental considerations are integrated in 75 per cent of the IAs signed after 2008,20 indicating that the EU approach of incorporating them in its IAs is fully in line with international treaty making trends. The express incorporation of the right to regulate in EU IAs is probably their most important innovation and mechanism for balancing economic objectives with non-economic public interest considerations. Given its membership and leading role as importer and exporter of FDI flows, the EU is in a very strong position to influence, if not lead, the ongoing reform of the investment treaty regime. According to quantitative studies, the developed capital-exporting States are the primary drivers of change in the investment regime, often motivated by the 13   M. Reisman, ‘Negotiating Investment Treaties: Mechanisms for Anticipating and Controlling Textual Drift’ (2016), Yale Law & Economics Paper No 546, 19. 14   S. Franck, ‘Considering Recalibration of International Investment Agreements: Empirical Insights’ in J. Alvarez and K. Sauvant, The Evolving International Investment Regime (Oxford University Press, 2011), 73–5. 15   Addis Ababa Action Agenda of the Third International Conference on Financing for Development, GA Res 69/313 (2015), para. 91. 16   UNCTAD Investment Policy Framework for Sustainable Development (2015), 69. 17   Transforming Our World: the 2030 Agenda for Sustainable Development, GA Res. 70/1, 25 September 2015, Goal 8 ‘Promote sustained, inclusive and sustainable economic growth’, para. 4. 18   Gordon, Pohl and Bouchard, note 9, 23. 19   Ibid, 5. 20   Ibid, 11.

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382  Research handbook on environment and investment law e­ xperiences of other States in the growing number of arbitration proceedings,21 as well as by their own experience as respondents in investment cases.22 The position of developed States as the main drivers of change in investment law is also linked to their administrative and legal capacity to draft international treaties, as well as by the relative strength and diplomatic power of their bargaining position.23 The integration of the public interest in investment law and arbitration is attracting considerable scholarly attention,24 mostly focusing on two areas: first, environmental aspects;25 second, human rights aspects.26 While there are studies on how the EU uses its trade policy to promote human rights issues,27 as well as social issues,28 the effect of the European environmental protection policies on the new EU IAs remains unstudied. So does the potential for using EU IAs to promote environmental protection, given the leading role of the EU as both an exporter and a destination of FDI. The EU is in a very strong position both to draft and to negotiate new generation IAs accommodating and actively promoting environmental protection. This chapter will assess whether the EU IAs concluded so far have managed to strike a good balance between economic objectives and environmental considerations not only from the perspective of the constitutional law of the EU, with its environmental standards, but also in the context of the global trends in investment law.

1. BALANCING FDI AND ENVIRONMENTAL PROTECTION UNDER THE FOUNDING TREATIES OF THE EU The EU is a sui generis international organisation with a strong, if not primary, focus on economic integration.29 The strengthening of the Member States’ economies and 21   According to UNCTAD around 40 per cent of the totality of 444 known investment cases have been brought against developed States: see UNCTAD, World Investment Report 2016, 105–7. 22   M. Manger and C. Peinhardt, ‘Learning and Diffusion in International Investment Agreements’ (2014) at: www.uni-heidelberg.de/md/awi/peio/manger__peinhardt_26.08.2013.pdf (visited 11 August 2016). See also K Gordon and J Pohl, ‘Investment Treaties Over Time – Treaty Practice and Interpretation in a Changing World’, OECD Working Papers on International Investment, 2015/02. 23   Manger and Peinhardt, note 22, 9–10. 24   T. Treves et al, Foreign Investment, International Law and Common Concerns (Routledge, 2014) and L. Mouyal, International Investment Law and the Right to Regulate: A Human Rights Perspective (Routledge, 2016). 25   Gordon, Pohl and Bouchard, note 9 above; C Tams et al (eds), International Investment Law and Development (Edward Elgar Publishing, 2015). 26   B. Simma, ‘Foreign Investment Arbitration: A Place for Human Rights?’ (2011) 60:3 International and Comparative Law Quarterly 573; see generally, C. Reiner and C. Schreuer, ‘Human Rights and International Investment Arbitration’ in P.M. Dupuy et al (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press, 2009) 82–96. 27   See generally, M. Hirsch, ‘Identity Matters: The Enforcement of Global Human Rights Treaties by European Union Trade Instruments’ in L. Biukovic and P. Potter, Local Engagement with International Economic Law and Human Rights (Edward Elgar, 2017) 169–97. 28   See generally, L. Bartels, ‘Social Issues: Labour, Environment and Human Rights’ in S.  Lester et al (eds), Bilateral and Regional Trade Agreements: Commentary, Analysis and Case Studies (2nd edn, Cambridge University Press, 2015) 364–84. 29   See in general R. Baldwin and C. Wyplosz, The Economics of European Integration (3rd edn, McGraw-Hill, 2009).

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Balancing economic objectives  383 the promotion of economic progress are among the objectives of the EU listed in the Preamble of its Founding Treaties.30 The four freedoms which form the backbone of EU law, including the free movement of goods, persons, services and capital, are all economic in nature.31 And indeed, the new EU competence in FDI is part of the Common Commercial Policy (CCP) which represents the economic dimension of the Union’s External Action,32 having as its main objective the progressive abolition of restrictions to international trade and investment.33 Given the historical development of the EU and its economic objectives, it is no surprise that the EU has the exclusive competence to act with respect to the CCP. The economic focus of the Founding Treaties in general and the EU CCP policy in particular play an important role in the definition, as well as in the interpretation of how economic objectives are to be weighed and balanced with other considerations in the new EU IAs. The regulation of the environment under EU law is more nuanced. While the protection of the environment forms part of the objectives of the EU and the principles governing its external actions,34 including the CCP and FDI, it is an area of shared competence between the EU and its Member States.35 This means that the role of the EU is one of supporting and complementing the environmental activities of the Member States,36 as well as to approximating their laws;37 it also means that Member States can adopt more stringent environmental protection measures than those harmonized at the EU level.38 Notably, it is for the EU together with the Member States to cooperate and conclude international agreements with third States in order to promote the environment.39 The TFEU formulates the protection of the environment as an overarching objective that ought to be taken into account in all EU actions, setting out that ‘environmental protection requirements must be integrated into the definition and implementation of the Union’s policies and activities, in particular with a view to promoting sustainable development’.40 The TFEU defines the EU environmental policy broadly, including ‘preserving, protecting and improving the quality of the environment’, ‘protecting human health’, ‘prudent and rational utilisation of natural resources’ and ‘promoting measures at international level to deal with regional or worldwide environmental problems, and in particular combating climate change’.41 The attainment of high environmental protection is further reinforced in the EU Charter of Fundamental Rights, without being formulated as a right itself, but rather as an obligation imposed on the EU that ‘must be integrated   Paras 8 and 9, Preamble, TEU.   See in general C. Barnard, The Substantive Law of the EU: The Four Freedoms (4th edn, Oxford University Press, 2013). 32   Part V, Title II, TFEU. 33   Para. 6, Preamble, TFEU. 34   See n 3. 35   Art. 4(2)(e) TFEU. 36   Art. 153(1) TFEU. 37   Art. 114(3) TFEU. 38   See Art. 193 TFEU. 39   Art. 191(4) TFEU. 40   Art. 11 TFEU (emphasis added). 41   Art. 191(1) TFEU. 30 31

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384  Research handbook on environment and investment law into the policies of the Union and ensured in accordance with the principle of sustainable development’.42 Based on the regulation of the environment in the EU Founding Treaties, it can be concluded that the broad EU environmental objectives are to be upheld and integrated, if not promoted, in the exercise of the new competence in FDI and in the conclusion of the new EU IAs with third States. This conclusion, while straightforward in theory, is delicate to achieve in practice, raising the question of how to balance the primary economic objectives of the EU and of its IAs with the environmental considerations at hand. It is useful to try and tentatively define the meaning of ‘balancing’, as the term evokes a connotation of conflict and asymmetric weight. The ordinary meaning of ‘balance’ according to the Oxford English Dictionary is somewhat ambivalent, being ‘a situation in which different elements are equal or in the correct proportions’. 43 The latter aspect of balancing is particularly important with respect to the considerations involved in both environmental and investment protection, often overlooked due to the common assumption that ‘balance’ necessarily implies ‘symmetry’ or equal weight. However, given the constitutional characteristics of the economic and environmental objectives of the EU, as defined in the Founding Treaties, it is more likely that the balancing between the two – including in the conclusion of IAs – is more likely to be a question of identifying the appropriate proportions rather than one of striving for a perfect equilibrium. The question of balancing economic rights with public policy objectives is pertinent and unsettled in investment law too, as will be discussed later. It should be noted that the Founding Treaties of the EU themselves purport to strike a certain balance between the economic and the environmental objectives of the organisation. On the one side, the TFEU refers to ‘integrating’ the requirements of environmental protection into the other EU policies and activities with a view to ‘promoting’ sustainable development,44 as well as to ‘contributing’45 to environmental objectives by ‘aiming’ at a high level of environmental protection and ‘cooperating’ with third States.46 The use of these terms seems to indicate a requirement for proactiveness from the EU. With respect to weighing between the economic and the environmental, however, the TEU refers to promoting economic progress while ‘taking into account the principle of sustainable development’, which carries a more passive connotation of not jeopardising environmental considerations while striving to achieve economic objectives.47 The relevance of the environment with respect to the EU external actions, including FDI, is to ‘help develop international measures to preserve and improve the quality of the environment’ and ‘to ensure sustainable development’.48 These formulae suggest a dual requirement of not jeopardizing environmental objectives and actively working to attain them. The question is whether and how this is reflected in current EU IIA practice.

  Art. 37, Charter of Fundamental Rights of the European Union, 18 December 2000, OJ C 83.   Oxford English Dictionary, online edition, at: www.oxforddictionaries.com/ (visited 19 January 2016). 44   See e.g. Art. 11 TFEU. 45   See e.g. Art. 191(1) TFEU. 46   Art. 191(2) and (4). 47   Para. 9, Preamble TEU. 48   Art. 21(2)(f) TEU. 42

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Balancing economic objectives  385

2. THE ENVIRONMENT AND THE NEW EUROPEAN INTERNATIONAL INVESTMENT POLICY In addition to the Founding Treaties, the acts of the Commission, the European Parliament and the Council are relevant in shaping the new EU International Investment Policy. Notably, the three EU institutions had different visions about the appropriate balance to be struck between environmental protection and the underlying economic objectives in the area of FDI. These visions of the Commission, the European Parliament and the Council on balancing the economic and the environmental considerations in the EU IAs will be used as one of the reference points in assessing the IAs concluded so far. The Commission’s Communication on a comprehensive European international investment policy focused on the economic objectives of FDI but also noted the need to balance them with environmental considerations. This balance had passive aspects focused on maintaining the status quo, including the view that the economic objectives ‘should be consistent with the other policies of the Union and its Member States, including policies on the protection of the environment’49 and is ‘to be guided by the principles and objectives of the Union’s external action, including human rights and sustainable development’.50 Notably, the Commission identified and highlighted the need for ‘a clear formulation of the balance between the different interests at stake’ – in particular, the protection against unlawful expropriation on the one side, and the need to ensure ‘the right of each Party to regulate in the public interest’, including to protect the environment, on the other.51 A proactive aspect in the Communication is that EU IAs ought to ‘promote’ sustainable development, recalling the OECD Guidelines for Multinational Enterprises as an instrument ‘to help balance the rights and r­esponsibilities of ­investors’52 in this respect. Overall, the Commission Communication seems to adopt a conservative perspective on how to integrate environmental and other non-economic considerations into the new EU investment policy, focusing mainly on maintaining the status quo by not jeopardising environmental protection by concluding IAs. However, it identifies the need to balance the interests at stake in treaty making and formulates a two-fold understanding of the balance required. On the one side, there is a balance to be struck between protecting economic rights and ensuring the rights of the Member States and the EU to regulate in the public interest, which includes environmental interests. On the other, there is the need to balance between the rights and duties on investors. Notably, according to the Commission this is to be done not by the EU IAs themselves, but rather by reference to the extraneous and non-binding OECD Guidelines. The European Parliament is more ambitious in its balancing views and in requiring a proactive approach by the Commission in its drafting of EU IAs. The Parliament noted that the ‘EU investment policy . . . necessitates striking a delicate balance between 49   Commission Communication COM(2010) 343, ‘Towards a Comprehensive European International Investment Policy’, 9 (emphasis added). 50   Ibid, 2 (emphasis added). 51   Ibid, 9. 52   Ibid, 2.

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386  Research handbook on environment and investment law ­protecting investor’s rights and the right of public authorities to regulate’.53 Accordingly, it called on the Commission ‘to include in all future agreements specific clauses laying down the right of parties to the agreement to regulate, inter alia, in the areas of protection of . . . the environment’.54 The Parliament stressed that the new European international investment policy ‘must also promote investment which . . . respects the environment (particularly in the area of extractive industries)’55 and called for the inclusion of effective environmental clauses in all EU IAs, as well as of clauses preventing the watering down of environmental legislation.56 The European Parliament called for concrete balancing steps to be taken in the drafting and negotiation of EU IAs, with a view not only to uphold but also to actively promote environmental protection. It formulated the necessary balance as one between the protection of the economic rights of the investor on the one side, and the right of the public authorities to regulate, inter alia to protect the environment, on the other. Not surprisingly, the Council of the EU adopted the least ambitious approach, emphasising the economic benefits of FDI by fostering growth, competitiveness and productivity,57 and highlighting as the main goal of the new investment policy ‘the objective of the Union remaining the world’s leading destination and source of investment’.58 While recognising ‘the importance of the social and environmental dimension of foreign direct investment, as well as the rights and the obligations of investors’, the Council made no commitments in this respect, drawing attention instead to the valuable contribution of organisations like the OECD, UNCTAD and ILO and to corporate social responsibility,59 falling short of acknowledging the role of the EU and its IAs. The only commitment made by the Council was that the ‘new European international investment policy should be guided by the principles and objectives of the Union’s external action’, including sustainable development,60 and that it should take into account ‘the other policies of the Union and its Member States’.61 Accordingly, it is fair to observe that the Council was primarily concerned with the attainment of the new IAs’ economic objectives and much less so with balancing them with other considerations, which it saw as fitting better into the remit of other international organisations. The Council’s vision of the new EU International Investment Policy was one of maintaining the status quo by essentially acting in accordance with the Founding Treaties and not compromising environmental objectives. The Commission revised and strengthened its commitments on the balance between economic and environmental considerations in the area of FDI in its new Trade and 53   European Parliament International Trade Committee report of 17 March 2011 (emphasis added). 54   European Parliament resolution of 6 April 2011 on the future European international investment policy (2010/2203(INI)), para. 25. 55   Ibid, para. 27. 56   Ibid, para. 28. 57   Council of the European Union, ‘Conclusions on a Comprehensive European International Investment Policy’, 20 October 2010, para. 1. 58   Ibid, para. 6. 59   Ibid, para. 16. 60   Ibid, para. 17. 61  Ibid.

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Balancing economic objectives  387 Investment Strategy of 2015. This shift is particularly important, given that it is the Commission that leads IAs’ negotiations on behalf of the EU. The Commission focused more extensively on the need for balance in the EU IAs, stating that it ‘must pursue a policy that benefits society as a whole and promotes . . . values alongside core economic interests’ and that it ought to put greater emphasis on environmental protection and sustainable development.62 In order to achieve the proposed balance, the Commission undertakes to carry out sustainability impact assessments, including in-depth analysis of the potential environmental and other impacts of IAs and free trade agreements (FTAs).63 Furthermore, the Commission adopted a substantially more proactive approach, emphasising that ‘the EU is best placed and has a special responsibility to lead the reform of the global investment regime’,64 including by putting stronger emphasis on the right of the State to regulate,65 ensuring that economic growth goes hand in hand with high environmental standards,66 and using the CCP to promote the environmental pillar of sustainable development.67 The Commission formulated these commitments more concretely with respect to treaty making, by undertaking to ‘promote an ambitious and innovative sustainable development chapter in all trade and investment agreements’68 and to include ‘far-reaching commitments on environmental protection in relation to multilateral environmental agreements’.69 Despite the differences in the approaches and visions of the main EU institutions with competence in the area of FDI, there are two key identifiable similarities. First, all three institutions agreed that the new EU IAs should preserve the ability of the EU and the Member States to regulate in the public interest, including for the protection of the environment.70 Despite this general agreement that there is a need to strike a balance in this respect, the institutions fell short of indicating where this balance should lie more precisely, leaving room for negotiation and concrete formulation in the EU IAs. Second, the institutions agreed that the new IAs should draw on ‘the best practices of the Member States BITs’.71 This is curious given the prevailing economic focus of the EU Member States’ BITs and the fact that they belong to the older generations of BITs characterised by a distinct lack of reference to, let alone balance with, non-economic considerations, including environmental protection. It is of particular significance that, at the time when the European International Investment Policy was developed in 2010, the overwhelming majority of Model Bilateral Investment Treaties (Model BITs) of the Member States contained no references to non-economic considerations, be it in their Preambles defining the objectives and purposes of the treaties, or in the substantive   European Commission, ‘Towards a More Responsible Trade and Investment Policy’ (2015), 18.  Ibid. 64   Ibid, 21. 65  Ibid. 66   Ibid, 22. 67   Ibid, 23. 68   Ibid, 24. 69  Ibid. 70   Commission Communication, n 49, 9; European Parliament Report, n 53; Council Conclusions, n 57, para. 17. 71   Commission Communication, n 49, 6; European Parliament Resolution, n 54, para. 9; Council Conclusions, n 57, para. 15. 62

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388  Research handbook on environment and investment law clauses setting out the standards of investment protection.72 There are, however, a few exceptions to this trend, including the Dutch, Finland and Austria Model BITs.73 For instance, the 2004 Netherlands Model BIT contained an element of balancing in its Preamble, setting out that ‘these [economic] objectives can be achieved without compromising health, safety and environmental measures of general application’.74 The Finland Model BIT contained a nearly identical reference in its Preamble.75 These preambular references to the environment, however, did not find expression in any of the substantive clauses of the Model BITs.76 The Energy Charter Treaty (ECT) also forms part of the good practices of the Member States in the area of investment, being a mixed agreement signed by the Member States and the EU. In its Preamble, the ECT recalls international environmental agreements containing energy-related aspects and recognises the increasing need for measures to protect the environment.77 The ECT contains a substantive provision on the environmental aspects of the treaty, encouraging rather than obliging the Parties to strive to minimize harmful environmental impacts in an economically efficient manner, as well as to strive to take precautionary measures with respect to environmental degradation.78 Despite these isolated examples of good practices of balancing the economic and noneconomic considerations, overall the European Member States lagged behind the trend of modernising BITs by balancing economic and environmental considerations that was identifiable in North America, that is, in the US Model BITs of 200479 and 2012,80 as well in the Canada Model BIT.81 The North American Free Trade Agreement (NAFTA) is also relevant in this context. Its Investment Chapter includes environmental considerations by exempting environmental measures from the obligation not to impose performance requirements,82 as well as by affirming the right to regulate to protect the environment, provided it is in accordance with the Investment Chapter.83 72   See e.g. Denmark Model BIT 2000, Preamble, Arts 2, 3 and 5; Greece Model BIT 2001, Preamble, Arts 3, 4 and 5; Sweden Model BIT 2002, Preamble, Arts 2, 3 and 4; Austria Model BIT 2002, Art. 5; Belgo-Luxembourg Economic Union Model BIT, Preamble, Arts 3, 4 and 5; UK Model BIT 2005, Preamble, Arts 2 and 5; France Model BIT 2006, Preamble, Arts 2, 3 and 5; Germany Model BIT 2008, Preamble, Arts 2, 3 and 4. 73   Austria Model BIT 2002, Preamble, para. 3 referring to ‘internationally recognized labour standards’. On the environment, see Netherlands Model BIT 2004, Preamble, para. 4 and Finland Model BIT 2001, Preamble, para. 6. 74   Netherlands Model BIT 2004, Preamble, para. 4. 75   Finland Model BIT 2001, Preamble, para. 6. 76   See e.g. Netherlands Model BIT, Arts 3 and 6. 77   Energy Charter Treaty, 17 December 1994, 2080 UNTS 95, Preamble, paras 14 and 15. 78   Ibid, Art. 19(1) Environmental Aspects. 79   US Model BIT 2004, Preamble para. 5, Art. 8(3)(c)(ii) and (iii) exception to Performance Requirements; Art. 12 Investment and Environment; Annex B Expropriation. 80   US Model BIT 2012, Preamble, para. 5; Annex B on Expropriation, Art. 8(3)(c)(ii) and (iii) exception to Performance Requirements; Art. 12 Investment and Environment. 81   Canada Model BIT, Preamble, para. 1 reference to promoting sustainable development; Art. 7(2) Performance Requirements; Art. 10 General Exceptions; Art. 11 Health, Safety and Environmental Measures; Annex B.13(1) on Indirect Expropriation. 82   North American Free Trade Agreement, 17 December 1992, 32 ILM 289, Art. 1106(2) and (6). 83   Ibid, Art. 1114 Environmental Measures.

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Balancing economic objectives  389 The questions that remain to be answered are whether and to what extent this brave new world of not only protecting but also promoting environmental considerations in EU IAs has materialised, and whether it will be brave and new only in its regional and historical European context or also globally, in light of the most recent trends in IAs.

3. THE ENVIRONMENT AND THE NEW EU INVESTMENT AGREEMENTS Having looked at the question of balance between the environment and FDI from the perspectives of the Founding Treaties, the European International Investment Policy documents of the institutions and in the IAs of the Member States before Lisbon, this section turns to the most critical question in this chapter, namely, how the balance is struck in the new EU IAs and whether it lives up to the commitments and expectations just discussed. Since the entry into force of the Lisbon Treaty in 2009, the EU has exercised its new exclusive competence in FDI by including investment chapters in FTAs with third States.84 In contrast to the majority of BITs, FTAs commonly include separate chapters regulating non-economic interests, such as the protection of the environment, labour and sustainable development,85 displaying a trend if not a policy of the integration of noneconomic values. This is well illustrated in FTA practice: according to statistical surveys, while only 10 per cent of BITs contain language balancing non-economic considerations with their economic objectives, 96 per cent of the FTAs and Economic Partnership Agreements provide for such balance.86 Empirical studies also show that references to environmental issues are present in all modern FTAs and in only 6.5 per cent of the surveyed 1,623 IAs.87 These statistics are valuable in evaluating the EU IAs approach vis-à-vis different treaty partners in the context of the global investment treaty making trends. The EU is currently negotiating a few standalone investment agreements too, such as with Myanmar and China, yet no EU BITs have yet been concluded or made public. The existing investment chapters in FTAs will be assessed chronologically with reference to the types of environmental provisions they contain. Four extraneous considerations should be borne in mind when interpreting the EU IAs as possible factors affecting treaty making. The first is the context of the global economic and financial crisis of 2007–8 and its negative effects on the EU as a leading capital exporter and importer of FDI.88 The economic crisis formed part of the context of the negotiations of IAs and FTAs, possibly motivating the weight given to economic objectives. Indeed, it was in 2012 that the EU lost its leading position as a source and

84   See e.g. EU-2014 Canada Comprehensive Economic and Trade Agreement, 2015 EU– Singapore FTA and the latest EU–Vietnam FTA, of 2 December 2015. 85   See e.g. US–Oman FTA (2009), Chapters 16 Labour and 17 Environment. 86   Gordon, Pohl and Bouchard, n 9, 14. 87   K. Gordon and J. Pohl, ‘Environmental Concerns in International Investment Agreements: A Survey’, OECD Working Papers on International Investment, 2011/01, 7. 88   See e.g. European Commission, DG Economic and Financial Affairs, ‘Economic Crisis in Europe: Causes, Consequences and Responses’ (2009) 7 European Economy 1.

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390  Research handbook on environment and investment law destination of FDI as a result of its capital inflows and outflows dropping by more than 50 per cent.89 It has been recovering slowly since. According to UNCTAD’s 2016 World Investment Report, in 2015 global FDI flows rose by 40 per cent.90 The major driver behind this surge was the reemergence of European multinational companies, whose investments rose by 85 per cent on previous years.91 In 2017, UNCTAD reported that global investments continued their modest recovery.92 Accordingly, it is not surprising that the EU is redoubling its efforts to conclude IAs to protect European investors abroad. The second consideration is the identity of the third State with whom the EU negotiated and concluded the agreement. It is arguable that the EU would have had a stronger negotiating position and, correspondingly, more ability to influence outcomes when in dialogue with developing, capital-importing States. In contrast, two of the agreements are with developed States, namely Canada and the US, who are in a similar bargaining position as the EU, not only due to their relative economic strength, but also to their interests as traditional capital-exporting States with increasing stakes in capital imports. Third, as noted previously, the US and Canada have a very well-established prior practice of including environmental considerations in their IAs,93 as evidenced in NAFTA,94 in the 2004 and 2012 US Model BIT and in the 2004 Canada Model BIT. Finally, it should be borne in mind that the EU does not have any direct experience of being a respondent in investment treaty arbitration, despite the interventions of the Commission as amicus curiae in a few investment arbitrations between EU Member States, mainly on questions of the compatibility of IAs with EU law.95 Accordingly, the EU’s experience of the practical consequences of investment treaty making is only derivative of that of the Member States under their older generation IAs. For example, at the time of writing, Germany was facing a challenge by Swedish investors under the ECT against its decision to phase out nuclear power generation based on environmental considerations in Vattenfall v Germany.96 Even though the EU is a party to the ECT, it is not directly engaged in responding to the challenge and tailoring the defence, let alone facing the consequences of the arbitration. This lack of direct experience, however, is somewhat mitigated by the increased transparency of investor-State arbitration and the public availability of most arbitral awards.97

89   Eurostat, FDI statistics, at: http://ec.europa.eu/eurostat/statistics-explained/index.php/Foreig​ n_direct_investment_statistics (visited 15 February 2015). 90  UNCTAD, World Investment Report 2016, x. 91   Ibid, 6. 92  UNCTAD, World Investment Report 2017, x, at: http://unctad.org/en/PublicationsLibrary/ wir2017_en.pdf (visited 18 February 2018). 93   See Gordon and Pohl, n 87, 9, showing that 83 per cent of Canada’s IAs and 34 per cent of the US’s IAs contain environmental language. 94   See Art. 1114 NAFTA, Environmental Measures and the related North American Agreement on Environmental Cooperation, 14 September 1993. 95   Ioan Micula, Viorel Micula, S.C. European Food S.A, S.C. Starmill S.R.L. and S.C. Multipack S.R.L. v. Romania, ICSID Case No ARB/05/20, amicus curiae briefs not publicly available. 96   Vattenfall AB and others v. Federal Republic of Germany, ICSID Case No ARB/12/12. 97   See e.g. www.italaw.com.

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Balancing economic objectives  391 3.1  EU–South Korea FTA Interestingly, the EU–South Korea FTA – which was one of the first of the new generation of FTAs, initiated in 2009 and finalised in 2010 – did not include an investment chapter, nor did it affect the rights and obligations under existing BITs between the Member States and Korea.98 The FTA did contain a few general provisions aimed at liberalising investment, including listing as an objective the promotion of ‘foreign direct investment without lowering or reducing environmental . . . standards in the application and enforcement of environmental . . . laws of the Parties’.99 The inclusion of this provision indicates the Parties’ intention to maintain the environmental status quo by not lowering their existing standards. While this is an example of one of the weakest environmental commitments in investment treaty practice so far, it nonetheless constitutes an improvement on the existing framework of IAs between EU Member States and Korea, as they do not contain any substantive environmental provisions at all.100 Furthermore, chapter 13 on Trade and Sustainable Development affirms the right of the Parties to regulate by establishing their own levels of environmental protection and modifying them, as well as their obligations deriving from MEAs, including the UN Framework Convention on Climate Change with its Kyoto Protocol and Bali Action Plan.101 Even though this FTA does not directly regulate investment, it can still be taken into account by investment tribunals by way of systemic integration given that it contains relevant rules applicable between the Parties.102 Finally, the environment formed part of the discussions during the fourth meeting of the Committee on Trade and Sustainable Development established under the FTA, demonstrating the practical significance of the diplomatic mechanism and the potential of IAs to promote non-economic considerations.103 Korea and the EU discussed a number of key MEAs, including the Minamata Convention on Mercury and their possible cooperation in its implementation.104 While not legally binding, the joint statement indicates the value of diplomatic means in the context of economic cooperation for the promotion of environmental standards, as well as the EU’s ability to influence not only the protection but also the promotion of environmental considerations through its economic agreements.

 98   Free Trade Agreement between the EU and its Member States and South Korea, 16 September 2010, Official Journal of the European Union, L 127, Preamble, para. 5.  99   Ibid, Art. 1(2)(h). 100   See e.g., 1964 Germany–Korea BIT; 1976 UK–Korea BIT; 1979 France–Korea BIT; 1988  Denmark–Korea BIT; 1991 Austria–Korea BIT; 1993 Finland–Korea BIT; 2005 Netherlands–Korea BIT; 2006 BeLux–Korea BIT, only containing environmental references in the preamble. 101   EU–Korea FTA, Art. 13.3 and 13.5. 102   Art. 31(3)(c) VCLTIO. 103   Joint Statement of the 4th EU–Korea Trade and Sustainable Development Committee, 9 September 2015. 104   Ibid, 4.

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392  Research handbook on environment and investment law 3.2  EU–Canada Comprehensive Economic and Trade Agreement The first new generation FTA containing an investment chapter is the Canada–EU Comprehensive Economic and Trade Agreement of 2014, revised in February 2016. According to the European Commission, CETA is ‘the best and most progressive’ EU FTA as it ‘contains all the guarantees to make sure that the economic gains do not come at the expense of . . . environment protection’.105 Commentators have opined in a similar vein that CETA is one of the three landmark agreements that will shape international investment in the twenty-first century, along with the TPP and Transatlantic Trade and Investment Partnership (TTIP),106 describing it as the groundwork for a pan-European investment approach.107 It is probably fair to say that CETA is the most important example of the new EU IA approach to date, especially following its revision in 2016, which aligned it with the 2015 Draft TTIP. Notably, comprehensive investment regulation was not previewed in the first negotiating directives of the Commission issued in 2009,108 which noted very generally that sustainable development was an overarching objective for the Parties and that the agreement ought to recognize the not lowering down of environmental standards in order to encourage investment.109 The directives also previewed the undertaking of an independent Sustainability Impact Assessment to tailor the negotiation process.110 However, it was only in the second round of negotiating directives of 2011 that the Commission modified the negotiating mandate to include investment.111 These contained an explicit direction on balancing, specifying that attaining the highest possible level of investment protection shall be without prejudice to the right of Member States and the EU to adopt and enforce measures necessary to protect public policy objectives, including the environment.112 The original 2014 CETA contains express references to the protection of the environment and to sustainable development. The Preamble affirms the commitment of the Parties to promote sustainable development, including its environmental dimensions,113 to implement the agreement ‘in a manner consistent with the enhancement of the levels of . . . environmental protection and the enforcement of . . . environmental policies’,114 as well as to preserve the right to regulate and preserve their flexibility in achieving legitimate

105   European Commission Press Release, ‘European Commission Proposes Signature and Conclusion of EU–Canada Trade Deal’, 5 July 2016, 6. 106   A. Bjorklund, J.P. Gaffney, F. Gelinas and H. Woss, ‘TDM CETA Special – Introduction’ (2016) 13:1 Transnational Dispute Management 1. 107   Y. Fortier, ‘Preface – Canada’ (2016) 13:1 Transnational Dispute Management 1. 108   Recommendation from the Commission to the Council in order to authorize the Commission to open negotiations for an Economic Integration Agreement with Canada, 24 April 2009. See in particular Title 1 Objectives. 109   Ibid, para. 7. 110  Ibid. 111   Recommendations from the Commission to the Council on the modification of the negotiating directives for an Economic Integration Agreement with Canada in order to authorize the Commission to negotiate, on behalf of the Union, on investment, 14 July 2011. 112   Ibid, para. 26a. 113   CETA, Preamble, para. 4. 114   CETA, Preamble, para. 5.

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Balancing economic objectives  393 public policy objectives, including the environment.115 Notably, preambular references to non-economic considerations have led tribunals to adopt a balanced interpretative approach of the substantive protections in IAs.116 Indeed, in the case of Al Tamimi v Oman, the arbitral tribunal took into account the environmental objectives listed in the Preamble of the US–Oman FTA as relevant context for interpreting the substantive investment standards.117 The broadly formulated affirmation of the right to regulate is progressive and welcome in the context of global treaty making trends. Narrower and often qualified formulations of the right to regulate to protect the environment can be traced back to the 1985 China– Singapore BIT,118 as well as the US practice from 1994 onwards, and, in a European context, to the treaty practice of the Czech Republic,119 as well as the Belgium/Luxembourg Economic Union.120 The practice of Belgium and Luxembourg is particularly noteworthy in this context as it includes environmental measures clauses not only recognising the right of the State to establish and modify its environmental laws and encouraging not lowering environmental standards, but also reaffirming the need to implement international commitments under MEAs and actively promoting the introduction of high environmental standards. Read against this background, the environmental provisions of CETA are less ambitious than they might appear at first glance. The preambular language referring to environmental concerns is not that innovative and can be traced back to US BITs from the mid-1990s.121 It is also present in NAFTA,122 as well as in the ECT.123 Indeed, the preambular language of the ECT is more ambitious than that of CETA in stressing ‘the urgent need for taking measures to protect the environment’.124 Yet, compared with the BIT practice of most Member States, the CETA language is a step forward. For instance, the 2001 Finland Model BIT merely recognises that the economic objectives can be achieved without relaxing environmental measures of general application.125 Following the numerous references to the environment in the Preamble, however, the

  CETA, Preamble, para. 10.   Saluka v. Czech Republic, paras 300 and 305 and S.D. Myers, Inc. v. Government of Canada, UNCITRAL, Partial Award, 30 November 2000, paras 196–204 and 220–1. 117   Adel A Hamadi Al Tamimi v Sultanate of Oman, ICSID Case No ARB/11/33, Award, 3 November 2015, para. 389, footnote 777. 118   Agreement between the Government of the People’s Republic of China and the Republic of Singapore on the Promotion and Protection of Investments, 21 November 1985, Art. 11 affirming the right of the Parties to apply prohibitions and restrictions directed at the protection of public health or the prevention of disease and pests on animals and plants. 119   See e.g. Art. 12, Czech Republic–Mauritius BIT (1999); Art. 12, Czech Republic–India BIT (1996) formulated as an exception; Art. 11, Czech Republic–Singapore BIT (1995). 120   Art. 5, BeLux–Serbia BIT (2004); Art. 13, BeLux–Guatemala BIT (2005); Art. 5, BeLux– Panama BIT (2009); Art. 5, BeLux–Montenegro BIT (2010). 121   Gordon and Pohl, n 87, 12. 122   Preambular para. 11, NAFTA. 123   Preambular paras 13–15, ECT. 124   Ibid, para. 15. 125   Preambular para. 6, Finland Model BIT 2001. Cf slightly stronger commitment in preambular para. 7, Austria Model BIT 2008. Austria implemented this model in its 2012 BIT with Tajikistan, in 2013 with Nigeria and in a somewhat watered down form in 2012 with Kazakhstan. 115 116

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394  Research handbook on environment and investment law substantive clauses of CETA 2014 fall short of meeting the established high expectations. Only two of the provisions refer expressly to environmental considerations: one of them concerns market access and is not as such legally enforceable.126 It provides that measures aimed at ensuring the conservation and protection of natural resources and the environment are consistent with the obligation to provide market access for FDI.127 The second substantive provision is more significant in practice, as it sets out the definition of indirect expropriation and strikes a balance between investment protection and the right to regulate for public welfare: For greater certainty, except in the rare circumstance where the impact of the measure or series of measures is so severe in light of its purpose that it appears manifestly excessive, non-discriminatory measures of a Party that are designed and applied to protect legitimate public welfare objectives, such as health, safety and the environment, do not constitute indirect expropriations.128

This definition establishes a high threshold of ‘severe impact’ to be assessed in light of the purpose of a non-discriminatory measure that ought to amount to ‘manifest excessiveness’ in order for an environmental measure to constitute expropriation. Accordingly, the so defined balance lies heavily on the side of environmental regulation and seems to require a high standard of proof by the investor to show otherwise. This implies that in assessing this standard, a tribunal ought to show a high level of deference to the regulatory measures and, arguably, to adopt a less invasive standard of review subject to the meeting of the high threshold. However, the definition does not give guidance as to the balance to be struck between environmental and economic considerations once the threshold is passed. Notably, the definition does not require that environmental measures meet a necessity and proportionality requirement.129 Nor does it grant them, however, a blank exemption from ever being indirect expropriation. In the absence of a general exception for public welfare regulation,130 or more clear guidance as to the weight to be ascribed to the economic and environmental considerations, the final act of balancing under this provision is left to the discretion of the arbitrators. This definition of indirect expropriation is not rooted in EU practice, as it does not appear in the BITs of the Member States. It is almost identical to the wording of Annex B.13(1) of the 2004 Canada Model BIT and very likely to have been influenced by it. The Canada Model BIT provision was in turn influenced by the 2004 US Model BIT, which codified the holding of the US Supreme Court in Penn Central Station v New York City.131 Accordingly, the introduction of this provision in CETA is an example of the EU treaty practice being influenced by the investment (and public law) experience of other States. Finally, Chapter 28 setting out the general exceptions to CETA provides a broad excep  CETA, Art. X.4 (2).  Ibid. 128   Ibid, Annex X.11(3) Expropriation. 129   Some scholars, however, read such a requirement as implicit: see U. Kriebaum, ‘FET and Expropriation in CETA’ (2016) 13:1 Transnational Dispute Management 1, 11 and Henckels, n 8, 43. 130   Cf. 2016 India Model BIT, Art. 5.4 and ASEAN Comprehensive Investment Agreement 2009, Annex 2(4) and 2007 COMSEA Common Investment Area Agreement, Art. 20(8). 131   438 US 104 (1978). 126 127

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Balancing economic objectives  395 tion to the establishment and the non-discriminatory treatment of investments for the protection of public order, defined as situations where ‘a genuine and sufficiently serious threat is posed to one of the fundamental interests of society’.132 It is conceivable that in certain circumstances, environmental measures could fall under this exception. It is somewhat surprising that the 2014 CETA does not contain more environmental provisions, for example preserving expressly the right of the Parties to regulate in order to protect the environment, or indeed imposing an obligation not to lower the existing environmental standards. This approach is inconsistent with the institutions’ commitments with respect to the new European Investment Policy, the Founding Treaties and CETA itself, which contains a whole chapter on Trade and Sustainable Development, endorsing progressive environmental provisions,133 albeit guaranteed by an international diplomatic process rather than dispute settlement. The substantive environmental guarantees in CETA also stand in contrast with the ambitious Canada Model BIT. In particular, the Model BIT provides for the adoption and enforcement of environmental measures, which constitute a general exception to the investment obligations under the treaty, subject to the requirement that they do not constitute an arbitrary, discriminatory or disguised restriction on investment.134 Furthermore, the Canada Model BIT contains a special clause on health, safety and environmental measures, providing for the nonwatering down of environmental regulation in order to promote investment.135 Finally, when compared with other, more progressive FTAs, including NAFTA, CETA does not provide that the Trade and Sustainable Chapter is to prevail over the Investment Chapter in case of an inconsistency.136 Overall, when assessed from the perspective of the ‘best practices’ of EU Member States and their Model BITs, the 2014 CETA is definitely a welcome step forward in establishing and defining a balance between economic objectives and environmental considerations, even if only in the context of indirect expropriation. Yet again, when compared to the more progressive treaty practices of some of the Member States, such as Belgium and Luxembourg, CETA 2014 failed to break new ground or maintain good standards. This is also true in the context of Canada’s IAs. Seen in a global context, the agreement falls even shorter of meeting the high standards of the best environmental practices in IAs.137 Accordingly, it was not surprising that the EU initiated a renegotiation of CETA to align it with its new investment approach as set out in the 2015 EU Proposal on TTIP, discussed presently. The new CETA was finalised and published on 26 February 2016 and is now aligned with the EU–Vietnam FTA and the 2015 Draft TTIP, striking a better balance between the economic and the environmental considerations at hand. In particular, it contains a special provision reaffirming the right of the Parties to regulate to achieve legitimate public policy objectives, including the protection of the environment.138 This is arguably the most important innovation in CETA and in the EU approach towards     134   135   136   137   138   132 133

Art. 28.3(2) CETA. CETA, Chapter XX. Canada Model BIT, Art. 10(1)(a) and (c). Ibid, Art. 11. Cf. NAFTA, Art. 1112 and US FTAs, such as US–CAFTA DR FTA, Art. 10.2. Cf., e.g., the Trans Pacific Partnership 2015. CETA 2016, Chapter 8 Investment, Art. 8.9(1) Investment and Regulatory Measures.

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396  Research handbook on environment and investment law IAs in general. It codifies the ‘police powers doctrine’ from customary international law,139 confirming the sovereign authority of the State to regulate,140 which has been subject to inconsistent treatment in investment arbitration.141 Furthermore, due to its systematic position in the Investment Chapter, the right to regulate applies to and qualifies all standards of investment protection, including not only expropriation – the most extreme form of interference with economic rights – but also the FET standard, which has been found to be violated by public interest measures in the past.142 Finally, it should be noted that there is some ambiguity as to whether EU IAs should be signed solely on behalf of the EU or rather as mixed agreements, on behalf of the EU and the Member States. The Commission referred the question of exclusive and shared competences in the signing of EU FTAs to the Court of Justice of the EU and the CJEU held that since some of the provisions relate to shared competences, the agreement should be signed by both the EU and the Member States. .143 Notably, however, the Commission has recently recommended that CETA be signed as a mixed agreement in light of the ambiguities and in the interest of time.144 This is a welcome development, as it confirms that the right of the ‘Parties’ to regulate for environmental matters applies not only to the EU, but also to the Member States. This approach might also benefit the protection of the public interest under EU IAs more generally, given that a number of its aspects, including social protection, are shared competences where both the EU and the Member States can regulate. 3.3  EU–Singapore FTA The EU–Singapore FTA of June 2015 contains an investment chapter. The Preamble of the FTA sets out a single but strong reference to the environment, expressing the determination of the Parties to strengthen their investment relations in accordance with the objective of sustainable development and to promote investment in a manner mindful of high levels of environmental protection, including by reference to international standards and agreements in this area.145 Similarly to CETA, the EU–Singapore FTA incorporates environmental considerations in only two of its substantive provisions. The first one, however, concerns the national treatment of investors and investments, exempting from its

139  See Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No ARB/10/7, Award, 8 July 2016, paras 292–301. 140   For detailed analyses, see J. Viñuales, ‘Sovereignty in Foreign Investment Law’ in Z. Douglas, J. Pauwelyn and J. Viñuales, The Foundations of International Investment Law: Bringing Theory into Practice (Oxford University Press, 2014), 6–12. 141  Cf. Saluka Investments B.V. v. The Czech Republic, UNCITRAL, Partial Award, 17 March 2016, paras 255–62 and Compañia del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, ICSID Case No ARB/96/1, Award, 17 February 2000, paras 71–2. 142   E.g., in Saluka v Czech Republic, paras 407 et seq. 143   Opinion 2/15, Request for an Opinion Submitted by the European Commission pursuant to Article 218(11) TFEU, 16 May 2017. 144   Proposal for a Council Decision on the signing on behalf of the EU of CETA between Canada of the one part, and the EU and its Member States, of the other part, COM(2016)444. 145   Free Trade Agreement between the European Union and the Republic of Singapore, 2015, Preamble, para. 4.

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Balancing economic objectives  397 application the adoption and enforcement of environmental measures necessary to protect human, animal or plant life or general measures relating to the conservation of exhaustible resources.146 The second provision concerns the exemption of environmental measures from the definition of indirect expropriation and is identical to the definition in CETA.147 Environmental considerations are much more embedded in the trade-related aspects of the FTA, in particular in chapter 13 on Trade and Sustainable Development, which recalls a number of UN environmental declarations and multilateral environmental agreements (MEAs).148 In contrast to CETA, however, this environmental chapter contains some express references to investment regulation, indicating the applicability of some of its provisions to both trade and investment. These include the provision concerning the impropriety – as opposed to illegality – of weakening environmental protection in order to encourage investment;149 the provision on taking into account scientific evidence and international standards, guidelines and recommendations when adopting environmental measures;150 and the promotion of investment in environmental goods and services, including renewable energies.151 It also includes the obligation of upholding the levels of environmental protection and effectively enforcing them even where it affects investment.152 A number of the articles in the sustainable development chapter do not contain an express reference to either trade or investment, and thus are arguably general and applicable to both. These include the provisions on the Parties’ right to regulate and establish their own levels of environmental protection consistent with multilateral environmental agreements and standards, the ability to continue improving those laws and to encourage high level of environmental protection,153 and recognition of the need to implement multilateral environmental standards and agreements, provided that such implementing measures are in accordance with the FTA and are non-discriminatory.154 Notably, despite the shared character of the EU competence in environmental matters and the challenge to this effect by the Member States in the context of Opinion 2/15, the CJEU affirmed that the EU had the exclusive competence to include chapter 13 in the EU–Singapore FTA and further that ‘the objective of sustainable development . . . forms an integral part of the common commercial policy’.155 The Court also clarified that the legal effect of this chapter is ‘making liberalisation of that trade subject to the condition that the Parties comply with their international obligations concerning . . . environmental protection’.156

  Ibid, Art. 9.3(3)(a) and (c).   Ibid, Annex 9-A Expropriation. 148   Ibid, Art. 13.1 and 13.6, referring to the UN Framework Convention on Climate Change and its Kyoto Protocol. Art. 13.7 and 13.8 refers to the Convention on International Trade in Endangered Species of Wild Flora and Fauna and to the FAO Agreement to Promote Compliance with International Conservation and Management Measures by Fishing Vessels on the High Seas and the Agreement on Port State Measures to Prevent, Deter and Eliminate IUU Fishing. 149   Ibid, Art. 13.1(3). 150   Ibid, Art. 13.9. 151   Ibid, Art. 13.11. 152   Ibid, Art. 13.12. 153   Ibid, Art. 13.2. 154   Ibid, Art. 13.6. 155   Opinion 2/15, n 4, paras 147, 155. 156   Ibid, para. 166. 146 147

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398  Research handbook on environment and investment law Similarly to CETA, the environmental chapter in the EU–Singapore FTA has ‘no bite’, being subject only to diplomatic consultations and an expert panel determination in the case of a disagreement between the Parties. Given the special mechanism provided for in the chapter, it is doubtful whether it can be invoked directly in investor-State arbitration beyond having systemic and contextual functions in the interpretation of the Investment Chapter of the FTA. Notably, in the case of Al Tamimi v Oman, the arbitral tribunal took the environmental chapter in the US–Oman FTA into account as relevant context in interpreting the substantive investment standards, despite it not falling directly under its jurisdiction.157 Overall, the FTA constitutes a step towards improving the balance between economic and environmental considerations when compared with CETA and the Korea FTA. It could be speculated that this might be due, inter alia, to the improving economic context of recovery from the crisis and a renewed focus on non-economic objectives. It is also possible that the EU had more influence in the negotiations with Singapore compared to those with Canada, and a corresponding stronger ability to incorporate environmental considerations. Finally, it might well be that both Canada and the EU, having strong domestic frameworks of environmental protection, did not consider it necessary to include further international commitments in this respect. Whatever the underlying reasons, however, the EU and the Member States have more clearly defined regulatory space for environmental protection under the FTA with Singapore and are in a better position to rely on it in the context of investor-State arbitration. 3.4  EU–Vietnam FTA At the time of writing, the most recent EU FTA containing an investment chapter is the EU–Vietnam FTA of 2 December 2015. This FTA sets out environmental considerations in one single preambular paragraph affirming the determination of the Parties to promote investment ‘in a manner mindful of high levels of environmental protection . . . and relevant internationally recognised standards and agreements’,158 as well as to strengthen investment relations in accordance with the objective of sustainable development, including its environmental dimensions.159 The substantive provisions of the EU–Vietnam FTA are more ambitious and far-reaching in balancing environmental protection than were those in the EU IAs before 2015. In particular, the very first provision of the FTA setting out its objectives affirms the right of the Parties to regulate and enforce measures pursuing legitimate public policy objectives, including the protection of the environment.160 This is reinforced in a special provision on Investment and Regulatory Measures, identical to the one in CETA that was previously discussed, reaffirming the right to regulate and, notably, providing that the standards of investment protection ought not to be interpreted as a commitment that the Parties will not change their legal frameworks in a manner that

  Adel A Hamadi Al Tamimi v Sultanate of Oman, n 117, paras 388–90.   Free Trade Agreement between the European Union and the Socialist Republic of Vietnam, 2 December 2015, Preamble, para. 4. 159  Ibid. 160   Ibid, Art. 1(2) Objectives, coverage and definitions. 157 158

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Balancing economic objectives  399 might negatively affect investments and the investor’s profit expectations.161 Additionally, the definition of indirect expropriation exempts non-discriminatory measures adopted for legitimate public policy objectives, with wording identical to that of CETA and the EU–Singapore FTA.162 The EU–Vietnam FTA and CETA 2016, represent the best available EU practice so far of an IA balancing economic objectives with environmental considerations. The inclusion in the Investment Chapter of an express affirmation of the right to regulate, including to change the domestic framework in a manner that might negatively affect the investment and the profits of the investor, is a significant step forward. The systemic place of the provision in the Investment Chapter means it is to be taken into account and applied in the course of investor-State dispute settlement, whether as a defence that can be raised by the respondent or even as a counterclaim. Most significantly, the broadly defined right to regulate to protect the environment and to adversely affect investment interests is one of the most progressive provisions on balancing in an IA to date. Still, the FTA could have gone even further in actively promoting the domestic implementation of internationally recognised environmental standards, drawing inspiration from, for example, the best practices of the Belgo-Luxembourg Economic Union IAs, whereby each Party commits to ‘strive to ensure that its legislation provides for high levels of environmental protection’, as well as to fully implement MEAs in its legislation.163 It could have also followed the innovative Model International Agreement on Investment for Sustainable Development and introduced a requirement that investments are managed and operated in accordance with international environmental standards.164 As it stands, the EU–Vietnam FTA strikes a good balance for environmental protection but falls short of actively promoting it. 3.5  Transatlantic Trade and Investment Partnership The negotiations of the much debated TTIP – even if currently frozen – are also relevant in assessing the environmental balance in EU IAs, given that it has been described as ‘the biggest bilateral trade [and investment] deal in history’ as the EU–US economic relationship ‘is the largest in the world’, making up nearly half of the global GDP and forming ‘the backbone of the world economy’.165 Indeed, the President of the European Council described TTIP as exemplifying ‘Europe and America’s role as the world’s standard-­ setters’.166 In a significant move, and following much public debate, the negotiating mandates of the EU and the US, as well as the 2013 and 2015 drafts, have been made

  Ibid, Art. 13bis(2).   Ibid, Annex Expropriation, para. 3. 163   Art. 5 Environment, (1) and (3) BeLux–Serbia BIT (2010). 164   IISD Model International Agreement on Investment for Sustainable Development, Art. 14 Post-Establishment Obligations, (D). 165   Remarks by President Obama, UK Prime Minister Cameron, European Commission President Barroso and European Council President Van Rompuy on TTIP, 17 June 2013, at: www.whitehouse.gov/the-press-office/2013/06/17/remarks-president-obama-uk-prime-ministercameron-european-commission-pr (visited 15 February 2016). 166  Ibid. 161 162

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400  Research handbook on environment and investment law public. These documents are instructive as to the Parties’ evolving position on the balance between economic protections and environmental considerations. The negotiation mandates are also relevant as a supplementary means of interpreting TTIP in accordance with Article 32 of the Vienna Convention on the Law of Treaties between States and International Organisations (VCLTIO),167 given that they form part of the preparatory works of the treaty and help establish the circumstances of its conclusion. The EU Directives for negotiation of 2013 stress that TTIP should be an ‘ambitious, comprehensive, [and] balanced’168 agreement based on common values and principles, including the commitment to sustainable development, the right to regulate for environmental protection and the aims of ensuring respect for international environmental agreements and standards, as well as promoting high levels of environmental ­protection.169 The directives on the Investment Chapter are more modest, being heavily weighted towards the objective to provide the highest possible standard of legal protection and certainty for European investors in the US and mentioning only briefly that this should be without prejudice to the right to regulate in a nondiscriminatory manner,  inter alia, for the protection of the environment.170 The US negotiation ­ objectives are less focused on balancing between economic and noneconomic ­considerations. For instance, the 2013 Obama Administration letter to the US Congress on the opening of negotiations refers to an ‘ambitious, comprehensive, and high ­standard TTIP’,171 omitting reference to the need for balance and emphasising the economic objectives of the agreement. The only mention of the environment refers to obtaining commitments by the EU to protect the environment and conserve natural resources, as well as to enforce its environmental laws effectively.172 It is only the detailed goals of the Administration that mention ‘the objective of ensuring that governments maintain the discretion to regulate in the public interest’173 in the context of investment regulation. Based on these negotiating positions, it could be inferred that the EU had more ambitious goals for the TTIP as a balanced economic agreement integrating environmental considerations, going well beyond the US objective of maintaining the domestic environmental status quo and into effectively promoting environmental protection through trade and investment. The first 2013 EU Draft TTIP was leaked into the public domain in 2014.174 Somewhat

  21 March 1986, A/CONF.129/15 (not yet in force).   Directives for the negotiation of the Transatlantic Trade and Investment Partnership between the European Union and the United States of America, Council of the European Union, 17 June 2013, para. 2 (emphasis added). 169   Ibid, paras 1, 6 and 8. 170   Ibid, paras 22–3. 171   Executive Office of the President, Letter to Congress of 20 March 2013, para. 4, at https:// ustr.gov/sites/default/files/03202013%20TTIP%20Notification%20Letter.PDF (visited 22 January 2016). 172   Ibid, 4–5. 173   At https://ustr.gov/trade-agreements/free-trade-agreements/transatlantic-trade-and-investment-partnership-t-tip/t-tip-5 (accessed 22 January 2016). 174   Released by the German weekly Die Zeit, 27 February 2014: ‘Freihandelsabkommen: Endlich wird öffentlich gestritten’ at: http://eu-secretdeals.info/ttip/ (visited 22 January 2016). 167 168

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Balancing economic objectives  401 disappointingly, the Investment Chapter contained a single provision relevant to the protection of the environment in the definition of indirect expropriation, providing that: non-discriminatory measures of general application taken by a Party that are designed to protect legitimate public policy objectives do not constitute indirect expropriation, if they are necessary and proportionate in light of the above mentioned factors and are applied in such a way that they genuinely meet the public policy objectives for which they are designed.175

The wording of this exception is significant because it subjects the balance between economic rights and the right to regulate to a proportionality analysis, which imposes a greater burden on the State or the EU to justify the legality of its environmental measures, compared to the high-threshold exceptions in CETA and the other EU FTAs. In contrast, this balance is more heavily weighted towards protecting the economic rights rather than the regulatory space of the State by allowing for a more intrusive standard of review. On the other side, however, this formula gives clearer guidance to arbitrators as to how to weigh the competing considerations, limiting their discretion in striking the appropriate balance. The 2013 Draft TTIP also contained two general provisions relevant to the balancing of economic objectives and environmental considerations. First, Article 1 affirmed that each Party retains the right to adopt, maintain and enforce measures necessary to protect the environment;176 second, measures necessary to protect human, animal or plant life and health, as well as the conservation of exhaustible natural resources, were listed among the general exceptions to TTIP.177 The 2015 EU Draft TTIP made public by the Commission indicates a few important developments with respect to striking a better and broader balance between the economic and the environmental considerations at hand.178 In particular, the current draft of the Investment Chapter includes an express provision affirming the right of the Parties to regulate to achieve legitimate public policy objectives, including environmental protection, identical to those in CETA 2016 and the EU–Vietnam FTA discussed previously.179 Furthermore, it confirms that the Investment Chapter should not be interpreted as a commitment by the Parties not to change their regulatory framework in a manner that might negatively affect the investor’s expectations of profits.180 It is noteworthy that the definition of indirect expropriation is changed and aligned with the definitions in CETA and the other EU FTAs, no longer requiring a proportionality analysis but rather manifest excessiveness of the impact of the measure in light of its purpose.181 Overall, the environmental provisions of TTIP are similar to those of CETA 2016 and the EU–Vietnam FTA. This, together with the negotiation directives of both Parties, could be indicative of an EU initiative lying behind the stronger environmental provisions. Given that the 2013 Draft TTIP was the first published document containing the new   Ibid, 13, Annex Expropriation (emphasis added).   Ibid, Art. 1(1) Objective, Coverage and Definition. 177   Ibid, Art. 64(2)(b) and (c). 178   Draft TTIP 2015, at: http://trade.ec.europa.eu/doclib/docs/2015/november/tradoc_153955. pdf (visited 22 January 2016). 179   Ibid, Art. 2(1) Investment and Regulatory Measures/Objectives. 180   Ibid, Art. 2(2). 181   Ibid, Annex I Expropriation, para. 3. 175 176

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402  Research handbook on environment and investment law EU approach to IAs balancing investment protection with public interest considerations, it can be speculated that it served as a model for the later negotiations. This new EU model was clearly informed by the Founding Treaties and the EU International Investment Policy, but also by the sudden public outcry against TTIP and the public consultation that followed. This latter aspect indicates a democratisation of the process of investment treaty negotiations, which is a welcome development given the current legitimacy crisis of the investment arbitration regime.182 The 2015 Draft TTIP also contains a chapter on sustainable development containing references to investment regulation, including recognition that the benefit of considering investment-related environmental issues is part of a global approach towards sustainable development,183 the commitment to promote investment in a way contributing to sustainable development,184 the right to regulate consistently with MEAs, the encouragement of high levels of environmental protection,185 and a commitment to effectively implement MEAs in domestic laws,186 as well as the obligation not to waive environmental laws in a manner affecting investment and to effectively enforce them.187 The chapter also sets out specific environmental commitments with respect to different areas of protection by reference to MEAs, including the preservation of biological diversity and of wild flora and fauna, the sustainable management of forests and fisheries, and the environmentally sound management of chemicals and waste.188 The latter aspect is particularly significant in light of the case law on investor challenges against domestic measures concerning the management of waste and chemicals.189 Overall, TTIP represents a significant step towards striking a better and broader balance between the economic objectives and the environmental considerations, establishing a new ‘global approach’. The Draft TTIP is more ambitious than the 2012 US Model BIT. By comparison, Article 12 on Investment and Environment provides for much narrower regulatory space for the State with regard to environmental matters,190 merely encouraging the maintenance of the domestic status quo of environmental protection by not lowering environmental standards,191 and acknowledges the relevance of MEAs without promoting their implementation. TTIP, in contrast, encourages a proactive approach involving contributing to sustainable development, introducing higher levels of environmental protection, implementing MEAs effectively and enforcing environmental obligations. Moreover, the TTIP Investment Chapter strikes a general balance between

182   S. Franck, ‘The Legitimacy Crisis in Investment Treaty Arbitration: Privatizing Public International Law through Inconsistent Decisions’ (2005) 73:4 Fordham Law Review 1521 and M Waibel (ed), The Backlash against Investment Arbitration (Kluwer, 2010). 183   Ibid, Part III, Chapter on Trade and Sustainable Development, Art. 1(3) Context. 184   Ibid, Art. 1(1). 185   Ibid, Art. 3 Right to Regulate and Levels of Protection. 186   Ibid, Art. 10 Multilateral Environmental Governance and Rules. 187   Ibid, Art. 17 Upholding Levels of Protection. 188   Ibid, Arts 11–15. 189   See e.g., Waste Management, Inc. v. United Mexican States (‘Number 2’), ICSID Case No ARB(AF)/00/3, Award of 30 April 2004; Methanex Corp v. United States of America, Final Award on Jurisdiction and Merits, 3 August 2005. 190   US Model BIT 2012, Art. 12(3) and (5). 191   Ibid, Art. 12(2).

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Balancing economic objectives  403 all economic rights and environmental objectives, making the latter relevant not only in the rare and extreme cases of indirect expropriation, but also more broadly by affirming the right to regulate in ways that might negatively affect the investor’s expectations of profit. It is doubtful, however, that the 2015 TTIP proposed by the EU will be accepted in the current political climate. 3.6  Procedural Aspects of the Balance between Investment and the Environment Even though the concept of ‘balancing’ economic objectives and environmental considerations primarily has a substantive connotation, there are certain procedural aspects that can contribute to the better attainment of the balancing act in the course of investor-State arbitration. It has long been recognised that transparency is one such aspect.192 All of the EU FTAs surveyed above contain important transparency guarantees which are fully in line with the best practices and international trends in this respect. Furthermore, they constitute a significant contribution towards improving the practices of the Member States. These include the requirement of transparency of the proceedings, including the application of the UNCITRAL Transparency Rules,193 the ability of the tribunal and the parties to appoint experts on environmental issues,194 and the power for the tribunals to accept amicus curiae submissions in disputes touching on the public interest.195 These procedural requirements on the one side help to incorporate and better assess environmental matters in the course of investor-State arbitration,196 and on the other help to inform the public and environmental interest groups about the environmental implications of investment law. It will be interesting to see whether the proposed EU investment court system could also contribute to the striking of a better, if not more predictable, balance between economic and non-economic considerations.

4. APPRAISAL To date, scholarly opinions on the evaluation of the new EU IAs have been polarised. On one side of the spectrum, there are the optimists who see the EU IAs as ‘the dawning of a new era . . . of EU’s better practices’.197 On the other, there are the sceptics who observe that the recent EU investment practice ‘is less interesting and innovative than one might have expected’.198 It is arguable that these opposing views could be reconciled by changing the point of reference. While Titi’s optimistic views apply fully to the new EU IAs when 192   See J. Viñuales, Foreign Investment and the Environment in International Law (Cambridge University Press, 2012), 113–23; see in general M. Gehring et al (eds), Transparency in International Investment Arbitration (Cambridge University Press, 2015). 193   See e.g. EU–Vietnam FTA, Art. 20 Transparency of Proceedings. 194   Ibid, Art. 26 Expert Reports. 195   Draft TTIP 2015, Art. 23 Intervention by Third Parties. 196   See Viñuales, n 140, 113. 197   C. Titi, ‘International Investment Law and the European Union: Towards a New Generation of International Investment Agreements’ (2015) 26:3 European Journal of International Law 639. 198   M. Paparinskis, ‘International Investment Law and the European Union: A Reply to Catharine Titi’ (2015) 26:3 European Journal of International Law 663.

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404  Research handbook on environment and investment law compared with the best practices of the majority of the Member States before Lisbon, Paparinskis’ observations held true when observing the global trends in investment treaty practice. The development trajectory of the EU IAs previously discussed indicates certain distinct trends. Chronologically, from 2010 to date, there has been an identifiable trend of strengthened environmental provisions in investment chapters; this started with the single provision about not watering down environmental standards to encourage investment in the 2010 EU–Korea FTA,199 and culminated in the numerous and much stronger environmental provisions in the 2015 EU–Vietnam FTA, the 2015 Draft TTIP and CETA 2016. This evolutionary trend is undoubtedly the result of larger and complex processes at play, including recovery from the economic crisis; the development of global environmental initiatives and processes, such as the 2015 Paris Climate Change Conference; and the accretion of the investment treaty practice of the EU itself and the input of its public consultation. Second, all EU IAs so far contain express references to environmental considerations in their Preambles. While not legally binding, preambles form part of the context of the treaty for the purposes of interpretation in accordance with Article 31(2) of the VCLTIO, and, notably, could set out the objects and purposes of the agreement. Accordingly, preambular paragraphs have a special interpretative role with respect to the substantive provisions of IAs, which ought to be interpreted by taking into account the context of the treaty.200 Third, the EU FTAs containing investment chapters also have separate chapters on the environment and/or sustainable development. The latter usually set out more ambitious and specific environmental commitments, including not only maintaining the environmental status quo in domestic law, but also encouraging the strengthening of environmental standards and improved implementation of MEAs. Interestingly, the first EU FTAs concluded after Lisbon, such as the EU–Korea FTA and CETA, limited these chapters’ relevance to trade. However, since 2015 there has been a shift towards broadening the applicability of such provisions to cover investment, evidenced in the EU–Singapore and EU–Vietnam FTAs, as well as in the second Draft TTIP. This shift is welcome as it broadens the scope of the balance between investment and the environment. It also indicates a cross-fertilisation between the integration of non-economic public interest considerations in trade and those in investment. While the environmental chapters have their own dispute settlement mechanisms, which are distinctly inter-State and as such fall outside of the scope of jurisdiction of investment tribunals, they still have interpretative relevance similar to, if not stronger than, that of preambles by forming part of the text and context of the treaty, as evidenced in the Al Tamimi case discussed earlier in the chapter. The approach of balancing economic and environmental considerations was described by the then Deputy Head of the Cabinet of the EU Trade Commissioner in his academic writings as ‘intelligent integration’ of environmental standards supported unanimously 199   For analysis of similar provisions in the 2012 US Model BIT, see L. Caplan and J. Sharpe, ‘US Model BIT’ in C. Brown, Commentaries on Selected Model Investment Treaties (Oxford University Press, 2013), 805–6. 200   See H. Ciurtin, ‘Beyond the Norm: Hermeneutic Function of Treaty Preambles in Investment Arbitration and International Law’ (2015) 36 Revista Romana de Arbitraj 64.

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Balancing economic objectives  405 by all Member States, in light of the controversy surrounding the inclusion of an explicit reference to the right to regulate for the purposes of ‘counteracting’ the broad investment standards.201 Indeed, it has been suggested that EU investors did not welcome the inclusion of environmental and sustainable development considerations in the new EU IAs, advocating that they do not form part of the ‘best practices’ of the Member States and their existing BITs.202 For example, representatives of the service industry argued before the Commission that environmental and other public interest considerations should not be included in the IA with China as they would have the effect of reducing the existing standards of investment protection and prolonging negotiations.203 Accordingly, the striking of a balance between investment protection and the environment is motivated not only by the negotiating positions of the Parties to the treaty, but also by the relative strength of the industry lobby within them.204 Finally and most importantly, there is a detectable trend towards strengthening and broadening the balance between economic objectives and environmental considerations in the substantive provisions of the EU IAs. It started with the important first step, in the 2010 EU–Korea FTA, of acknowledging the need to strike such a balance. The trend developed further in CETA 2014, where the balance was struck between the right of the State to regulate for environmental protection and the right of the investor not to be subject to indirect expropriation. This balance was pitched at a high threshold to be satisfied by the investor,205 requiring manifest excessiveness of the impact of the measure in light of its purpose, rather than the lower proportionality analysis employed by some arbitral tribunals.206 The definition of indirect expropriation in effect establishes a presumption that non-discriminatory environmental measures do not constitute indirect expropriation, except in rare circumstances. This formulation of the balance also shifts the traditional focus on the economic impact of the challenged regulatory measure towards a focus on its public interest objective. The trend of balancing culminated in 2015 with the EU–Vietnam FTA and the 2015 Draft TTIP, both of which influenced the revised CETA 2016. In addition to the balancing built in the definition of indirect expropriation, these agreements acknowledge the right of the States and the EU to regulate to protect the environment in a general manner. Accordingly, this sovereign right ought to be taken into account and balanced against all economic standards in the IAs, including fair and equitable treatment and full protection and security. Moreover, the balancing has a prospective element to it, pointing to the possibility of future strengthening of the environmental regulations of the State 201   F. Hoffmeister and G. Unuvar, ‘From BITs and Pieces towards European Investment Agreements’ (2013) 7 Studies in International Investment Law 57, 72. 202   W. Shan and S. Zhang, ‘The Potential EU–China BIT: Issues and Implications’ (2013) 7 Studies in International Investment Law 87, 109. 203   European Services Forum, ‘Letter Sent to Commissioner De Gucht outlining the European services industry’s views on EU Investment Policy towards China’, 3 October 2011. 204   V Lowe, ‘Regulation or Expropriation’ (2002) 55:1 Current Legal Problems 447, 450. 205   For commentary on a similar provision in the 2012 US Model BIT, see L. Caplan and J. Sharpe, n 199, 791–2. 206   Tecmed SA v United Mexican States, para. 122 and footnote 140 quoting the case law of the ECHR. See also SAUR International v Argentine, Décision sur la Compétence et sur la Responsabilité, ICSID Case No ARB/04/4, Award, 22 May 2014, paras 398–405.

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406  Research handbook on environment and investment law and allowing for it to prevail over the investor’s expectations for profit. These provisions are an ambitious and somewhat innovative explicit guarantee of the right of the State to regulate for the protection of the environment and constitute an important development of the balancing on the international plane. By comparison, the contemporaneous TransPacific Partnership has a narrower and more conservative provision on investment and environmental objectives, falling short of acknowledging the right to regulate in general but merely affirming the right of the party to adopt and enforce measures in order to ensure that investment is undertaken in a manner sensitive to the environment.207 The new balancing approach in EU IAs affirming the right to regulate reinforces the views of scholars such as Lowe and Viñuales, who argue that the regulatory powers of the State are ‘an essential element of the permanent sovereignty of each State over its economy’ rather than ‘the accidental result of the failure of investment treaties to eliminate them’.208 Accordingly, these provisions are probably the most important mechanism for balancing economic and public interest considerations in the new EU IAs. The evolution of the EU IAs treaty language on balancing economic objectives with environmental considerations will no doubt have significant implications for the case law, which at present is split.209 The divergent approaches have been criticised for creating the danger of ‘regulatory chill’;210 they were a strong motivation for the introduction of balancing in the latest generations of IAs so as to better accommodate the public interest. The precise interpretation and application of the new environmental balancing clauses in EU IAs remains to be tested and established in future investment awards. It is likely, however, that these provisions will have important systemic implications, not only because of their strong and broad formulation, but also because of the EU push towards institutionalising the system of investment arbitration through the creation of investment courts and appeal tribunals. It is possible that the case law of such semi-permanent institutions will be more sensitive towards the systemic role of balancing economic rights on the one side and the right to regulate to protect the environment on the other.

5. CONCLUSIONS In conclusion, the new EU IAs have evolved significantly, from falling short of meeting the commitments expressed in the new EU International Investment Policy, if not the Founding Treaties themselves, in the early agreements, to striking a balance sensitive to the right of the States and the EU to regulate for protecting the environment. Given 207   Art. 9.15 Investment and Environmental, Health and Other Regulatory Objectives, TransPacific Partnership Agreement, 4 February 2016 (not yet in force). 208   V. Lowe, ‘Regulation or Expropriation’ (2002) 55:1 Current Legal Problems 447, 450. See also J. Viñuales, n 140, 317. 209   For general analysis up to 2001, see T. Waelde and A. Kolo, ‘Environmental Regulation: Investment Protection and “Regulatory Taking” in International Law’ (2001) 50:4 International and Comparative Law Quarterly 811. 210   Report of the Special Representative of the Secretary General on the Issue of Human Rights, Transnational Corporations and Other Business Enterprises, ‘Business and Human Rights: Towards Operationalising the “Protect, Respect and Remedy” Framework’ (2009), A/HRC/11/13, para. 30.

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Balancing economic objectives  407 the recent example of CETA’s reshaping to align it with the new and improved EU investment approach, it can be hoped that the EU–Korea and EU–Singapore FTAs will also be revised in a similar vein so as to guarantee a better balance of the economic and environmental considerations at hand. The new EU IA model established since 2015 is a significant improvement compared to the BIT practice of the majority of the Member States, aligning it with the latest trends in North American IAs. Moreover, the EU model introduces innovations of its own, most notably in the form of general acknowledgement of the right of the States and the EU to regulate to protect the public interest even where this negatively affects investment. Yet, the realisation of this ‘brave new world’ of EU IAs remains to be tested and affirmed in the practice of investment courts and arbitral tribunals. While the new EU IAs introduce a number of guarantees for environmental protection in an investment context, they still fall short of actively promoting them, which is regrettable given the EU’s particularly strong position to do so and its leading role on the international plane with respect to environmental matters. Accordingly, the promised ‘brave new world’ of the EU IAs remains to be realised, sometime in the future.

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17.  Investment claims against Latin American states: environmental protection and the applicable law Gabriel Bottini and Elisa Méndez Bräutigam

The environment is protected by rules of international and national law. These rules are constantly evolving as most countries and people recognize not only that humanity’s future is at stake, but also that making economic development sustainable – both environmentally and socially – results in better living conditions for today’s society. In international law, the expansion in the number and scope of rules seeking to protect the environment has been significant since the United Nations Stockholm Conference on the Human Environment in 1972. While the current protection is still insufficient, today numerous international instruments, both binding and nonbinding, address environmental concerns. The treaties containing provisions relating to environmental protection include international investment agreements (IIAs), which incorporate provisions dealing with public interest issues (particularly in recent years). As regards national law, the evolution is of course different in each domestic legal system. Yet a majority of states have long recognized the need to adopt national law rules on environmental protection. Thus, municipal rules bearing on the environment and generally on sustainable development are widespread.1 Latin American and Caribbean countries are among the most biodiverse in the world, with South America alone holding more than 40 per cent of the Earth’s biodiversity.2 The protection of the region’s environment and in particular the conservation of its biological diversity has, inter alia, ecological, genetic and social implications and is a common concern of humankind.3 Aside from their richness in terms of biodiversity and ecosystems, Latin America and the Caribbean are also among the regions with the highest number of investment claims against the constituent countries.4 Some of these claims have involved arguments relating to environmental protection, often advanced by the host state to provide the rationale behind the contested measures and ultimately to deny a breach of its obligations under the applicable IIA. Further, there is a tension between the economic interest of both private actors and states to exploit the region’s natural resources, on the one hand, and increasing societal demands to protect not only the environment but also other legitimate interests that may be affected by investment projects, such as those of indigenous people, on the other. The tension is economic, social and political, but also legal. Treaties seeking to 1   The adoption of international rules on the environment, particularly since the Stockholm Conference, also spurred the adoption of environmental regulations at the national level. Dinah Shelton, ‘Stockholm Declaration (1972) and Rio Declaration (1992)’, in Max Planck Encyclopedia of Public International Law (Oxford University Press, 2015, electronic version), paras 4, 43, 46. 2   A. Bovarnick, F. Alpizar and C. Schnell (eds), ‘The Importance of Biodiversity and Ecosystems in Economic Growth and Equity in Latin America and the Caribbean: An Economic Valuation of Ecosystems’, United Nations Development Programme (UN, 2010), 2. 3   See the Preamble of the Convention on Biological Diversity. 4  See The ICSID Caseload – Statistics, Issue 2017-2, 11.

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Investment claims against Latin American states  409 promote and protect foreign investments, even when interpreted and applied in a way that accommodates other public interests, are not always easy to reconcile with international and national regulations whose primary purpose is to protect the environment. This chapter addresses the legal tension between defences advanced by Latin American states in investment arbitration relating to environmental protection and the foreign investment protection obligations contained in IIAs. The question is the extent to which arguments based on national or international law provisions – other than the applicable IIA itself – protecting the environment may be considered by investment tribunals to determine whether an IIA obligation has been breached. The focus is on general principles of international law that bear on the relationship between IIA obligations and other international and national law obligations, rather than on how the contents of specific IIA and environmental obligations interact.5 The chapter argues that consideration of environmental obligations binding the host state, deriving from either international or national law sources, to decide the merits of IIA claims is consistent with general principles of international law. The precise effect of such obligations on the resolution of the investment dispute depends, however, on the scope of the IIA and non-IIA obligations in question, the contents of the jurisdiction and applicable law provisions of the IIA, and, as ever, the facts of the case. Section 1 refers to investment arbitrations against Latin American states where the contested measures were connected to environmental concerns. It briefly describes the relevant facts and the environment-related arguments that were raised. In light of the arguments typically advanced by Latin American states, section 2 discusses the application of general principles of international law relevant to the relationship between IIA and non-IIA obligations (either international or national law obligations). Section 3 concludes.

1. INVESTMENT ARBITRATIONS AGAINST LATIN AMERICAN STATES INVOLVING ENVIRONMENTAL PROTECTION In defending against investment claims, Latin American states have sometimes relied on environment-related arguments invoking rules found in treaties, customary international law and national law. The arguments have sought to deny altogether the breach of an IIA standard of treatment, such as the fair and equitable treatment standard, or to limit the scope of certain claims, including the damages recoverable in expropriation claims. Latin American states have also filed counterclaims based on environment-related grounds. 1.1  Costa Rica 1.1.1  Santa Elena v. Costa Rica6 In June 1995, Santa Elena (the claimant) lodged with ICSID a request for arbitration against Costa Rica in relation to the state’s expropriation of the claimant’s property

  Some aspects of this issue are examined elsewhere in this book.   Compañía Del Desarrollo de Santa Elena, S.A. v. The Republic of Costa Rica, ICSID Case No ARB/96/1 (Santa Elena v. Costa Rica). 5 6

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410  Research handbook on environment and investment law and, in particular, the compensation paid for the expropriation. The property, which the claimant had purchased to build a tourist resort, had been expropriated by Costa Rica since the area hosted a great variety of flora and fauna. Costa Rica proposed to pay the claimant approximately USD 1.9 million as compensation. The claimant did not object to the expropriation but contested the amount of compensation.7 In its submissions, Costa Rica contended that the parties had agreed that international law would be the applicable law to decide the dispute. As a result, the claimant was entitled to the fair market value of the property as of the date of its expropriation. Costa Rica further alleged that, were Costa Rican law found to apply, the valuation of the property should be based on its current fair market value but taking into account the existing domestic environmental legislation that would prohibit the commercial development of the property, thereby significantly diminishing its value.8 The arbitral tribunal found that, since the parties had not reached a clear agreement that their dispute would be decided exclusively under international law, both Costa Rican law and applicable rules of international law should apply, as required by Article 42(1) of the ICSID Convention.9 In this regard, the tribunal held that Costa Rican rules on the appraisal and valuation of the property to be expropriated were in line with general principles of public international law on the same subject but that, in the case that there was a discrepancy, the rules of public international law would prevail.10 With regard to the reasons for the expropriation, the tribunal considered that while an expropriation for environmental reasons could be classified as a taking for a public purpose – and could thus be considered legitimate – the fact that the claimant’s land was taken on environmental grounds did not affect either the nature of the measure on the compensation to be paid. The tribunal found that, in this regard, the international source of the obligation to protect the environment was irrelevant. For these reasons, the tribunal did not analyse the evidence submitted by the respondent regarding its international legal obligations to preserve the ecological site.11 1.1.2  Unglaube v. Costa Rica12 In January 2008, Marion Unglaube and Richard Unglaube submitted an ICSID claim against Costa Rica alleging that the state had breached its international obligations under the Germany–Costa Rica bilateral investment treaty (BIT). The dispute arose as a result of Costa Rica’s expropriation of the claimants’ coastal land for the purpose of creating a maritime park for the protection of leatherback turtles.13 In its submissions, Costa Rica relied on its obligations under its Constitution and under the Inter-American Convention for the Protection and Conservation of Sea Turtles. In particular, the state alleged that it was responsible for protecting the natural environment

  Santa Elena v. Costa Rica, Award, 17 February 2000 (Santa Elena Award), paras 19, 55.   Ibid, paras 35, 62.  9   Ibid, paras 63–4. 10   Ibid, para. 64. 11   Ibid, paras 71–2. 12   Marion Unglaube & Richard Unglaube v. The Republic of Costa Rica, ICSID Case No ARB/08/1 & ICSID Case No ARB/09/20 (Unglaube v. Costa Rica). 13   Ibid, Award, 16 May 2012, paras 37–9.  7  8

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Investment claims against Latin American states  411 and the leatherback turtle, which was an endangered species. The respondent held that the contested measures were adopted in good faith and to honour such obligations. In Costa Rica’s view, investors always own their land in accordance with the state’s applicable land use and environmental laws, which may change as a result of the proper functioning of the state. Costa Rica submitted that, in any event, its right to expropriate private property for public interest (in this case, the protection of an endangered species) could not be questioned.14 In its decision, the tribunal held that it had no power to question Costa Rica’s sovereign power to expropriate land, which had been recognized by international law, and acknowledged the importance of protecting endangered species. Nonetheless, the tribunal held that the case related to ‘more mundane issues of fact and law’, in particular to the legality of the disputed actions.15 Regarding the expropriation claim, the tribunal agreed with the respondent that states’ power to expropriate property for a public purpose in good faith, according to law, without the expropriation being arbitrary or discriminatory and against proper and timely compensation, cannot be questioned. The tribunal concluded, however, that Costa Rica had failed to comply with this last requirement.16 1.1.3  Spence v. Costa Rica17 In October 2012, eight individuals and one company filed a claim in accordance with the Arbitration Rules of the United Nations Commission on International Trade Law (UNCITRAL Rules) against Costa Rica alleging that the state had breached its obligations under the Dominican Republic–Central America–United States Free Trade Agreement (CAFTA). The dispute related to the claimants’ indirect ownership of beachfront properties and Costa Rica’s expropriation of said properties for the purpose of constructing an ecological park for the protection of leatherback sea turtles.18 Costa Rica alleged that the disputed measures were reasonable and necessary since they were adopted with a view to protect the environment of the area and the turtles’ nesting habitat. It noted that it had undertaken not just a responsibility for itself but also a global responsibility to protect of one of the world’s most endangered species.19 Costa Rica relied on several provisions of chapter 17 of CAFTA. It argued that this chapter prioritizes measures adopted by the state for environmental protection and grants states a measure of discretion when implementing their environmental laws, in particular regarding how to carry out an expropriation, taking into account its resources. Further, the respondent highlighted that chapter 17 states that the promotion of trade and investment should not affect the protections granted by domestic environmental laws. According to Costa Rica, chapter 17 seeks to ensure that the state does not encourage

  Ibid, paras 100–3, 124, 127.   Ibid, para. 167. 16   Ibid, paras 166, 203–5, 209, 223. 17   Aaron C. Berkowitz, Brett E. Berkowitz and Trevor B. Berkowitz (formerly Spence International Investments and others) v. The Republic of Costa Rica, ICSID Case No UNCT/13/2 (Spence v. Costa Rica). 18   Ibid, Interim Award, 25 October 2016, paras 1–2. 19   Ibid, Respondent’s Memorial on Jurisdiction and Counter-Memorial on the Merits, 15 July 2014, para. 1. 14 15

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412  Research handbook on environment and investment law investors to expand or develop their investment in such a way as to weaken Costa Rica’s domestic environmental laws.20 The arbitral tribunal issued an interim award rejecting jurisdiction over the majority of the claim. The environment-related issues raised by the respondent were not addressed.21 1.1.4  David Aven et al. v. Costa Rica22 In January 2014, David Aven and seven other persons filed a request for arbitration with ICSID against Costa Rica under DR-CAFTA and the 1976 UNCITRAL Arbitration Rules. The case related to the claimants’ investment in 39 hectares of land and permits to build a hotel, a beach club and 352 villas (the Las Olas Project). Construction had been halted by the respondent through an administrative injunction when it decided that a necessary environmental permit had been granted to the claimants unlawfully.23 The respondent counterclaimed that the claimants had breached national environmental laws by causing environmental damage to the Las Olas ecosystem. Costa Rica argued that the claimants had contributed to the drying of the wetlands and the removal of vegetation, which worsened flooding situations. It alleged that chapter 17 of DR-CAFTA, which allows Costa Rica to establish its own level of domestic environmental protection, should be applied to resolve the dispute. The respondent posited that the protection granted under this chapter differs from the one laid down in chapter 10 of the Treaty, which embodies the traditional protection standards for foreign investments. It further stated that the standard which domestic environmental laws should uphold was determined by each state party, although Article 17.3 establishes a minimum standard. In particular, this Article obliges Costa Rica to ensure its domestic laws include judicial, quasijudicial or administrative proceedings allowing for the sanctioning or remediation of violations of its environmental laws.24 With regard to its domestic environmental law, Costa Rica held that the protection of a healthy and ecologically balanced environment is a constitutional principle that applies to its entire legal order and imposes an obligation on the state to design its agencies and institutions in order to protect the environment.25 The respondent further held that Costa Rican laws for environmental protection reflect customary international law by incorporating certain principles of environmental law. It specifically invoked the principle of preventive action embodied in Costa Rica’s Constitution as well as in other international instruments signed by Costa Rica, such as the Rio Declaration on Environment and Development, the Ramsar Convention on Wetlands of International Importance especially as Waterfowl Habitat and the Convention on Biological Diversity.26

  Ibid, Respondent’s Post-Hearing Submission, 26 May 2015, paras 17, 60–5.   Ibid, Interim Award, 25 October 2016. After the interim award was rendered, the parties requested that the tribunal terminate the proceedings. 22   David R. Aven and Others v. Republic of Costa Rica, ICSID Case No. UNCT/15/3 (David R. Aven et al. v. Costa Rica). 23   David R. Aven et al. v. Costa Rica, Claimant’s Memorial, 27 November 2015, paras 31–3, 50, 151. 24   Ibid, Respondent’s Counter-Memorial, 8 April 2016, paras 415–17, 437–59. 25  Ibid, para. 463. 26   Ibid, paras 460–72. 20 21

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Investment claims against Latin American states  413 In its award, the arbitral tribunal held that it had prima facie jurisdiction over Costa Rica’s counterclaim, but rejected it for procedural reasons. Relying on the decision in Urbaser v. Argentina, the tribunal held that investors cannot be immune from becoming subjects of international law, in particular with regard to the protection of the environment. Importantly, it suggested that obligations pertaining to the protection of the environment are obligations erga omnes.27 The tribunal held that there were no substantive reasons for exempting foreign investors from being sued for breaches under Article 10, Section A DR-CAFTA, in particular with regard to environmental obligations.28 The tribunal found, however, that Costa Rica did not properly state the facts that supported its counterclaim, but referred solely to environmental damages in general.29 Although the Respondent clarified the facts in its post-hearing brief, the tribunal found that this delay impinged on the claimants’ due process rights.30 In addition, the tribunal analysed the interrelation of Article 10.11 and chapter 17 of DR-CAFTA, holding that the investor’s rights are subordinate to the State’s right to ensure that the investment is carried out in a manner sensitive to environmental concerns. This subordination, however, is not absolute, as the host State is required to act in accordance with international law principles and, in particular, in good faith.31 The tribunal further acknowledged that the subordination of the investor’s right does not entail complete disregard of the latter. Rather, it translates into giving preference to the environmental protections that Costa Rica held to be important at the time of signing DR-CAFTA.32 Nevertheless, the tribunal rejected the idea that the host State has ample discretion to decide how to implement and enforce its environmental laws. By signing DR-CAFTA, the tribunal stated, the host State agreed that the implementation and enforcement will be fair, nondiscriminatory and undertaken in accordance with due process principles.33 When analysing claimants’ expropriation and FET claims, the tribunal determined that the respondent had not acted in an arbitrary manner, nor did its actions amount to a breach of its obligations under DR-CAFTA. The tribunal held that the works undertaken by the claimants had in fact affected wetlands and that Costa Rica’s measures were ­justified under Costa Rican law, which was not inconsistent with international law.34 1.1.5  Infinito Gold v. Costa Rica35 In February 2014, Infinito Gold filed an ICSID claim against Costa Rica claiming that the state had breached its obligations under the Canada–Costa Rica BIT. The investment was a concession for the development and operation of a gold mine owned by the claimant’s subsidiary and for which the claimant had received all the necessary exploration and

    29   30   31   32   33   34   35   27 28

David R. Aven et al. v. Costa Rica, supra n 22, Award, 18 September 2018, paras 738–42. Ibid, para. 739. Ibid, para. 745. Ibid, para. 746. Ibid, para. 412. Ibid, para. 412. Ibid, para. 413. Ibid, para. 585. Ibid, paras 738–42.

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414  Research handbook on environment and investment law exploitation permits. Disputes arose when two lawsuits were filed against the claimant’s concession before Costa Rican courts. While one of the courts upheld the claimant’s exploitation concession, the other cancelled it, alleging that a ban on openpit mining prohibited the claimant’s further development of its investment.36 Before the tribunal was constituted, the Costa Rican NGO Asociación Preservacionista de Flora y Fauna Silvestre (APREFLOFAS) filed an amicus curiae petition pursuant to Rule 37(2) of the ICSID Arbitration Rules. The tribunal allowed the NGO to present a written submission and have access to portions of the parties’ pleadings. In its written submission, APREFLOFAS alleged that the claimant’s concession was illegal under national law and that it had probably been granted through corruption and graft. It further held that the claimant and government officials had misrepresented the nature and scope of the concession by failing to consider the real environmental consequences it entailed. It therefore requested the tribunal to abstain from hearing the case.37 In its decision on jurisdiction, the tribunal held that it did not find clear evidence of malfeasance in office or extortion. However, the tribunal decided to defer this matter to the merits stage due to the seriousness of the allegations. This would allow it to analyse further briefs and evidence submitted by the parties.38 The decision on jurisdiction also addressed several jurisdictional objections raised by Costa Rica. In particular, the state argued that the claimant’s claim was barred since the applicable BIT prohibits challenges to any state acts that adopt, maintain or enforce earlier measures that were designed to ensure that investments in the territory of Costa Rica are undertaken in a manner sensitive to environmental concerns.39 The tribunal decided to defer this question to the merits stage.40 1.2  Ecuador 1.2.1  Burlington Resources v. Ecuador41 and Perenco Ecuador v. Ecuador & PetroEcuador42 In April 2008, Burlington Resources and Perenco Ecuador filed two separate claims with ICSID against Ecuador invoking, respectively, the provisions of the Ecuador–United States and Ecuador–France BITs. The cases related to two contracts for the exploration and exploitation of hydrocarbons in the Ecuadorian Amazonian Region held by a consortium in which the claimants participated. A dispute arose between the parties when Ecuador enacted a series of legislative measures, one of which consisted in the imposition of a windfall levy on oil profits.43   Infinito Gold v. Costa Rica, Decision on Jurisdiction, 4 December 2017, paras 64–115.   Ibid, paras 41–50, 122–7. 38   Ibid, paras 135–40. 39   Ibid, paras 147, 151, 345–8. 40   Ibid, paras 355–9. 41   Burlington Resources Inc. v. The Republic of Ecuador, ICSID Case No ARB/08/5 (Burlington v. Ecuador), formerly Burlington Resources Inc. and others v. Republic of Ecuador and Empresa Estatal Petróleos del Ecuador (PetroEcuador). 42   Perenco Ecuador Ltd. v. The Republic of Ecuador & Empresa Estatal Petróleos del Ecuador (PetroEcuador), ICSID Case No ARB/08/6 (Perenco v. Ecuador & PetroEcuador). 43   Burlington v. Ecuador, supra n 41, Decision on Liability, 14 December 2012, paras 23–51; 36 37

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Investment claims against Latin American states  415 In both arbitration proceedings, the respondent filed environmental counterclaims in accordance with Article 40(2) of ICSID Arbitration Rules. In its counterclaims, Ecuador alleged that the claimants had caused environmental damage. It stated that the investors’ actions were contrary to universal, well-established legal principles which protect the environment and are enshrined in the Ecuadorian 2008 Constitution, Ecuadorian environmental laws (including the Environmental Management Law, the Environmental Regulations for Hydrocarbon Operations in Ecuador and the Unified Text of Secondary Environmental Legislation) and the concession agreements.44 Ecuador argued that its 2008 Constitution provides for the fundamental right of Ecuadorian people to a healthy environment and establishes a strict liability regime based on the idea that nature has rights, including the right to remediation. According to this regime, which had also been endorsed by Ecuadorean courts, Ecuador argued that it only needed to establish that the claimants had performed environmentally risky activities in an area and that a negative environmental impact of the kind that may be caused by such activities was present in that area. The respondent further claimed that the investors had the burden to prove that the damage had resulted from force majeure, actions or omission of the state or actions or omissions of a third party. Further, Ecuador held that environmental claims were not subject to statutes of limitation and that its 2008 Constitution also applies to environmental claims filed after its entry into force. Lastly, Ecuador requested that the tribunal order the investor to restore the environment to its original condition.45 After a detailed analysis of the Ecuadorean environmental framework, the Burlington tribunal decided to hold the investor liable for contamination in accordance with Ecuadorean law and ordered it to pay compensation to restore the environment.46 In August 2015, the Perenco tribunal issued an interim decision on the environmental counterclaim filed by Ecuador, ruling it was likely that the claimant would be held liable for breaches of Ecuadorian environmental law in a future final decision.47 The tribunal held that, under international law, the state has ample possibilities to issue and adjust its environmental laws, standards and policies. The tribunal also recognized that the protection of the environment and the restoration of environmentally harmed ecosystems is a key concern for the Ecuadorian Constitution. As a consequence, when choosing between certain interpretations of the Ecuadorian regulatory regime, the interpretation which most favours the protection of the environment should prevail. In its decision, the tribunal recommended that the parties negotiate a settlement agreement in light of the tribunal’s findings and decided to appoint an independent expert that would reassess the findings of the parties’ experts.48

Perenco v. Ecuador & PetroEcuador, supra n 42, Decision on Jurisdiction, 30 June 2011, paras 15–24. 44   Perenco Ecuador v. Ecuador & PetroEcuador, supra n 41, Interim Decision on the Environmental Counterclaim, 11 August 2015 (Perenco Interim Decision), para. 36. 45   Burlington Resources v. Ecuador, supra n 41, Decision on Counterclaims, 7 February 2017 (Burlington Counterclaims Decision), paras 81–117; Perenco Interim Decision, supra n 44, paras 36, 121–3, 168–75, 355. 46   Burlington Counterclaims Decision, supra n 45, paras 159–216, 889. 47   Perenco Interim Decision, supra n 44, para. 582. 48   Ibid, paras 35, 322, 568–9, 585–94.

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416  Research handbook on environment and investment law 1.2.2  Chevron & Texaco v. Ecuador49 In September 2009, Texaco Petroleum (TexPet) and Chevron commenced arbitration proceedings against Ecuador under the 1976 UNCITRAL Rules and the Ecuador–United States BIT. The dispute related to TexPet’s rights for the exploration and exploitation of oil reserves in Ecuador under two concession agreements. After the concession contracts expired, a group of indigenous Ecuadorean citizens filed a lawsuit against TexPet’s parent company before both New York and Ecuadorean courts alleging that TexPet had caused environmental harm during its exploitation of the oil reserves. While domestic proceedings were pending, TexPet, Ecuador and the state oil company PetroEcuador reached a settlement agreement, pursuant to which TexPet performed certain remediation activities to clean up the environmental damage that its investment had caused. Shortly afterwards, the Ecuadorean courts ruled in favour of the Ecuadorean citizens and ordered Chevron – TexPet’s legal successor – to pay damages in order to restore the affected area (the Lago Agrio Judgment). The claimants alleged that corruption and other deficiencies affecting the Lago Agrio Judgment amounted to a breach of Ecuador’s obligation to allow the claimants to protect their contractual, legal and treaty rights. Further, they alleged that the state had breached the settlement agreement.50 Ecuador highlighted the claimants’ liability regarding environmental damage, the effects of which, according to the respondent, still persisted. In particular, the respondent based its allegations on its experts’ findings according to which TexPet’s oil exploration, extraction and transport had released several toxic contaminants into the air, water and land. According to the respondent, these contaminants had had an adverse effect on the health of the population living in the concession area and a negative impact on the ecosystem.51 The respondent argued that TexPet’s behaviour was contrary to Ecuadorean law, specifically the Hydrocarbon Law Decree No 1459 and the Hydrocarbon Law Decree No 101. While the former obliges the concessionaire to protect flora, fauna and natural resources and to prevent pollution, the latter requires the investor to conduct petroleum activities in accordance with international practices. Ecuador also claimed that the claimant had breached international oil industry practices, which were followed by players in the oil industry and by Chevron itself when operating in the United States.52 Regarding the fair and equitable treatment standard and, in particular, the investor’s legitimate expectations, the respondent alleged that any reasonable investor could expect that if it caused environmental harm it might be subject to criminal investigations, scrutiny by the government, negative press, litigation brought by the local community or a judgment to remediate the harm caused. Regarding damages, the respondent invoked international law and requested that any monetary award against Ecuador should take into consideration the claimant’s pollution liability.53 49   Chevron Corporation & Texaco Petroleum Company v. The Republic of Ecuador, PCA Case No 2009-23 (Chevron & Texaco v. Ecuador). 50   Ibid, Claimant’s Notice of Arbitration, 23 September 2009, paras 1–5; Ibid, Claimants’ Memorial on the Merits, 6 September 2010, paras 274–96, 373–455, 459–81. 51   Ibid, Track 2 Counter-Memorial on the Merits, 18 February 2013, paras 114–17. 52   Ibid, paras 59–67. 53   Ibid, paras 423, 453.

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Investment claims against Latin American states  417 With regard to the settlement agreement, the respondent held that the agreement did not prevent Ecuadorean citizens from bringing environmental claims against the claimants under Ecuadorian law, be it individual claims for personal harm or claims for ‘collective rights’ pursuant to Article 19(2) of the Ecuadorean Constitution. The respondent contended that this agreement only protected TexPet against claims brought directly by the government or PetroEcuador.54 The arbitral tribunal found that the parties concluded the settlement agreement to address permanently all possible environmental claims of Ecuador and PetroEcuador against TexPet which had arisen or could arise during the concession. Due to their nature, the environmental claims could not have been limited to contractual claims against TexPet but also comprised noncontractual claims. The arbitral tribunal further stated that the settlement agreement did not settle individual claims by third parties regarding their own individual rights under Ecuadorian law or other laws. Nevertheless, the tribunal found that third parties could only bring a claim based on ‘collective rights’ under Article 19(2) of the Ecuadorean Constitution in conjunction with an individual claim for damages in respect of personal harm. Only the state could bring a claim under that Article to ensure the right of its citizens to live in a contamination-free environment. However, Ecuador had settled this claim when signing the settlement agreement.55 1.3  El Salvador 1.3.1  Pac Rim v. El Salvador56 In April 2009, Pac Rim Cayman filed a claim with ICSID against El Salvador alleging that the state had breached its obligations under CAFTA and the Salvadoran Investment Law.57 The dispute related to the claimant’s investment in El Salvador’s gold mining sector and the respondent’s refusal to issue a necessary exploitation concession and environmental permit under the Salvadoran Mining Law as a consequence of a de facto moratorium affecting the mining industry.58 The respondent claimed that El Salvador’s Constitution and its Environmental Law embodied in Legislative Decree No 233 enshrine the state’s responsibility to protect its people and the environment and that Salvador’s Ministry of Environment is empowered to define the national environmental policy in light of the principles of prevention and precaution.59 El Salvador contended that these principles have to be applied when evaluating environmental impact studies and assessing whether to grant or deny environmental permits. El Salvador argued that it did not have enough expertise in metallic mining and,   Ibid, First Partial Award on Track I, 17 September 2013, paras 57–9.   Ibid, paras 77–81. During the arbitration two NGOs requested the tribunal to participate as amici curiae in the proceedings. The NGOs alleged that the request sought by the claimants would affect the legal rights of indigenous people before Ecuadorean courts. The NGOs’ petition was dismissed by the arbitral tribunal. 56   Pac Rim Cayman LLC v. The Republic of El Salvador, ICSID Case No ARB/09/12 (Pac Rim v. El Salvador). 57   The arbitral tribunal denied its jurisdiction over the CAFTA claim and therefore only considered the claims made under El Salvador’s domestic investment law. 58   Pac Rim v. El Salvador, supra n 56, Award, 14 October 2016, para. 3.15. 59   Ibid, Respondent’s Counter-Memorial on the Merits, 10 January 2014, paras 202–3. 54 55

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418  Research handbook on environment and investment law as a result, it was not equipped to evaluate, permit and monitor metallic mining so as to effectively safeguard the population and the environment. Therefore, and pursuant to the precautionary principle, El Salvador decided to suspend all mining activity until compliance with the relevant social and environmental standards was ensured. It claimed that the moratorium on metallic mining was constitutional and a reasonable measure to protect environmental integrity and its citizens’ right to a healthy environment. The respondent further argued that, in addition to its concerns about metallic mining in El Salvador, the Ministry of Environment had justified concerns about the claimant’s environmental permit application. The respondent also held that the claimant lacked a ‘social license to operate’, since the local community opposed the claimant’s project due to its environmental impact.60 The arbitral tribunal did not address the respondent’s environmental concerns. Instead, it held that the claimant was not entitled to the exploitation concession as it did not fully comply with the documentary requirements set out in the Salvadoran Mining Law.61 1.4  Mexico 1.4.1  Metalclad Corporation v. Mexico62 In January 1997, Metalclad Corporation commenced arbitration proceedings against Mexico under the North American Free Trade Agreement (NAFTA) and the ICSID Additional Facility Rules. The dispute related to Metalclad’s ownership, through its Mexican subsidiary, of a hazardous waste landfill in the state of San Luis Potosí and the necessary permits and licences for its construction and operation. A dispute arose when the municipal authorities denied a construction permit due to the local community’s opposition to the landfill and the alleged environmental impact of the claimant’s project. After the commencement of the arbitration proceedings, the municipality issued an Ecological Decree declaring the area of the landfill a natural area for the protection of rare cacti, which ultimately precluded the claimant from operating the landfill.63 In the arbitration, Mexico alleged that the refusal to issue the construction permit reflected concerns about the impact of the hazardous waste disposal on its citizens’ health and safety, and the opposition of the local community. Mexico further contended that municipalities have authority over land use matters and are empowered to limit the use of the land and construction related to urban development purposes to maintain the ecological balance within the territory of the municipality. Mexico invoked the Mexican  Ibid, paras 204–45.   Ibid, Award, 14 October 2016, paras 10.4–10.6. The tribunal admitted a request filed by eight Salvadoran NGOs to submit an application as a nondisputing party in the proceedings. The NGOs contended that an expansion of mining activity in El Salvador could imperil the country’s water supply and create environmental damage and that the measures adopted by El Salvador were consistent with its international obligations on human rights and the protection of a healthy environment. However, the tribunal decided not to fully consider the NGOs’ submissions for its decision given that the NGOs were not privy to all the evidence adduced and the issues the tribunal had to decide (ibid, paras 3.28–3.30). 62   Metalclad Corporation v. The United Mexican States, ICSID Case No ARB(AF)/97/1 (Metalclad v. Mexico). 63   Ibid, Award, 30 August 2000, paras 37–59. 60 61

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Investment claims against Latin American states  419 Constitution and the municipal permitting requirements embedded in the Ecological and Urban Code of the State of San Luis Potosí, the Municipal Organic Act of the State of San Luis Potosí, the Environmental Protection Act of the State of San Luis Potosí and the Treasury Act for the Municipalities of the state of San Luis Potosí. In confronting the claimant’s fair and equitable standard argument, the respondent stated that it had acted in good faith and requested the tribunal to take into consideration the nature of the investment – a controversial hazardous waste landfill.64 The arbitral tribunal found that the respondent had improperly denied the construction permit. In particular, it concluded that the municipality was not empowered to deny this permit since the Mexican General Ecology Law limited the municipality’s environmental powers to issues relating to nonhazardous waste. The tribunal further held that its finding was not affected by Article 1114 of NAFTA, which allows the state parties to ensure that any investment activity is sensitive to environmental concerns. The tribunal held that the issuance of federal permits and the conclusion of an agreement between the claimant and the Mexican government for the operation of the landfill showed that Mexico was satisfied that the investment was consistent with Mexico’s environmental concerns. Lastly, the tribunal found that the Ecological Decree constituted an additional ground to consider the respondent’s measures as expropriatory since the effect of the latter was to permanently bar the operation of the landfill.65 1.4.2  TECMED v. Mexico66 In July 2000, TECMED filed a claim against Mexico under the ICSID Additional Facility Rules invoking the Mexico–Spain BIT. The dispute involved the claimant’s shareholding in a local investment vehicle, which operated a hazardous waste landfill in the municipality of Hermosillo. To operate the landfill, the claimant was granted a 5-year renewable licence by the Mexican government. The claimant soon faced protests from the local community due to the landfill’s location. While the claimant was attempting to negotiate the relocation of the landfill, Mexico’s National Ecology Institute issued a resolution refusing to renew the licence and ordering the shutdown of the landfill.67 In its submissions, the respondent invoked the Mexican Constitution and the General Law of Ecological Equilibrium and Environmental Protection, which regulate the protection of the environment and the ecological equilibrium. Mexico asserted that, to comply with its Constitution and national laws, Mexican authorities were vested with discretionary powers to grant and deny permits. This power could only be appraised in light of the state’s domestic laws. With regard to the disputed measure, the respondent alleged that its refusal to renew the permit was a regulatory measure issued in compliance with its police powers to protect the environment and public health.68

64   Ibid, Respondent’s Counter-Memorial, 22 May 1998, paras 184–91, 848, 856; Respondent’s Post-Hearing Submission, 30 September 1999, paras 200–11. 65   Ibid, Award, 30 August 2000, paras 82–4, 97–101, 109–10. 66   Técnicas Medioambientales TECMED, S.A. v. The United Mexican States, ICSID Case No ARB(AF)/00/2 (TECMED). 67   Ibid, paras 35–9, 44. 68   Ibid, Respondent’s Counter-Memorial (‘Escrito de Contestación a la Demanda’), paras 18–45; TECMED, paras 46, 97.

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420  Research handbook on environment and investment law In its decision, the arbitral tribunal agreed with the respondent that the exercise of its sovereign power and whether such exercise was legitimate should be evaluated in light of its domestic laws. Nevertheless, the tribunal considered that its task was to determine whether the respondent’s resolution refusing the renewal of the permit breached the applicable BIT in light of the latter’s provisions and international law. With regard to the expropriation claim, the tribunal held that the concept of ‘expropriatory acts’ also encompasses regulatory actions since there was no principle stating that regulatory administrative actions are per se excluded from the term, even if they are beneficial to society as a whole (such as environmental protection measures).69 To determine whether the measures had expropriatory effects, the tribunal analysed two aspects. First, the arbitral tribunal assessed the effects of the measures and determined that, as a consequence of the respondent’s measures, the operation of the landfill was permanently precluded. Second, it analysed whether the measures were proportional to the public interest allegedly protected. The tribunal concluded that the measure relied on sociopolitical factors (the community’s opposition, and as a means to put pressure on the claimant to relocate the landfill) and not on public health or environmental concerns. Since the tribunal held that community pressure was not a critical situation, it concluded that the measure was not proportional.70 1.5  Venezuela 1.5.1  Gold Reserve v. Venezuela71 In October 2009, Gold Reserve submitted an ICSID claim against Venezuela under the Canada–Venezuela BIT. The case related to the claimant’s indirect ownership of two concessions for the development of a gold and copper mine (the Brisas Project). A dispute arose between the parties when the Venezuelan government decided to revoke a construction permit granted to the claimant, invoking reasons of public order, and subsequently terminated both concession agreements.72 In the arbitral proceedings, Venezuela alleged that, pursuant to the Venezuelan Organic Law on the Environment, the revocation order was lawful since it was based on the government’s authority to revoke permits that are contrary to Venezuela’s environmental laws and its constitutional obligation to protect the environment, promote sustainable development and protect indigenous peoples’ rights. The respondent argued that, with regard to the claimant’s investment, it had bona fide concerns regarding the environmental and sociocultural risks of the project and therefore decided to adequately exercise its regulatory discretion. Thus, the revocation permit was adopted as a result of Venezuela’s policy to foster only environmentally sustainable mining.73 The arbitral tribunal acknowledged that Venezuela was obliged to preserve the environ  Ibid, paras 119–20, 121.   Ibid, paras 118–51. 71   Gold Reserve Inc. v. The Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/09/01 (Gold Reserve v. Venezuela). After the rendering of the award, the investor and Venezuela settled their dispute and entered into a memorandum of understanding. 72   Ibid, Award, 22 September 2014, paras 13–28. 73   Ibid, paras 318, 341, 557, 655. 69 70

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Investment claims against Latin American states  421 ment and protect the local community living in the area where mining activities were conducted. The arbitral tribunal found, however, that this obligation did not exempt Venezuela from complying with its commitments towards international investors. With regard to the applicable law, the arbitral tribunal noted that the BIT and international law were the governing law of the dispute, supplemented by rules of public international law that may be applicable. However, the tribunal also recognized the importance of Venezuelan law, since it informs the content of the investor’s rights and obligations under the relevant municipal legislation in relation to mining, social rights and the protection of the environment.74 1.5.2  Crystallex v. Venezuela75 In February 2011, Crystallex submitted an ICSID claim against Venezuela alleging that the state had breached its obligations under the Canada–Venezuela BIT. The dispute related to the claimant’s investment in a gold deposit in the area of Las Cristinas and several allegedly adverse measures adopted by Venezuela – in particular, that the respondent had refused to issue a key environmental permit due to concerns regarding the project’s impact on the environment and an indigenous community. Venezuela had also decided to terminate the claimant’s mining operation contract.76 Venezuela held that it did not expropriate the claimant’s investment. On the contrary, the permit had been denied lawfully, since the claimant had failed to meet the environmental requirements established by Venezuelan law and enforced by the Venezuelan Ministry of Environment. The refusal to issue the permit was the result of a reasoned and proportional exercise of government regulation. In particular, it stated that it had complied with the Venezuelan government’s obligation to protect the environment and its citizens from situations that constitute imminent damages. Additionally, the respondent held that the Ministry of Environment concerns were legitimate since the claimant did not comply with international standards, such as the Equator Principles, the World Bank Standards and the International Finance Corporation Performance Standards, nor with industry best practices.77 Furthermore, the respondent argued that the denial of the permit was a good faith measure adopted in order to achieve a public purpose. In particular, it held that the rational exploitation of a state’s natural resources is a protected interest under international law. Venezuela alleged that it would be deprived of the benefits derived from its natural resources if the exploitation of its mining resources was left in the claimant’s hands. The claimant had allegedly breached many of its obligations and was incapable of exploiting the gold deposits.78 The tribunal acknowledged that states have a sovereign prerogative to grant or deny permits, particularly if such permits are related to natural resources over which the relevant state has sovereign rights. The tribunal also agreed with the respondent that   Ibid, paras 531–6, 595.   Crystallex International Corporation v. The Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/11/2 (Crystallex v. Venezuela). 76   Ibid, Award, 4 April 2016, paras 15–20, 44–59. 77   Ibid, paras 375–8, 382–4, 486, 650–2. 78   Ibid, para. 655. 74 75

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422  Research handbook on environment and investment law Venezuela had the right and the responsibility to raise concerns regarding, inter alia, global warming, environmental issues and biodiversity. Nevertheless, the tribunal decided that the way in which Venezuela raised its concerns in the permit denial letter were arbitrary and lacked transparency and consistency. In particular, it held that the respondent’s concern regarding global warming was raised for the first time in the permit denial letter and never discussed in previous communications between the investor and Venezuela. Furthermore, other concerns mentioned by the denial letter were described in vague terms and without any supporting data.79 1.5.3  Rusoro Mining v. Venezuela80 In July 2012, Rusoro Mining filed an ICSID claim alleging that Venezuela had breached its international obligations under the Canada–Venezuela BIT. The claimant’s investment consisted of 58 mining concessions and other contracts for the exploitation of minerals, mainly gold. A dispute arose between the parties when the state decided to nationalize Venezuela’s gold mining industry, including the claimant’s concession rights.81 Regarding the investor’s expropriation claim, Venezuela acknowledged that one of the   requirements for an expropriation to be lawful is that it pursues a public purpose. With regard to the latter, the respondent claimed that sovereign states enjoy a wide degree of discretion to determine whether an action is adopted for a public purpose. Venezuela argued that its expropriatory actions were aimed at addressing alarming developments in the gold mining industry, namely environmental damage and infringements of the miners’ rights. Venezuela held that, therefore, the purpose of these measures was to ensure a sustainable and responsible exploitation of the state’s natural resources.82 With regard to the respondent’s allegation regarding the public purpose of its measures, the tribunal ruled that it was not within its powers to assess the merits of the political or economic model adopted by a sovereign state and that the public purpose described in the nationalization decree issued by the respondent could be considered a legitimate aim of its economic policy. However, the tribunal found that in expropriating the claimant’s investment Venezuela had not complied with the requirement that compensation be prompt, adequate and effective.83 1.6  Taking Stock of the Decisions The arbitral decisions in investment cases against Latin American states show an increasing recourse by these states to environmental and other arguments relating to the investment project’s potential consequences beyond purely economic or financial aspects.84 As with other similar defences such as human rights considerations, however,   Ibid, paras 581, 590–614.   Rusoro Mining Ltd v. The Bolivarian Republic of Venezuela, ICSID Case No ARB(AF)/12/5 (Rusoro Mining v. Venezuela). 81   Ibid, Award, 22 August 2016, paras 78–9, 160–5. 82   Ibid, paras 362–3, 381. 83   Ibid, paras 383–5, 400–10. 84   See e.g. Ecuador’s reliance in Perenco and in Burlington on the ‘polluter-payer principle’. 79 80

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Investment claims against Latin American states  423 these arguments’ impact on the outcome of the cases has not been significant. Yet it may only be a matter of time before we see these changes, as signalled by the abovementioned decisions on the environmental counterclaims in Perenco and Burlington. The Perenco tribunal noted that ‘[p]roper environmental stewardship has assumed great importance in today’s world’ and found breaches of duties of care in respect of contamination that had caused environmental damage.85 The decision on counterclaims in Burlington not only found liability and granted damages for harm to the environment, but also contains what is arguably the most extensive and detailed analysis of environmental claims so far conducted by an investment tribunal.86 Further, in the most recent cases, Latin American states have relied more heavily on environmental arguments stemming from national law than was the case at the beginning of modern investment arbitration.87 Admittedly, the precise role of national law is a function of the relevant jurisdiction and applicable law provisions and the content of each claim. Yet this may only be part of the story since, as discussed in the next section, in investment arbitration such provisions frequently warrant the application of both national and international law. Thus, in the end it is up to the parties, and ultimately to arbitral tribunals, to define how the two legal orders combine in investment claims involving environmental arguments.

2.  INTERACTION BETWEEN IIA OBLIGATIONS AND ENVIRONMENTAL OBLIGATIONS Applicable law in investment arbitration includes international and national law as ‘formal sources’.88 The reasons for this include, first, the terms of applicable law (if any) or jurisdiction provisions in IIAs referring both to national and international law; second, the requirement that an investment be made in the territory of one of the states parties to the IIA for protection to be triggered, among other references in IIAs to international and national law (such as the requirement that the investment be made in accordance with national law);89 third, the typical contents of investment treaty claims often involving national law elements. Thus, in resolving investment disputes, arbitral tribunals often have

Perenco Interim Decision, supra n 44, para. 35; Burlington Counterclaims Decision, supra n 45, para. 80. 85   Perenco Interim Decision, supra n 44, paras 34, 379, 582, 585. 86   Burlington Counterclaims Decision, supra n 45, paras 79-889. 87  Compare Santa Elena Award, supra n 7, paras 35, 62, with Burlington Counterclaims Decision, supra n 45, paras 80–117. 88   F. Grisel, ‘The Sources of Foreign Investment Law’, in Z. Douglas et al. (eds), The Foundations of International Investment Law: Bringing Theory into Practice (Oxford: Oxford University Press, 2014) 213, 233. Formal sources refer here to the procedures through which the law is created. On the concept of formal sources in international law see J. Crawford, Brownlie’s Principles of Public International Law (Oxford University Press, 8th ed., 2012) 20–1 (observing, however, that ‘[i]n international law the distinction between formal and material sources is . . . difficult to maintain’); P.M. Dupuy, Droit International Public (Dalloz, 13th ed., 2016) 291. 89   See J. Hepburn, Domestic Law in International Investment Arbitration (Oxford University Press, 2017) 2.

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424  Research handbook on environment and investment law to apply the IIA provisions together with other applicable international law provisions, either treaty or customary, and national law provisions. This section reflects on general principles relevant to the relationship between IIA obligations, on the one hand, and environmental obligations – contained either in national or international provisions – on the other. The analysis is more extensive as regards the interplay between IIA obligations and national law provisions, for two reasons: first, as noted, Latin American states have relied more frequently on national law than on international law for their environment-related arguments against investment claims; second, while recourse to national law is more extensive in international investment law than in other areas of international law, the relationship between IIAs and international law provisions on environmental protection is generally subject to the same rules as those that apply to the relationship between different international law obligations.90 2.1  IIAs and International Law Provisions on Environmental Protection In principle, the resolution of investment treaty claims is subject to the provisions of IIAs as the lex specialis.91 It is relevant here that the lex specialis rule applies to the relationship between IIAs and environmental rules – both treaty, on the one hand,92 and customary,93 on the other. Yet the application of this rule does not mean that environmental rules are wholly displaced in investment disputes. Rather, from the point of view of the IIA tribunal, the investment relationship is ‘above all’ governed by the applicable IIA, but other relevant rules contained in treaties and general international law, including environmental rules, also determine that relationship.94 Further, IIA obligations themselves are subject to international law.95 The WTO Appellate Body’s well-known rejection of a ‘clinical isolation’96 of the General Agreement on Tariffs and Trade 1994 from public international law is also applicable to IIAs (perhaps even a fortiori, given that IIAs usually do not form part of a group of more detailed treaties as the WTO

90  See, inter alia, J. Pauwelyn, Conflict of Norms in Public International Law: How WTO Law Relates to Other Rules of International Law (Cambridge University Press, 2003); C.J. Borgen, ‘Resolving Treaty Conflicts’ (2005) 37(3) The George Washington International Law Review 573. 91   On the lex specialis principle in international law see International Law Commission, Fragmentation of International Law: Difficulties Arising from the Diversification and Expansion of International Law, Report of the Study Group of the International Law Commission, A/ CN.4/L.682, 13 April 2006 (Fragmentation Report), paras 56–122. 92  See Gabčíkovo-Nagymaros Project (Hungary v. Slovakia), Judgment, ICJ Reports 1997, 7, para. 132. 93  See Military and Paramilitary Activities in and against Nicaragua (Nicaragua v. United States of America), Merits, Judgment, ICJ Reports 1986, 14 (Nicaragua v. US Merits), para. 274; Fragmentation Report, supra n 91, para. 66. International customary law is particularly relevant in the field of international responsibility for breach of environmental obligations. See N. Céline, ‘Responsibility and International Environmental Law’ in J. Crawford et al. (eds), The Law of International Responsibility (Oxford University Press 2010) 804. 94   Nicaragua v. US Merits, ibid, para. 274. 95  See Reparation for Injuries Suffered in the Service of the United Nations, Advisory Opinion, ICJ Reports 1949, 174, 180. 96   US – Standards for Reformulated and Conventional Gasoline, Report of the Appellate Body, 29 April 1996, WTO Doc WT/DS2/AB/R, 17.

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Investment claims against Latin American states  425 Agreements). IIA provisions regulate more directly the object of investment treaty claims and are thus the lex specialis in an investment dispute. Yet other international provisions – including environmental provisions, as will be discussed presently – remain relevant in defining the rights and duties of the parties to the investment relationship.97 An example is the international law rules of attribution, which, as generally accepted, apply to IIA claims.98 While both IIA provisions and international environmental provisions are potentially relevant to the resolution of IIA disputes (although the former provisions are, in principle, more relevant than the latter), the impact of jurisdiction and applicable law provisions in IIAs must be briefly considered here.99 Jurisdiction provisions in IIAs establish the types of disputes that may be heard by the IIA tribunal, which may range from claims under only one of the IIA standards of treatment to claims related to the investment or similarly broadly worded formulations (thus including not only claims under any of the IIA standards, but potentially also contract, national law and general international law claims).100 However, even where the arbitral tribunal’s jurisdiction is limited to IIA claims, this does not mean that the applicable law is limited to the IIA provisions.101 First, the considerations mentioned above on the relationship between the lex specialis and other relevant provisions of international law point to an inherent power of international tribunals having to apply a treaty to also apply such other relevant provisions.102 Second, the arbitral tribunal’s authority to apply (and duty to consider) international law provisions other than the IIA may derive from the latter’s applicable law provision (if any).103 Third, discrete standards of treatment, such as the international minimum standard, incorporate general international law into the IIA regime.  97   Fragmentation Report, supra n 91, para. 120. The Fragmentation Report argues that even so-called self-contained regimes are not a ‘closed legal circuit’ and are always supplemented by general international law: ibid, 82. See also B. Simma and D. Pulkowski, ‘Leges Speciales and Self-Contained Regimes’ in J. Crawford et al. (eds), The Law of International Responsibility (Oxford University Press 2010) 140 (‘Self-contained regimes in the area of State responsibility are . . . neither conceivable nor desirable’).  98  See Compañía de Aguas del Aconquija S.A. and Vivendi Universal (formerly Compagnie Générale des Eaux) v. The Argentine Republic, ICSID Case No. ARB/97/3, Decision on Annulment, 3 July 2002 (Vivendi I Annulment), para. 96; Impregilo S.p.A. v. The Islamic Republic of Pakistan, ICSID Case No ARB/03/3, Decision on Jurisdiction, 22 April 2005, para. 210.  99   We by no means intend to exhaust this point. Due to space and other constraints, we would only achieve, in Wilde’s words, exhausting the reader. 100   For example, Article 8 of the Italy–Morocco BIT includes ‘[a]ll disputes or differences, including disputes related to the amount of compensation due in the event of expropriation, nationalisation, or similar measures, between a Contracting Party and an investor of the other Contracting Party concerning an investment of the said investor’. See Salini Costruttori S.P.A. and Italstrade S.P.A. v. Kingdom Of Morocco, ICSID Case No ARB/OO/4, Decision on Jurisdiction, 31 July 2001, para. 15. 101   See Fragmentation Report, supra n 91, para 45. 102   See also Certain German Interests in Polish Upper Silesia, Judgment of 25 August 1925, Series A, No 6, 18 (interpretation of other international agreements that constituted ‘preliminary or incidental’ questions to the application of the main treaty was ‘indisputably within the competence of the Court’). 103   Banifatemi observed that most IIAs do not contain a separate choice of law provision: Y. Banifatemi, ‘The Law Applicable in Investment Treaty Arbitration’, in K. Yannaca-Small

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426  Research handbook on environment and investment law Depending on the facts of the case, some of the principles of international environmental law may be relevant to the resolution of investment disputes, including the ‘polluter pays’ principle, the precautionary principle and the principle of sustainable development.104 For example, in light of scientific uncertainty as to possible transboundary damage resulting from an economic activity, the host state may adopt measures to reduce the risk of such damage based on the best scientific evidence available. Importantly, scientific knowledge may well have evolved since the economic activity in question began. To the extent that the adopted measures affect the interests of foreign investors, IIA claims may be available. Here, it would be relevant to consider whether the state measures were consistent with an applicable treaty providing for the precautionary principle in seeking to determine whether,105 for example, the host state breached the fair and equitable treatment standard.106 This reasoning applies a fortiori if there is reasonable certainty that the relevant activity causes transboundary environmental harm, given that a state is ‘obliged to use all the means at its disposal in order to avoid activities which take place in its territory, or in any area under its jurisdiction, causing significant damage to the environment of another State’.107 (ed.), Arbitration under International Investment Agreements: A Guide to the Key Issues (Oxford University Press 2010) 197. 104   See Céline Nègre, ‘Responsibility and International Environmental Law’ in J. Crawford et al. (eds), The Law of International Responsibility (Oxford University Press 2010) 805. On the content of these principles see Report of the World Commission on Environment and Development: Our Common Future (‘Brundtland Report’), para. 27; The Rio Declaration on Environment and Development (1992), Principles 15 and 16; Meinhard Schröder, ‘Precautionary Approach/ Principle’, in Max Planck Encyclopedia of Public International Law (Oxford University Press, 2015, electronic version); Alan Boyle, ‘Polluter Pays’, in Max Planck Encyclopedia of Public International Law (Oxford University Press, 2015, electronic version). 105   If the environmental principle invoked is not contained in a treaty binding the host state there may be a debate as to its customary character. See Crawford, supra n 88, 333; Kerstin Odendahl, ‘Nature, International Protection’, in Max Planck Encyclopedia of Public International Law (Oxford University Press, 2015, electronic version), para. 15. The customary status of the precautionary principle is still not generally accepted. See G. Hafner and I. Buffard, ‘Obligations of Prevention and the Precautionary Principle’ in J. Crawford et al. (eds), The Law of International Responsibility (Oxford University Press 2010) 530–2; Schröder, ibid, para. 16. 106   When applicable, the precautionary principle generally requires the state to act, since the principle’s ‘core characteristic feature is environmental action in the face of scientific uncertainty’. Schröder, supra n 104, para. 2. However, here the state has a degree of discretion as to what specific measures it should adopt. Thus, in an investment arbitration the assessment of the measures’ validity under the precautionary principle may overlap with the same assessment under IIA standards of treatment due to the application of proportionality considerations and the like (see ibid, para. 11). 107   Pulp Mills on the River Uruguay (Argentina v. Uruguay), Judgment, ICJ Reports 2010, 14 (‘Pulp Mills’), para. 101. The decision in Pulp Mills could have been more environmentally friendly. Yet the International Court of Justice (ICJ) reaffirmed the obligation to use all means to avoid significant transboundary environmental damage. While the latter constitutes the preventive principle as opposed to the precautionary one (see Schröder, supra n 104, para. 4), the former principle may be relevant in determining the validity of precautionary measures under international law. Given that the state is obliged to ‘use all the means at its disposal’, it would not be reasonable in all cases to require absolute certainty that significant damage would ensue for the state to be able to adopt such measures. Further, regarding circumstances where there is risk of significant transboundary damage, the ICJ in Pulp Mills upheld a general international law requirement to conduct an environmental impact assessment. See Pulp Mills, ibid, para. 204.

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Investment claims against Latin American states  427 In the debate on the law applicable to environmental arguments raised in investment arbitration, it is also relevant to consider whether certain principles of international environmental law may be considered part of jus cogens. Investment tribunals have recognized their duty, as international tribunals, to apply jus cogens over the provisions of the IIA applicable to the dispute.108 Thus, the characterization of international environmental law provisions as jus cogens may affect the investment tribunal’s decision as to which rules to apply when deciding on environment-related defences raised by the host states. There is no shortage of debate regarding the peremptory nature of at least the main principles of international environmental law and the question still remains unresolved. Several authors have considered that some of the rules encompassed in the notion of international environmental law are of a peremptory nature.109 Others, however, have contended that, in the current state of international law, it cannot be affirmed that international environmental provisions are part of jus cogens,110 although they may be granted a certain hierarchy within the realm of international law.111 In this regard the ICJ – although it has been rather cautious when dealing with the substance of international environmental principles – took the opportunity to highlight their importance. In its Advisory Opinion on the Legality of Nuclear Weapons, the Court asserted that states ‘must take environmental considerations into account when assessing what is necessary and proportionate in the pursuit of legitimate military objectives’.112 In Gabcíkovo–Nagymaros,113 in addressing the state of necessity defence raised by Hungary, the ICJ decided not to discuss whether the dispute was governed by a peremptory rule

108  See Methanex Corporation v. The United States of America, UNCITRAL, Award 3 August 2005, para. 24; Teinver S.A., Transportes de Cercanías, S.A. & Autobuses Urbanos del Sur S.A. v. The Argentine Republic, ICSID Case No. ARB/09/1, Award, 21 July 2017, para. 475. 109   See E. Kornicker Uhlmann, ‘State Community Interests, Jus Cogens and Protection of the Global Environment: Developing Criteria for Peremptory Norms’ (1998) 11 Georgetown International Environmental Law Review 101, 135–6. This author contends that the prohibition of wilful serious damage to the environment during armed conflicts constitutes a peremptory norm (135). See also J. Brunnée, ‘Common Interest – Echoes from an Empty Shell? Some Thoughts on Common Interest and International Environmental Law’ (1989) 49 Zeitschrift für ausländisches öffentliches Recht und Völkerrecht 791–808 (stating that ‘pollution reaching such degree that it would represent a threat to the entire international community would be in conflict with a peremptory rule of international law’ (804); Judge Weeramantry’s dissenting opinion in Legality of the Use by a State of Nuclear Weapons in Armed Conflict, ICJ Reports 1996, 139–43. 110  Nègre, supra n 104, 813; J.E. Viñuales, ‘Foreign Investment and the Environment in International Law: An Ambiguous Relationship’ (2010) 80(1) British Yearbook of International Law 244–332; U. Beyerlin, T. Marauhn, International Environmental Law (Hart, H.C. Beck, Nomos, 2011). 111   See B. Stern, ‘Les problèmes de la responsabilité posés par la crise et la “guerre” du Golfe’ in Stern (ed.), Les aspects juridiques de la crise et de la guerre du Golfe (Montchrestien 1991), 354; Nègre, supra n 104, 813. Viñuales includes certain international environmental rules within the concept of obligations erga omnes, which he distinguishes from peremptory norms since the former are conditional and can be revoked (Jorge E. Viñuales, ‘La Protección del Medio Ambiente y su Jerarquía Normativa en Derecho Internacional’ (2008) 13 International Law: Revista Colombiana de Derecho Internactional 11–14). 112   Legality of the Threat or Use of Nuclear Weapons, Advisory Opinion, ICJ Reports 1996, 226, para. 30. 113   The Gabcikovo-Nagymaros Project (Hungary/Slovakia), Judgment, ICJ Reports 1997, 7.

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428  Research handbook on environment and investment law that imposed the protection of the environment, yet it held that a state’s concern for its natural environment constitutes an essential interest of that state.114 In conclusion, principles and rules of international environmental law often govern the investment relationship, alongside IIAs and other national and international law provisions. Investment tribunals have the power to consider such rules and principles in resolving IIA disputes (although the possibility to bring claims or counterclaims based on environmental rules depends, in principle, on whether the IIA jurisdiction provision covers them). Here, the lex specialis rule accords a more relevant role to IIA provisions vis-à-vis other rules of international law, in particular in cases of overlap and perhaps even conflict. But the special position of certain fundamental rules of international environmental law must not be disregarded, particularly to the extent that some of them may attain the status of jus cogens. In the latter case, the relevant environmental principles prevail in case of conflict. However, true conflicts between IIA and international environmental law provisions, even if a broad definition of conflict is adopted (for example, ‘as a situation where two rules or principles suggest different ways of dealing with a problem’115), should be rare. On the other hand, denying possible conflicts or overlaps simply by observing that the host state should comply with all its international obligations is little more than a truism and entails treating IIAs and international environmental law as self-contained regimes (which, in our view, is incorrect). Rather, all relevant provisions of international law should be applied so that investments are both environmentally sustainable and treated in accordance with the applicable obligations protecting investments. 2.2  IIAs and National Law Provisions on Environmental Protection Latin American states have traditionally emphasized the role of national law and institutions in the regulation of foreign investments. For example, during the negotiation of the ICSID Convention these countries often argued that national laws provided sufficient guarantees for foreign investors and that the application of international law was justified only in specific circumstances.116 In the intervening decades, the position of Latin America has evolved as the political and legal landscape was completely transformed, inter alia through many IIAs’ entry into force in the region. In modern investment treaty arbitrations, Latin American states accept the application of international law alongside other applicable sources and do not deny the principle that national law may not be invoked to justify a breach of international law. Yet these states continue to stress the importance of arbitral tribunals taking national law into account in the resolution of investment disputes.117

  Ibid, 67.   See Fragmentation Report, supra n 91, para. 25. 116   See History of the ICSID Convention, Volume II-1, 306–10 and Volume II-2, 801–3 (statements by Argentina, Bolivia, Brazil, Costa Rica, Ecuador, Guatemala, Panama, Peru and Venezuela). 117   The current position of Latin American states thus comes nearer to that expressed by other developing countries in the negotiations of the ICSID Convention. See, e.g., statements by Jamaica, ibid, Volume II-1, 306 (‘Since the new machinery would be required to administer 114 115

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Investment claims against Latin American states  429 That international tribunals may have to apply national law is not revolutionary.118 An issue that is not common in other contexts, however, is the functions that national law may perform in investment disputes. Investors routinely invoke the host state’s law as part of the basis of their claims.119 A common argument is that the host state’s breach of national law provisions that were in force at the time the investment was made affects the investor’s legitimate expectations and thus breaches the fair and equitable treatment standard,120 or that such breach is material to demonstrate that the state acted in an arbitrary way and hence violated the latter standard or other standards of treatment.121 Here, contrary arguments by the respondent state that the contested measures were in fact consistent with national law provisions (at least those predating the investment), for example as regards environmental protection, would appear to be relevant to determine whether the applicable IIA obligations were breached.122 Whether these arguments are consistent with general principles of international law bearing on the relationship between national and international law is considered presently. 2.2.1  The primacy of international law In the Applicability of the Obligation to Arbitrate Advisory Opinion, the ICJ recalled the fundamental principle of international law that ‘international law prevails over domestic law’.123 This principle is closely linked to another basic proposition of international law – recognized by the Permanent Court of International Justice (PCIJ), for instance in the Treatment of Polish Nationals case – namely that a state cannot rely on the provisions of its own law to justify the nonperformance of its obligations under international law.124 And there is no doubt that this applies to all provisions of national law, including the Constitution.125 These principles are ‘well established – even axiomatic’.126 Some of the first decisions of modern investment tribunals underscored the supremacy national as well as international law, it would be important that the background of national legal arguments and principles be fully understood by the Tribunal’). 118   See J.C. Witenberg, La recevabilité des réclamations devant les jurisdictions internationales (1932) 41 Recueil des Cours 1. 119   Although in treaty claims investors advance that the ‘fundamental basis’ of their claims is a treaty. On the concept of fundamental or essential basis of the claim and the distinction between contract and treaty claims see Vivendi I Annulment, supra n 98, paras 93–101. 120   See Hepburn, supra n 89, 14. 121   Ibid, 40. 122   Alvarez even argued that ‘it is nearly impossible for an investor to prevail in an investorState claim when the host State is able to show that its actions are consistent with its law’: see J. Alvarez, ‘The Public International Law Regime Governing International Investment’ (2009) 344 Recueil des Cours 193, 465 (quoted in Hepburn, supra n 89, 14). 123   Applicability of the Obligation to Arbitrate under Section 21 of the United Nations Headquarters Agreement of 26 June 1947, Advisory Opinion, ICJ Reports 1988, 26, para. 57. The Court quotes here words to the same effect by the PCIJ in the Greco-Bulgarian ‘Communities’ case (Interpretation of the Convention Between Greece and Bulgaria Respecting Reciprocal Emigration (Question of the ‘Communities’), Advisory Opinion (31 August 1930). 124   Treatment of Polish Nationals and Other Persons of Polish Origin or Speech in the Danzig Territory, Advisory Opinion (4 February 1932) 24. In the law of treaties, this principle has found expression in Article 27 of the Vienna Convention on the Law of Treaties (VCLT). 125   Ibid 24. 126   J. Crawford, State Responsibility: The General Part (Cambridge University Press, 2013), 45.

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430  Research handbook on environment and investment law of international law. In AMT, Zaire had based an inadmissibility objection both on a provision of the applicable treaty seeking to preserve certain rights under national law and on a domestic law provision declaring inadmissible certain claims against the state.127 While the tribunal disagreed with Zaire’s interpretation of the treaty provision – observing that the provision’s sole object was to preserve more favourable treatment for the investor present in national law – it also stated that Zaire could not derogate from the treaty invoking its own law because ‘the Treaty is supreme over the law’.128 Operating under the second sentence of Article 42(1) of the ICSID Convention, the tribunal in Santa Elena saw no difficulty in applying both Costa Rican law and international law to asset valuation issues since it was satisfied that the two legal systems were in this regard ‘generally consistent’.129 However, when there is any ‘inconsistency between the two bodies of law, the rules of public international law must prevail. Were this not so in relation to takings of property, the protection of international law would be denied to the foreign investor and the purpose of the ICSID Convention would, in this respect, be frustrated.’130 Other investment tribunals, generally under choice of law provisions requiring the application of both national and international law, have noted that these provisions often refrain from establishing any hierarchy between the two legal systems. This was the case of the BIT between Belgium and Burundi applied in the Goetz case.131 The tribunal concluded that a relationship of complementarity should prevail.132 For the tribunal, ‘[f]ar from establishing an a priori hierarchy between the two legal systems’, the BIT required that ‘each prevail within its own sphere of application’.133 In accordance with the interpretation jointly adopted by both parties to the Czech Republic–Netherlands BIT,134 the tribunal in CME asserted that under the treaty there was no ranking between Czech law and international law, but ‘with the qualification that international law governs in case of discrepancy among those sources’.135 The tribunal of the Suez cases observed that it had jurisdiction only over treaty claims, which were ‘separate and distinct from any contract claims that the Claimants may have under Argentine Law’.136 The treaty claims had to be judged applying the law specified 127   American Manufacturing & Trading, Inc. v. The Republic of Zaire, ICSID Case No ARB/93/1, Award, 21 February 1997, paras 5.33–5.34. 128   Ibid, paras 5.35–5.36. 129   Santa Elena Award, supra n 7, para. 64. 130  Ibid. 131   Antoine Goetz et consort v. The Republic of Burundi, ICSID Case No. ARB/95/3, Award, 10 February 1999, para. 94. 132   Ibid, para. 98. 133   Ibid, para. 99. The tribunal added, in accordance with a provision of the applicable BIT, that in case of conflict between provisions of Burundi law and international law, those more favourable to the investor should apply. Ibid. See also OI European Group B.V. v. The Bolivarian Republic of Venezuela, ICSID Case No ARB/11/25, Award, 10 March 2015, para. 274. 134   CME Czech Republic B.V. v. The Czech Republic, UNCITRAL, Award, 14 March 2003, para. 91. 135   Ibid, para. 400. 136   Suez, Sociedad General de Aguas de Barcelona, S.A. and Interagua Servicios Integrales de Agua, S.A. v. The Argentine Republic (Suez I), ICSID Case No ARB/03/17, Decision on Liability, 30 July 2010, para. 57.

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Investment claims against Latin American states  431 by the treaties under which the claims had been brought.137 Yet these treaties included national law among the legal sources to be applied to resolve investor–state disputes, without establishing any hierarchy between the different sources.138 The tribunal, however, concluded that although both national and international law were applicable, the treaties were ‘paramount, except where the treaty itself allows the application of domestic law or private agreements’.139 The principle in Article 27 of the VCLT apparently required this conclusion, since the host state could ‘not avoid its treaty commitments with respect to the treatment to be accorded the Claimants by invoking the provisions of its internal laws, regulations, or administrative acts’.140 Other investment tribunals have applied this principle either to discard altogether the pertinence of national law defences vis-à-vis treaty claims,141 or to confine their relevance to quantum issues.142 Investment tribunals have endorsed the general principle that international law prevails over domestic law even under applicable law provisions calling, without any hierarchical distinction, for the simultaneous application of national and international law.143 While this latter view may result from the interpretation of the specific treaty provisions at play – either those on applicable law or others144 – it may be asked whether general international law requires this interpretation. Are the parties to an IIA prevented from conferring upon national and international law the same ranking for purposes of resolving disputes between a foreign investor and the host state? There does not seem to be any international law principle preventing them from doing so.145 Yet, assuming the ultimate primacy of international law in every treaty claim, when the application of national law is required expressly or by implication by an IIA provision, any relevant national norm should only be discarded in the case of clear conflict with international law.146 This conclusion is not affected by the treaty character of the claim – first, because IIA provisions requiring the application of national law are generally  Ibid.   Ibid, para. 60. 139   Ibid, para. 61. 140  Ibid. 141   Total S.A. v. The Argentine Republic, ICSID Case No ARB/04/01, Decision on Liability, 27 December 2010 (Total v. Argentina), para. 40. 142   Venezuela Holdings, B.V., et al. (case formerly known as Mobil Corporation, Venezuela Holdings, B.V., et al.) v. The Bolivarian Republic of Venezuela, Award, 9 October 2014 (Venezuela Holdings), paras 224­–5. 143   And even when national law is mentioned first. See Santa Elena Award, supra n 67 paras 64–5. 144   Crawford has argued that ‘a treaty provision which mandates the application of the law of a state is presumed to do so subject to the international law conflicts rule, that international law prevails over national law in case of inconsistency’: J. Crawford, ‘Treaty and Contract in Investment Arbitration’ (2008) 24 Arbitration International 353. 145   Even investment tribunals taking a strong stance on the ideas of primacy of international law and ‘separation of international from national law’ have stated that states ‘are free to agree to any particular regime’ as to ‘the relationship between international obligations and domestic law in the treaty context’. See Yukos Universal Limited (Isle of Man) v. The Russian Federation, UNCITRAL, PCA Case No. AA 227, Interim Award on Jurisdiction and Admissibility (Yukos v. Russia), paras 315–16, 320. 146   And ‘in the large majority of cases . . . there is no inconsistency between international law and the law of the host state’. Crawford, supra n 144, 353. 137 138

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432  Research handbook on environment and investment law applicable to treaty claims, sometimes even exclusively (when no jurisdiction is granted over other types of claims); second, because the substance of treaty claims often involves contractual or national law elements. Thus, a facile discarding of national law invoking potential conflicts with international law without attempting to identify the conflicting provisions and to adopt an interpretation that would reconcile them may lead to an inadequate consideration of such contractual or national law aspects. In Total, for example, the tribunal discarded without analysis a defence under Argentine law, referring to Article 27 VCLT and to the fact that even if the challenged measure were legitimate under national law, that ‘would not relieve the Tribunal from examining whether Argentina ha[d] nevertheless thereby breached the BIT’.147 In the result, the tribunal rejected a defence under Argentine law, which was part of the applicable law,148 citing Article 27 but without referring to any conflict between the defence and international law. Admittedly, discussion of the national law defence would not have relieved the tribunal from considering the claim under the treaty. However, there is no reason to deny a priori that the act’s validity under national law could be a ‘valuable indication’ for international law purposes.149 2.2.2  The characterization of conduct as internationally unlawful Closely related to the rule that ‘a State cannot, by pleading that its conduct conforms to the provisions of its internal law, escape the characterization of that conduct as wrongful by international law’,150 is the principle contained in Article 3 of the ILC Articles. This Article states: ‘The characterization of an act of a State as internationally wrongful is governed by international law. Such characterization is not affected by the characterization of the same act as lawful by internal law.’151 While connected to complex, longstanding debates as to how to conceptualize the relationship between national and international law, this principle’s general validity in international law is uncontested.152 Among the several PCIJ and ICJ decisions that have referred to the principle and related notions – as well as arbitral pronouncements153 – the ELSI case is one of the most influential. The ICJ’s Chamber observed: ‘Compliance with municipal law and compliance with the provisions of a treaty are different questions. What is a breach of treaty may be lawful in the municipal law and what is unlawful in the municipal law may be wholly innocent of violation of a treaty provision.’154 The Chamber stated that legality under national law may be irrelevant to legality under international law and vice versa. It did not say, however, that it is irrelevant in all cases. The annulment committee in Vivendi I echoed the Chamber’s words when it stated that ‘whether there has been a breach of the BIT and whether there has been a breach of

  Total v. Argentina, Decision on Liability, supra n 141, para. 40.   Ibid, para. 33. 149   Elettronica Sicula S.p.A. (ELSI), Judgment, ICJ Reports 1989, 15, para. 124. 150   International Law Commission, Draft articles on Responsibility of States for Internationally Wrongful Acts with Commentaries (2001) (ILC Draft Articles), 36. 151  Ibid. 152  See Vivendi I Annulment, supra n 98, para. 96. 153   See ILC Draft Articles, supra n 150, 36–7. 154   ELSI, supra n 149, 51. 147 148

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Investment claims against Latin American states  433 contract are different questions’.155 Arguably, the committee’s next statement that each claim ‘will be determined by reference to its own proper or applicable law—in the case of the BIT, by international law; in the case of the Concession Contract, by the proper law of the contract’156 is at least not inconsistent with the analysis in ELSI. Yet the Chamber, although it was applying the normal sources of general international law, was careful to observe that issues of national law may be ‘essential’ or a ‘valuable indication’ for a decision under international law.157 Nonetheless, the Vivendi I annulment committee went on to quote the commentary to Article 3 of the ILC Articles to the effect that there are cases in which ‘compliance with internal law is relevant to the question of international responsibility’.158 This is, however, ‘because the rule of international law makes it relevant, e.g. by incorporating the standard of compliance with internal law as the applicable international standard or as an aspect of it’.159 The application of the Article 3 principle has led several investment tribunals to conclude that the applicable IIA and international law were the ‘primary’ governing law in investment treaty arbitration.160 Elements of national law have often been discarded as not changing the analysis or as irrelevant as to the international lawfulness of the contested acts.161 However, the ILC’s commentary to Article 3 also advances that ‘there are many cases where issues of internal law are relevant to the existence or otherwise of responsibility’.162 The reference appears more general than the more specific case in which international law incorporates ‘the standard of compliance with internal law as the applicable international standard’.163 Regardless, ‘in such cases it is international law which determines the scope and limits of any reference to internal law’.164 The point is precisely that international investment law rules often make national law part of the applicable law for purposes of deciding the claims, even treaty claims. Here national law becomes ‘relevant to the existence or otherwise of [international] responsibility’. This observation, first, does not deny that investment tribunals have to determine ‘the scope and limits of any reference to internal law’. But in light of the quoted commentary, Article 3 dictates no a priori solutions – let alone exclusions – to the extent that such reference exists. Second, in a treaty claim, the ‘fundamental question’ for the tribunal to   Vivendi I Annulment, supra n 98, para. 96.  Ibid. 157   ELSI, supra n 149, paras 62, 124. 158   Vivendi I Annulment, supra n 98, para. 97. 159  Ibid. 160   EDF International S.A., SAUR International S.A. and León Participaciones Argentinas S.A. v. The Argentine Republic, ICSID Case No ARB/03/23, Award, 11 June 2012 (EDF v. Argentina), paras 904–6; El Paso International Company v. The Argentine Republic, Award, 31 October 2011, para. 130; Total v. Argentina, supra n 130, para. 40; Suez I, Decision on Liability and Admissibility, supra n 128, para. 63; Suez, Sociedad General de Aguas de Barcelona, S.A. and Vivendi Universal, S.A. v. The Argentine Republic (Suez II), ICSID Case No ARB/03/19, Decision on Liability, 30 July 2010, para. 63. 161   EDF v. Argentina, Award, para. 907. 162   ILC Draft Articles, supra n 150, 38. 163   In fact, the reference to international law incorporating ‘the standard of compliance with internal law’, which is not uncommon in treaty provisions, does not wholly capture the effect of provisions in IIAs incorporating national law as one of the sources to resolve investment disputes. 164   ILC Draft Articles, supra n 150, 38. 155 156

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434  Research handbook on environment and investment law decide is whether a treaty breach exists.165 But in answering this question, investment tribunals will have to take into account all relevant aspects of the dispute, ‘including the rules of [national] law applicable to both Parties’.166 This does not affect the principle that ‘the characterization of an act of a State as internationally wrongful is governed by international law’. It is a rule of international law – for example, the applicable law provision in an IIA (or other provision referring to national law) – that makes national law relevant for assessing the act’s validity under international law.167 Thus, in this sense also it may be said that international law governs the characterization of the act, but without denying a role to national law in this respect. 2.2.2.1  Defences under national law    If national law may be ‘relevant to the existence or otherwise of responsibility’ under international law – according to the commentary to Article 3 of the ILC Articles – the principle recognized in that Article does not exclude the relevance of defences based on national law, such as environmental legislation, in assessing whether a provision of international law has been breached.168 This is a fortiori true in investment arbitration, where national law has a more prominent role than under general international law. In Suez I, the tribunal stated it would primarily resort to the applicable BITs and international law, but that it could ‘also refer to domestic laws or to the provisions of the Concession Contract relevant for the evaluation of the claims arising under the BITs, for instance as a reflection of the Claimants’ expectations’.169 In fact, the legal framework of the concession granted to the local company of which the claimants were shareholders was deemed ‘an important source of the rights, obligations, and expectations of the parties to the dispute’.170 Yet Argentina argued that its ‘police powers under Argentine law also constituted a defence to liability under the applicable BIT’.171 The tribunal found, however, that police powers under Argentine law were irrelevant because of the principle in Article 27 of the VCLT.172 Similarly, the tribunal in Total rejected Argentina’s argument that the emergency principle as it exists under Argentine law could avoid international responsibility for violation of the treaty.173 The argument was inconsistent with the ‘fundamental principle’ that national law may not be invoked to justify a failure to comply with a treaty.174 The

165   Teco Guatemala Holdings, LLC v. The Republic of Guatemala, ICSID Case No ARB/10/23, Award, 19 December 2013, para. 470. 166   Gold Reserve Inc. v. Venezuela, supra n 71, para. 535. The tribunal in Gold Reserve made this statement even though the applicable law provision in the treaty did not include national law. Ibid, para. 532. 167  See Philip Morris Brands Sàrl, Philip Morris Products S.A. and Abal Hermanos S.A. v. Oriental Republic of Uruguay, ICSID Case No ARB/10/7, Award, 8 July 2016, para. 178. 168   Note that this is different from relying on national law to justify a breach of international law, which would be contrary to fundamental principles. But see A. Kulick, Global Public Interest in International Investment Law (Cambridge University Press, 2012), 51. 169   Suez I, supra n 130, para. 63. 170   Ibid, para. 64. 171   Ibid, para. 150 (emphasis in the original). 172  Ibid. 173   Total v. Argentina, Decision on Liability, supra n 133, para 40. 174  Ibid.

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Investment claims against Latin American states  435 tribunal also relied on Article 3 of the ILC Articles.175 On the other hand, however, Argentine law was ‘crucial’ as part of the applicable law and in order ‘to identify the precise content of Total’s pre-existing rights under the Concession Decree’.176 In Venezuela Holdings, the respondent based certain arguments against treaty claims and ensuing compensation obligations on provisions of domestic law and of the applicable contract.177 Despite national law being ‘among the sources of applicable law’, however, the tribunal rejected these arguments also on the basis of the principle in Article 27 of the VCLT.178 The contractual provisions in question were only considered for damages purposes.179 A subtler approach to possible defences based on national law – that is, subtler than outright rejection invoking Article 27 VCLT – may also be discerned in certain arbitral decisions. The Azurix tribunal had to interpret a provision in a concession contract providing for termination due to fault of the granting authority.180 Even on this ground,  under the applicable local law the termination of the contract had to be declared by the granting authority.181 The tribunal, however, observed it could not ‘ignore the practical result of this interpretation: if taken to the extreme, a concessionaire would be obliged to continue to provide the service indefinitely at the discretion of the government’.182 Here the tribunal recalled it was assessing state conduct against a BIT’s standards of protection.183 Thus, it chose to refer to the maxim ‘exceptio non adimpleti contractus [that] provides a balance to the relationship between the government and the ­concessionaire’ and ‘is not unknown to Argentine law and to legal systems ­generally as it is a reflection of the principle of good faith’.184 Other arbitral tribunals have suggested,185 or found,186 that the acceptance of arguments against treaty claims based on ­contractual provisions would, in light of the facts of the case, be out of proportion. The Hochtief tribunal took a different approach. Here the respondent raised admissibility objections to elements of the treaty claim relying on a contractual provision.187 This provision excluded ‘any claim’ by lenders to the project.188 For the tribunal, ‘“[a]ny claim” means, on the face of it, any claim. The precise legal basis of a claim is not material.’189  Ibid.   Ibid, para. 417. 177   Venezuela Holdings, supra n 142, para. 224. 178   Ibid, paras 224–5. 179   Ibid, para 225. 180   Azurix Corp. v. The Argentine Republic, ICSID Case No ARB/01/12, Award, 14 July 2006, paras 255–60. 181   Ibid, para. 260. 182  Ibid. 183  Ibid. 184  Ibid. 185   Gold Reserve v. Venezuela, supra n 71, paras 387, 445. 186   Occidental Petroleum Corporation and Occidental Exploration and Production Company v. The Republic of Ecuador, ICSID Case No ARB/06/11, Award, 5 October 2012, para. 452. 187   Hochtief AG v. The Argentine Republic, ICSID Case No. ARB/07/31, Decision on Liability, para. 187. 188   Ibid, para. 189. 189  Ibid. 175 176

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436  Research handbook on environment and investment law The remaining question was thus whether this contractual provision was ‘effective to bar BIT claims’.190 The tribunal saw no legal reason why effect should not be given to an agreement between an investor and a host State either to limit the rights of the investor or to oblige the investor not to pursue any remedies, including its BIT remedies, in certain circumstances. Such an agreement does not purport to alter the terms of the Treaty . . . it may constitute an agreement by a particular investor to limit the range of matters for which the [the other party] carries the risk and responsibility.191

As a matter of admissibility, the decision concluded that the provision in question ‘operate[d] so as to bar “any claim”, including claims under the Treaty, by a signatory to the Concession Contract, such as Claimant, against the Respondent in so far as the claim is made by the signatory in its capacity as a lender’.192 Investment tribunals clearly regard national law as a potential source of rights and expectations for foreign investors.193 On the other hand, respondent states may be able to rely on national law to question the scope of any national law right invoked by an investor. Yet the prospects for states to look to national law as a source of autonomous defences against treaty claims appear slim.194 Investment tribunals have generally discarded this possibility, mainly on the basis of Article 27 of the VCLT, often coupled with a reference to the related principle in Article 3 of the ILC Articles. However, in the commentary to this Article the ILC itself has observed that national law may be ‘relevant to the existence or otherwise of responsibility’. Thus, a reference to the Article 3 principle will not always warrant an in limine rejection of national law defences in treaty claims. The arbitral tribunal will have to assess the ‘scope and limits of any reference to internal law’ and conclude whether such rejection is required. In particular, it will have to determine whether the invocation of national law seeks to override international obligations, which a fundamental principle of international law does not allow, or whether such invocation simply seeks to deny, sometimes through a complex interaction of national and international law provisions, a breach of the international obligations in question.195 This is because, in the words of the Venezuela Holdings annulment committee, to determine that national law provisions ‘do not displace [the host state’s] international obligations is not at all synonymous with determining that they have no relevance for the ascertainment of the content and consequences of those obligations’.196 As to Article 27 of the VCLT, when the treaty itself refers to national law, reliance on this law should not be equated to an attempt to justify a failure to perform the treaty. This is a fortiori the case in international investment law, where treaty provisions establishing

 Ibid.   Ibid, para. 191. 192   Ibid, para. 192. 193   See TECMED, supra n 67, para 154. 194   Autonomous defences refer here to defences against treaty claims based on a national norm that seek to deny the existence of a treaty breach, but that are not limited to disputing the precise scope of a national law right by invoking a different interpretation of the provision where such right is contained. 195  See Venezuela Holdings, supra n 142, Decision on Annulment, 9 March 2017, paras 161–2. 196   Ibid, para. 180. See also ibid, para. 181. 190 191

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Investment claims against Latin American states  437 substantive obligations will often be standards, such as the obligation to treat investors in a fair and equitable manner. A conflict between this kind of international obligations and national law provisions, of course, cannot be excluded.197 But the principle in Article 27 would only come into play where the tribunal has found a specific (and irreconcilable) conflict between the international law obligation and a national law provision (frequently also part of the applicable law). Otherwise, just like Article 3 of the ILC Articles, Article 27 of the VCLT does not warrant virtually automatic rejection of autonomous defences under national law in treaty claims.198 2.2.2.2  Subsequent modification of national law   One of the traditional concerns of international law has been a state’s ability to change its law in a way that could affect compliance with previously assumed international obligations. This concern is particularly present in international investment law.199 Once investments have been ‘sunk’, it is argued, foreign investors are at the mercy of the host state. National law may be changed opportunistically, to the detriment of foreign investors, after they have been lured through a more favourable legal regime. Some of the largescale oil arbitrations disclose this concern. In the Sapphire case, the tribunal observed that because of the contributions and investments of the foreign investors and the risks they assumed, it seemed natural that they should be protected against any legislative changes which might alter the character of the contract, and they should be assured of some legal security. This could not be guaranteed to them by the outright application of Iranian law, which it is within the power of the Iranian State to change.200

The tribunal in BP v Libya referred to the fact that the state party to the contract ‘is in sole control of the legislative machinery’ and thus may ‘mould’ its law as it wishes.201 However, according to Judge Lauterpacht in Norwegian Loans, there could be ‘little difference between a Government breaking unlawfully a contract with an alien and a Government causing legislation to be enacted which makes it impossible for it to comply with the contract’. 202 Still, a few years later Jennings argued that, because the proper law of state contracts is the local law, the ‘difficult case’ can arise in which the state changes its own

197   Nor can one exclude, a priori, that in the circumstances of a specific case the acceptance of a national law defence against a treaty claim would be ‘out of proportion’. But since this could entail the nonapplication of an applicable legal provision due to a ‘proportionality’ analysis, tribunals should be careful in arriving at such a conclusion. On proportionality analysis generally see C. Henckels, Proportionality and Deference in Investor-State Arbitration (Cambridge University Press, 2015), 23–29. 198   But see O. Spiermann, ‘Investment Arbitration: Applicable Law’ in M. Bungenberg et al. (eds), International Investment Law: A Handbook (Nomos, C.H. Beck, Hart, 2015), 1389. 199   See e.g. Yukos v. Russia, Interim Award on Jurisdiction and Admissibility, para. 344; G.R. Delaume, ‘State Contracts and Transnational Arbitration’ (1981) 75 American Journal of International Law 796. 200   Sapphire International Petroleum v. National Iranian Oil Company (1963) 35 ILR 171. 201   BP Exploration Company (Libya) Limited v. Government of the Libyan Arab Republic (1973) 53 ILR 331. 202   Case of Certain Norwegian Loans (France v. Norway), Separate Opinion of Judge Sir Hersch Lauterpacht, 37.

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438  Research handbook on environment and investment law law, for ‘though common sense might suggest that there has been a breach of contract, there is yet no breach according to the proper law’.203 The issue also surfaced during the negotiations of the ICSID Convention. In relation to possible conflicts between national and international law under Article 42(1), Broches – the ICSID Convention’s main ­architect – advanced that a tribunal would apply international law particularly when a state ‘changed its own law to the detriment of an investor and in violation of an agreement not to do so’.204 In that case, the sovereign power to change laws was not denied, but the state could be held liable for damages to the investor.205 Arbitral tribunals have also expressed concerns about subsequent withdrawal of investors’ rights.206 Yet views preceding modern investment arbitration often denied that the modification of the contract regime through legislation was per se a breach of international law, at least as long as this modification sought to ensure public safety or health, or other similar public interests.207 And even in TECMED – generally considered as one of the precursors in the protection of investors’ legitimate expectations – the tribunal suggested that IIAs do not disallow any change in the provisions taken into account by the investor to make the investment, but rather an arbitrary revocation of them.208 The possibility that the host state may, after the investment has been made, ‘arbitrarily’ change its law to the detriment of foreign investors does not justify discarding any subsequent national law. This result is not required by Article 3 of the ILC Articles, not least when national law is part of the applicable law. The point is important as regards environmental protection. The evolution in scientific knowledge in certain fields often leads to identifying specific human activities as a cause of environmental degradation, which in turn leads to new regulations. Of course, the new regulations, either environmental or otherwise, may breach one or more IIA standards of treatment. But the mere fact that the regulations were adopted after the investment was made does not warrant concluding that they violate the investor’s IIA rights.209 In the end, as noted previously, in defending against investment treaty claims Latin American states have invoked both international and national provisions bearing on environmental protection. Environmental arguments are often coupled with other considerations, such as the need for the state to address public opposition to investment projects, to protect human rights and, increasingly, to protect the rights and interests of indigenous peoples.210 National law arguments have figured prominently in these states’

203   R.Y. Jennings, ‘State Contracts in International Law’ (1961) 37 British Yearbook of International Law, 156–7. 204   History of the ICSID Convention, Volume II-2, 985. 205  Ibid. 206   See e.g. Enron Corporation and Ponderosa Assets, L.P. v. The Argentine Republic, ICSID Case No ARB/01/3, Award, 22 May 2007, para. 154; Total v. Argentina, supra n 141, para. 460. 207   F.A. Mann, ‘State Contract and State Responsibility’ (1960) 54 American Journal of International Law 590; Jennings, supra n 203, 176. 208   TECMED, supra n 67, para. 154. 209  In Perenco, the tribunal suggested that the fact that the state adopts ‘more stringent environmental standards’ and that these apply to existing investments does not necessarily breach the state’s international legal obligations. Perenco Interim Decision, supra n 44, para 347. 210  In Bear Creek, Peru referred to the Aymara communities’ ‘concerns about environmental contamination and availability of scarce water resources’ and relied on both national law and inter-

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Investment claims against Latin American states  439 environmental arguments. One reason for this appears to have been that national law contained more detailed regulations of the relevant environmental aspects and was more directly connected to the challenged measure. Still, Latin American states have, particularly in recent years, often argued that the national regulations in question were consistent with international law provisions bearing on similar environmental issues. Thus, here environmental defences have sought support both in national and international law.

3.  CONCLUSION There is an increasing awareness of the fragility of the planet’s resources and that continuing neglect could lead to their destruction and, ultimately, to the end of human life as we know it. This growing concern for the wellbeing of the planet has resulted in the proliferation of international and national regulations which aim to protect the environment and foster sustainable economic development. It therefore comes as no surprise that environmental laws – from international or national sources – may play a role in investment arbitration and be relevant to define the rights and duties of investors and states. As this chapter has discussed, Latin American states have invoked treaty rules, customary international law and national law to, inter alia, deny breaches of standards of treatment contained in the applicable IIA, reduce the compensation payable in expropriation cases and lodge counterclaims for the investor to pay damages for environmental harm. As lex specialis in the relationship between foreign investors and host states, IIAs play a prominent role in investment arbitration. While, generally speaking, IIAs’ ultimate aim is arguably to foster economic development, there is no doubt that the promotion and protection of foreign investment is included in IIAs’ object and purpose. However, especially in recent years, IIAs have also expressly referred to other goals, not least public interest issues such as environmental protection. Yet the expansion in the scope of IIA provisions to include concerns beyond investment protection, however desirable it may be, is not enough to guarantee that the resolution of investment disputes takes environmental concerns appropriately into account. This may only be achieved through applying not only the IIA but also other relevant international and national law provisions. Investment tribunals have the power and the duty to consider all these sources of environmental protection.

national treaties. Bear Creek Mining Corporation v. Republic of Perú, ICSID Case No ARB/14/21, Award, 30 November 2017, paras 251–63. Indigenous peoples’ concerns about the effects of investment projects on the environment involve both specific problems, such as water scarcity, and more general considerations relating to the indigenous communities’ identity and ancestral relationship with nature. See ibid, para. 226.

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PART IV IDENTITY, CRITIQUE AND CONCEPTUALISATION

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18.  Environment, foreign investment and gender Rachel J. Anderson

1. INTRODUCTION The ways in which women and girls are affected by and influence foreign investment and the environment are undervalued in international law research.1 Indeed, little or no reference is made to gender in most legal scholarship on environmental law or foreign investment. Although several scholars have written on these issues in related disciplines, such as economics, scholarly research in international law remains in short supply. In contrast, gender is increasingly incorporated into environmental and foreign investment policymaking at the international level and lawmaking at the national level. However, targeted international law remains limited and under- or nonenforcement is rife in national law. The lack of gender-specific legal or policy analyses and research on gender-­disaggregated data results in underdocumented harms and lost potential benefits. Rule of law is undermined. Policies are developed but not followed. Laws are enacted but not enforced. Economic policies fail to deliver long-term results. Women and girls are harmed by institutional gender discrimination, increased vulnerability to sexual exploitation and disproportionate negative effects of environmental degradation and climate change. Pollution and harm to public health are exacerbated. One explanation for the widespread undervaluation of gender in research on the environment and foreign investment is genderblindness. Genderblind research and scholarship fails to consider gender, implying that gender is not important as an influencing factor in decisions or outcomes.2 Within much of the current scholarship in these fields, there is also often an assumption that men and women experience the same impacts from foreign investment and environmental considerations. However, as discussed below, gender plays numerous and varied roles in regulation, policies and outcomes in both environmental law and foreign investment. The inaccuracy of the assumption that gender is a negligible

1   See, e.g., Organization for Security and Co-operation in Europe (‘OSCE’), ‘Gender and Environment: A Guide to the Integration of Gender Aspects in the OSCE’s Environmental Projects’ (2009) Foreword, www.osce.org/gender/36360. Women are affected differently by foreign investment and the environment affects women differently than men. These effects may be related to ‘biological and physiological characteristics’ (hereinafter ‘sex’) or ‘socially constructed norms, roles and relations that a given society considers appropriate[,] . . . expected, permitted and valued in a woman or a man in a determined context’ (hereinafter ‘gender’). World Health Organization, ‘Gender, Climate Change and Health’ (2014) 5, http://apps.who.int/iris/bitstream/10665/144781/1/9789241508186_ eng.pdf. 2   See World Bank Group, Glossary of Gender Terms, https://info.worldbank.org/etools/ docs/library/192862/introductorymaterials/Glossary.html (citing United Nations Development Programme, ‘Gender in Development Programme: Learning & Information Pack’ (2000)).

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442  Research handbook on environment and investment law factor has significant implications for research, law and policies that are contingent on a genderblind approach.3 Analysis of the interdependence between gender, foreign investment and the environment requires the incorporation of research from multiple disciplines. In addition to information on treaties, international investment agreements, environmental regulations and other laws and policies, qualitative and quantitative research is needed from other fields. Depending on the issues being addressed, such research may be drawn from disciplines such as economics, sociology, health, natural resources, science and technology, political science and agriculture. With that interdisciplinary approach in mind, this chapter sets out a roadmap for researching the overlap of gender, environment and foreign investment. The chapter is divided into four sections. Following this introductory component, the second section is structured as a primer on the role of gender in the nexus of foreign investment and the environment. The third section discusses genderblindness and gender mainstreaming in research, law and policy on foreign investment and the environment. This includes delineating key legal issues that are set into relief by focusing on the interaction between gender, the environment and foreign investment. It also provides a tentative framework for developing a robust qualitative body of research on the nexus of gender, the environment and foreign investment. The final section concludes and identifies potential issues and directions for future research.

2. THE NEXUS OF GENDER, ENVIRONMENT AND FOREIGN INVESTMENT: A PRIMER This section explores some of the interdependencies of gender, environmental law and foreign investment (‘GELFI’) and what effects that intersection has on people, law and policy. Since gender is socially constructed, the interdependencies discussed in this section are not inherent effects but rather are intertwined with preexisting and developing gender roles. This means that they are not predetermined but instead have the potential to be changed through targeted and effective law, policy and other measures. The occupational segregation of women, which remains common in many industries and countries, and the resulting female-intensive industries have been facilitated by the use of ‘special discretion jurisdictions’ (‘SDJs’). Special discretion jurisdictions may include special economic zones, including free trade zones and other areas of economic   activity that may not be explicitly designated as such. Special discretion jurisdictions are characterized by an uncoupling of the SDJ from the parent jurisdiction’s generally applicable regulatory system. The uncoupling of the SDJ from the parent jurisdiction allows the regulators in the parent jurisdiction to apply special rules to only the SDJ in order to attract foreign investment. Although the special rules apply only to the SDJ, the economic benefits are intended to accrue generally to the parent jurisdiction. The SDJ remains subject to the prescriptive, adjudicative and enforcement

3   Mariama Williams, Gender Mainstreaming in the Multilateral Trading System: A Handbook for Policy-Makers and Other Stakeholders (Commonwealth Secretariat, 2003) 118.

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Environment, foreign investment and gender  443 authority of the parent jurisdiction. However, in the SDJ, the laws may be relaxed or suspended and discretion in enforcement may become so elastic that it results in a complete lack of enforcement. Negative effects of the GELFI nexus are often most visible in SDJs. Scholars have identified a number of issues specific to the GELFI nexus. These have been grouped into six categories in this section; however, there are multiple other ways to categorize these issues. They include: economics, foreign investment and investment incentives, environment, climate change, health and decisionmaking. 2.1 Economics GELFI nexus interdependencies affect and are affected by a wide range of economic issues, including economic growth, economic stability, monetary and exchange rate policies, gross domestic product (‘GDP’), inflation, employment and unemployment, capital mobility, competition for inward-bound investment and income distribution. Global deregulation of foreign investment and trade liberalization was fuelled in part by theories that market access would advance the goals of development and gender equality.4 However, Elissa Braunstein and other scholars have argued that in the ‘standard efficiency paradigm’, linking foreign investment and growth at a macroeconomic level encourages genderspecific labour policies that are harmful to women and girls.5 2.1.1  Special discretion jurisdictions By treating export-oriented, female-intensive industries like an SDJ and artificially depressing wages, countries are able in the short term to achieve the effects of exchange rate devaluation while limiting the negative effects to a small segment of the economy.6 Stephanie Seguino has argued that investment is stimulated using regulatory exceptions and investment incentives in the form of gender discrimination such as low wages in female-intensive industries that can stimulate investment.7 The low wages allow exporters to produce and sell products at a lower price.8 The reduced costs resulting from lower wages are an economic advantage for a foreign investor.9 However, in the short term these   See Williams, n 3, 19.   See Elissa Braunstein, ‘Neoliberal Development Macroeconomics: A Consideration of its Gendered Employment Effects’ (2012) 15, United Nations Research Institute for Social Development, UNRISD Research Paper 2012-1 (February 2012), www.unrisd.org/80256B3C005BCCF9/search/ F95D244010CF453DC12579AD0049AB47. 6   See Braunstein, n 5, 15, where Braunstein analyses the influence of occupational gender segregation on competition for foreign investment and macroeconomic growth. 7   Stephanie Seguino, ‘All Types of Inequality Are Not Created Equal: Divergent Impacts of Inequality on Economic Growth’ (2005) The Levy Economics Institute of Bard College, Working Paper No 433, www.levyinstitute.org/pubs/wp_433.pdf. However, this effect may be sector specific (‘In agricultural economies, these dynamics may differ, and gender inequality might have more immediate negative effects on growth’: ibid). Drawing on the work of Seguino, Braunstein indicates that targeted, systematic discrimination against women can positively affect growth as long as it only lowers employers’ labour costs but does not undermine the quality of the general labour force. See Braunstein, n 5, 15; see Seguino, ibid. 8   Seguino, n 7. 9  Ibid. 4 5

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444  Research handbook on environment and investment law benefits are harmful to employees in female-intensive industries and they can also cause additional long-term societal harms.10 Effectively, employees in an SDJ bear the costs – in the form of, for example, wage discrimination – of macroeconomic benefits that are enjoyed by the rest of the population and that might otherwise be achieved via exchange rate devaluation.11 The negative effects are predominantly limited to the employees working in the SDJ instead of being spread across the economy.12 The economy as a whole reaps the benefits of the lower costs, increasing demand for exports and higher economic growth that may be caused by possible increased aggregate demand leading to higher real GDP and inflation.13 However, the women working in the SDJ may be exposed to, for example, artificially depressed wages to keep labour costs low, and negative health effects from underregulation or underenforcement of environmental standards.14 In addition, artificially depressed wages in female-intensive industries are likely sticky; that is, they are resistant to change so that, once they are artificially depressed, they tend to remain artificially depressed and become a permanent characteristic of the SDJ. Treating industries occupationally segregated by gender as SDJs in which special rules can apply makes it possible to selectively lower labour costs in order to attract inward investment in the highly competitive female-intensive and export-oriented industries.15 However, competition does not end once the initial investment is made, because of the high level of international capital mobility and the ubiquity of countries willing and able to offer SDJs for low-wage, labour-intensive industries.16 There is an ever increasing mobility of capital that leads to influence over national policies.17 Once the ‘special rules’ path is chosen, national governments may face a perennial decision between perpetuating SDJs to benefit foreign investors and regulating or enforcing labour, environmental and human rights standards to benefit their citizens. 2.1.2  Competition for capital However, SDJs are not the only mechanism in this policy equation. Another such factor is international competition for inward capital more generally. Competition for international investment per se, even without the creation of SDJs, can have a chilling effect on labour and environmental regulation and enforcement, and prevent the introduction of regulations or initiation of dispute resolution processes.18 Postinvestment efforts by

 Ibid.   See Braunstein, n 5, 15. 12  Ibid. 13  Ibid. 14  Ibid. 15   See Elissa Braunstein, ‘Foreign Direct Investment, Development and Gender Equity: A Review of Research and Policy’ (2006) 27, 28 and 31, United Nations Research Institute for Social Development, www.unrisd.org/80256B3C005BCCF9/(httpPublications)/5159E5733338C836C1257 1390033F5E2. 16   Ibid, 28 and 15. 17   Williams, n 3, 15. 18   Nick Mabey and Richard McNally, ‘Foreign Direct Investment and the Environment: From Pollution Havens to Sustainable Development’, WWF (August 1999) 5, www.oecd.org/investment/ mne/2089912.pdf. 10 11

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Environment, foreign investment and gender  445 governments to increase wages via regulatory initiatives or employee efforts to unionize may be met with threats that the capital will be withdrawn and invested in a different country.19 Such efforts, therefore, may have a low likelihood of success and governments may be less inclined to enforce laws in the first place.20 Over time, wages are likely to remain low and short-term wage depression becomes longer-term wage depression. In addition, when the focus is on female-intensive industries, this gendered inequality in the labour market becomes institutionalized and systemic, which can lead to harmful effects on macroeconomic growth in the longer term.21 2.1.3  Labour and employment Occupational gender segregation continues to be a characteristic of many labour markets.22 In the export-oriented manufacturing sector, these include, for example, textiles, clothing, and electronics.23 Despite creating opportunities for women to enter the paid workforce, female-intensive industries do not automatically lead to increased gender equality.24 Foreign investment may maintain existing gender roles by allowing subordinated women and girls to provide more value in the form of hard currency.25 However, if the female-intensive industry is low-wage or un-/underregulated, it may not provide the women or girls sufficient income to be or become financially independent, demand better working conditions or engage in collective bargaining. As will be discussed presently, the problems can be exacerbated, and the GELFI nexus implicated, when countries offer incentives to encourage inbound foreign investment in the form of exemptions from labour and environment regulations.26 At times countries use government policies or practices, such as exemptions from regulation, lack of regulation, underregulation or underenforcement, to create low wages as incentives to attract foreign investment. 27 2.2  Foreign Investment Foreign investment affects GELFI nexus interdependencies in numerous ways, which may vary based on several factors. Those factors include location, industries involved, the host country’s stage of economic development, competition for inward-bound investment,

19   Braunstein, n 15, 30 (describing the ‘threat effect’, whereby investors take advantage of capital mobility in labour intensive industries and use threats to shut down plants as a way to shut down efforts by employees to obtain better working conditions and pay). 20   Ibid, 31. 21   See Seguino, n 7. 22   Braunstein, n 15, 14–15. 23   Ibid, 15. However, gender segregation is not limited to manufacturing: the services sector has ‘pink collar’ job segregation. Ibid. The ‘pink collar’ sector in developing countries is a growing area of foreign investment. Ibid. 24   See Braunstein, n 5, 15. 25   See ibid (in Taiwan, ‘[r]ather than threaten traditional family structures, paid work actually increased sexual stratification because it enabled parents to extract more from filial daughters’ (citing Greenhalgh 1985)). 26   Braunstein, n 15, 27. 27   See ibid, 27.

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446  Research handbook on environment and investment law preexisting gender relations, mobility of capital in that sector and the credibility of disinvestment threats to existing investments.28 It is interesting to note that foreign investment can have both negative and positive effects on GELFI nexus interdependencies.29 In particular, foreign investment has the potential to contribute to both environmental harm and environmental protection.30 It is clear that foreign investment can contribute to environmental degradation.31 For example, foreign investment is associated with deforestation and the pollution of air and water.32 Foreign investment also contributes in relevant ways to climate change and associated environmental conditions such as warming, ice-melting, rainfall, humidity, change in sea levels, deforestation, drying, winds, biodiversity loss and extreme weather events.33 However, ‘green incentives’ can also be significant in attracting ‘green FDI’ and reducing the risk of capital flight.34 Examples of ‘green incentives’ include rate reductions on income taxes, tax holidays, tax credits, investment allowances, accelerated depreciation, free depreciation, import tariff exemptions for inputs and enhanced environmental standards in free trade zones and export-processing zones.35 As a further layer of benefit, scholars argue that additional income generated by foreign investment can be used to fund environmental protection infrastructure.36 Foreign investors’ real or perceived responsiveness to incentives can increase the likelihood that states will create SDJs and offer, for example, exemptions from labour and environmental regulations.37 In addition, gender and genderspecific effects can be an important factor in the making of foreign investment decisions under such conditions.38 GELFI nexus interdependencies affect multiple aspects of foreign investment, including decisionmaking, market structures, labour and employment standards, investment incentives, technology transfer, international investment agreements and dispute resolution, as well as unintended consequences of foreign investment such as increasing vulnerability to sexual exploitation. Current regulatory structures allow market distortions. They make it possible for foreign investors to make decisions about where to invest and whether to relocate investment capital using a cost–benefit analysis that simultaneously takes into account the benefits of   See ibid, 5.   See Pasquale Pazienza (2014) The Relationship Between FDI and the Natural Environment: Facts, Evidence and Prospects (Springer International Publishing, 2014) 15. 30   See ibid, 15. 31   Ibid, 15. 32   Ibid, 18. 33   Ibid, 2; see World Health Organization (‘WHO’), ‘Gender, Climate Change and Health’ (2014) 5 (adapted from McMichael and Bertollini, 2009), www.who.int/globalchange/GenderCl​ imateChangeHealthfinal.pdf. 34   Ibid, 14. For a definition and discussion of ‘Green FDI’, see generally ibid. 35   Ibid, 15. 36   See Pazienza, n 29, 19. 37   Braunstein, n 15, 27. 38   See generally, e.g., Rachel J. Anderson, ‘Promoting Distributional Equality for Women: Some Thoughts on Gender and Global Corporate Citizenship in Foreign Direct Investment’ (2010) 32 Women’s Rights: Law Reporter 1; Mariama Williams, ‘Draft Primer: Gender, Investment and FDI’ (2007), www.levyinstitute.org/pubs/GEM-Workshop-2009/Readings/Williams-Day%206,%​ 20Sessions%20III%20&%20V/Williams_Draft_Primer_Reading.pdf; Braunstein, n 15. 28 29

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Environment, foreign investment and gender  447 female-intensive industries and SDJs and treats the negative effects of those industries as an externality. In other words, investors obtain the benefits yet, because they do not have to internalize the externalities, they are not burdened with the associated costs. Scholars argue that a significant manifestation of this can be seen where environmental incentives in the form of no or low standards or regulations attract foreign investment.39 Known as the ‘pollution haven hypothesis’, this theory suggests that investors relocate operations to obtain the financial benefits of lower environmental regulation.40 The market for inward-bound foreign investment in female-intensive, export-oriented industries, which are often low-wage industries, is often very competitive.41 At times, states use government policies or practices, such as exemptions from regulation, lack of regulation, underregulation or underenforcement, to create low wages as incentives to attract foreign investment.42 It is a vicious cycle.43 Low wages and SDJs attract foreign investors in the first stage of decisionmaking.44 However, to be selected in the final decision, countries may try to offer the lowest wages by providing investment incentives or regulatory exceptions.45 As such, efforts to attract foreign investment can move beyond the creation of pollution havens to the initiation of what is termed a ‘race to the bottom’.46 The result is that states battling to be selected as sites for foreign investment may continue to offer more and more exemptions, which effectively makes their labour and environmental protections lower and lower.47 The effects of this race to the bottom may be restricted to employees in female-intensive industries. For example, those affected by nonenforcement of standards governing the handling of toxic chemicals could disproportionately be women, but this distinguishing gender-based aspect may initially not be captured by data gathering and research. In this way, through its influence on the environment and labour markets, foreign investment can affect women’s health and morbidity rates, particularly in the case of labour deregulation.48 In addition, foreign investment can have this effect while operating in an ostensibly genderneutral fashion. Use of investment incentives in the form of regulatory exceptions to attract foreign investment can create an anchor at the bottom. The decoupling of wages from actual costs made possible by the use of regulatory exceptions in SDJs removes one of the key restrictions on artificial wage manipulation. As a result, there is little to encourage eventual wage increases or reapplication of labour and environmental standards in export-oriented female-intensive industries once they are decoupled from the rest of the national economy. Exemptions from labour and environment regulations offered as incentives to invest   Pazienza, n 29, 28–30.   Ibid, 28. Scholars continue to debate the theoretical validity of this hypothesis at the macro level, and empirical studies both support and undermine this hypothesis. 41   Braunstein, n 15, 28. 42   See ibid, 27. 43   See, generally, Rachel J. Anderson, ‘Linking Rule of Law and Trade Liberalization in Jamaica’ (2005) 7 Berkeley Journal of African-American Law & Policy 49. 44   Braunstein, n 15, 27. 45  Ibid. 46  Ibid. 47  Ibid. 48   Williams, n 38, 9. 39 40

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448  Research handbook on environment and investment law can restrict a national government’s ability to pursue sustainable development and human rights goals.49 In addition, the inclusion of stabilization clauses in international investment agreements can hinder a country’s ability to enact laws that provide better public welfare protections or to implement measures that apply equally to all foreign investors operating in their territory restricting modes of operation for health and safety or environmental protection purposes. Much of the international investment into low-income countries goes into mining, tourism and production of commodities, compounding the social impacts for women and girls.50 Investments in these sectors often have greater social and environmental costs and lower general benefits than investments in services or manufacturing.51 For example, women and girls are affected differently by the negative social costs of the oil industry. Although women may not have access to many of the labour opportunities that come from mining or extraction industries, they may experience a higher rate of negative societal and health effects that result from an influx of transitory male workers.52 Oil exploration sites in the Niger Delta also correlate with high venereal disease and dropout rates among local teenage girls.53 This is connected to oil workers who are not from the local community who have sex with local teenage girls.54 Current domestic and international regulatory structures, coupled with high levels of competition and capital mobility, make it unlikely that existing protections and dispute resolution mechanisms will be used by or for the benefit of those disadvantaged by the GELFI nexus. International agreements with imprecise or sweeping provisions expose countries to investor challenges to labour and environmental policies.55 This can decrease the likelihood that countries enact and enforce labour and environmental regulations or make use of dispute resolution mechanisms.56 This effect may be heightened by countries’ reliance on income from foreign investment.57 Further, intensive competition and high capital mobility can make it less likely that governments will enforce laws or that female employees will seek enforcement of their rights.58 In addition, investors in labour-intensive industries may use threats to close plants as a way to block employees’ efforts to obtain better working conditions and pay.59 Like occupational segregation by gender, the GELFI nexus is not limited to the export-oriented manufacturing sector.60 The international services sector, which is

  See Braunstein, n 15, 27.   Mabey and McNally, n 18, 13. 51  Ibid. 52   See ibid, 75. 53  Ibid. 54   Ibid, 75. 55   United Nations Conference on Trade and Development (‘UNCTAD’), World Investment Report 2015: Reforming International Investment Governance (2015) 125, http://unctad.org/en/ PublicationsLibrary/wir2015_en.pdf. 56   Mabey and McNally, n 18, 5. 57   See Angela Hawke and Alison Raphael, Offenders on the Move: Global Study on Sexual Exploitation of Children in Travel and Tourism 2016 (ECPAT, 2016) 56. 58   Braunstein, n 15, 31. 59   ibid, 30. 60   See ibid, 14–15. 49 50

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Environment, foreign investment and gender  449 also referred to as the ‘pink collar’ sector, is a growing area of foreign investment in developing countries.61 As an example, tourism has been presented as a vehicle for the creation of jobs for women in remote rural areas.62 However, the World Wildlife Fund cautions that foreign direct investment (‘FDI’) in tourism may have a negative effect on the environment.63 Some argue that foreign investment in the service sector, such as the hotel industry, can generate a positive environmental effect.64 For example, regulatory requirements in foreign investors’ home countries may have a knock-on effect, resulting in the use of clean technology or environmental practices in their operations in the countries in which they are investing.65 In the tourism industry, investor-state hotel contracts can play an important role in shaping operational practices.66 For example, some companies standardize their environmental practices in all of their hotels.67 However, occupational segregation in tourism, such as the employment of women in low-paid front-desk and other hospitality positions, can increase the potential of their exposure to gender-based violence.68 In addition, although foreign investment has resulted in increased access to paid employment for women, it has often reinforced or exacerbated existing gender inequalities in local labour markets.69 Foreign investment, generally, and foreign investment in tourism and travel-related services, specifically, involve not only the mobility of capital internationally but also the mobility of people.70 And both the mobility of people related to foreign investment and the effects of that mobility are often gendered. Men tend to comprise the group that participates in the increased levels of mobility created by foreign investment in terms of both employment and tourism.71 Women, as well as children, are more often those whose vulnerability to harm – through, for example, sexual exploitation – is increased as a result of those higher levels of mobility.72 There are multiple examples in which the often un- or underregulated working environment that exists at the intersection of foreign investment and transient labour has been accompanied by the commodification and objectification of women and girls as sex workers and sex objects, as well as sexual violence against women and girls in the host community. Tourism is an industry in which unregulated, underregulated or underenforced foreign investment creates an opportunity for both environmental and genderspecific   See ibid, 15.   See United Nations Conference on Trade and Development, ‘FDI in Tourism: The Development Dimension’ (2007) xi, http://unctad.org/en/Docs/iteiia20075_en.pdf. 63   See Pazienza, n 29, 19. 64   See ibid, 19. 65   United Nations Conference on Trade and Development, ‘World Investment Report 1999: Foreign Direct Investment and the Challenge of Development’ (1999) 305, http://unctad.org/en/ Docs/wir1999_en.pdf. 66   Ibid, 177. 67   Ibid, 305. 68   See Williams, n 3, 114. 69   See ibid, 18 and 99 (‘Typically, FDI has tended to rely on the absorption of female labour’). 70   See Hawke and Raphael, n 57, 44. 71   See, e.g., ibid (‘Foreign direct investment contributes to increased mobility within and across countries, bringing large groups of mostly unaccompanied males into developing regions of Africa’). 72   See Williams, n 3, 111. 61 62

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450  Research handbook on environment and investment law harm, as well as both simultaneously. For example, tourism provides offenders access to vulnerable girls (and boys) via establishment-based prostitution, living in areas frequented by tourists and working in public places.73 Economic inequalities empower offenders and disempower women and girls in areas frequented by tourists.74 States’ increasing reliance on income from foreign investment into travel and tourism ‘as an increasingly large component of national revenue’ has increased the effects of these disparities.75 Some countries may even use vulnerability to sexual exploitation as a factor in decisions related to foreign investment.76 Some free trade zones were designated for foreign investment even after or, perhaps, because the risk of vulnerability to sexual exploitation was known.77 For example, in several Southeast Asian countries, special economic and free trade zones have been established in locations that have already been identified as locations at high risk for sexual exploitation of children.78 According to Angela Hawke and Alison Raphael, these include ‘Batam and Bintan Islands in Indonesia; Sihanoukville, Koh Kong, Poipet, Bavet, and Phnom Penh in Cambodia; Boten in Lao PDR; Yangon, Mawlamyine, and Myawaddy in Myanmar; and Subic Bay and Clark in the Philippines’.79 This suggests that foreign investment may be linked with age- and gender-based vulnerability through the selection of locations for special economic and free trade zones.80 Thus, even foreign investment in industries that are not female-intensive, such as extractive industries and infrastructure construction, may contribute to harms to women and girls in the host country.81 In some industries, the economic benefits of foreign investment to the host country may be tenuous. For example, in the tourism sector, economic benefits from tourism services funded by foreign investment are likely to flow outward.82 Foreign ownership of hotels and other foreign investments in tourism often mean that the profits generated by tourism flow out of the host country into the investors’ country of origin.83 Thus, all of the negative effects of tourism remain in the host country while an important part of the benefits, in the form of profits, does not remain in the recipient country.84 For this reason, capturing the global flow of capital out of, as well as into, the host countries is important for developing a full picture of GELFI interdependencies. 2.3 Environment Decisions about environmental regulation influence the behaviour of foreign investors and affect the health of people in host countries in gender-differentiated ways. Scholars   See Hawke and Raphael, n 57, 42.   Ibid, 56. 75   Ibid, 56. 76   See ibid, 42. 77  Ibid. 78  Ibid. 79  Ibid. 80   Ibid, 44. 81   See, e.g., ibid. 82   Pazienza, n 29. 19. 83   See ibid. 84   See ibid. 73 74

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Environment, foreign investment and gender  451 argue that foreign investment has both negative and positive effects on the environment.85 The inclusion of environmental concerns in international investment agreements is becoming more common but the set of concerns explicitly mentioned has remained largely static.86 Agreements may include language related to environmental protection, environmental regulation, indirect expropriation, environmental standards, environmentrelated dispute settlement and cooperation in the area of environmental protection.87 However, issues such as biodiversity and climate change are rare. Kathryn Gordon and Joachim Pohl have posited that this ‘suggests a limited exchange between the investment and policy communities’.88 However, gender roles can make women and girls more vulnerable to environmental harm, climate change and disparate effects of foreign investment, increasing the female experience of the negative environmental impacts of foreign investment. In particular, genderblindness increases the vulnerability of women and girls to the negative effects of foreign investment, environmental degradation and climate change.89 There are several areas of environmental concern in which gendered effects have been identified and that are affected by or affect the GELFI nexus, such as environmental degradation, environmental stewardship, health and safety, pollution, technology, tourism and water resources and sanitation.90 2.3.1  Gender equality Gender and gender equality play a role in environmental stewardship. This notion is explored more fully in section 2.6 of this chapter, but it is important at this stage to note the relevant linkages. For example, the political status of women has been linked to the ratification of environmental treaties.91 According to a crossnational study, the presence of larger percentages of women in a government’s legislative body is correlated with ratification of more environmental treaties.92 Other researchers have found a correlation between countries with larger percentages of ‘women’s nongovernmental organizations’ and lower per capita deforestation.93 Women’s greater political status has  also been linked to areas of land receiving national designation as protected land.94 Scholars have also found that increased political gender equality is correlated with lower carbon dioxide (‘CO2’) emissions per capita at a national level.95 In a study on women’s status and CO2 emissions, Christina Ergas and Richard York found a ­correlation between lower per

  See Pazienza, n 29, 15.   Kathryn Gordon and Joachim Pohl, ‘Environmental Concerns in International Investment Agreements: A Survey’ (2011) 5–6, OECD Working Papers on International Investment, http:// dx.doi.org/10.1787/5kg9mq7scrjh-en. 87  Ibid. 88   Ibid, 6. 89   See, e.g., OSCE, n. 1. 90   See, e.g., Williams, n 38, 9. 91   Christina Ergas and Richard York, ‘Women’s Status and Carbon Dioxide Emissions: A Quantitative Cross-National Analysis’ (2012) 41 Social Science Research 965–76. 92  Ibid. 93  Ibid. 94   Ibid, 974. 95  Ibid. 85 86

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452  Research handbook on environment and investment law capita CO2 emissions and women’s suffrage or representation in government office.96 In addition, one study found a correlation between higher recycling rates and larger percentages of women in positions of authority.97 2.3.2 Pollution Concerns about investors seeking low- or lowest-cost production options have given rise to the ‘pollution haven hypothesis’, whereby multinational corporations invest in developing countries with low environmental regulations.98 The prevalence of regulatory exceptions in SDJs with female-intensive manufacturing industries can increase the likelihood of women in those industries being exposed to higher than usual levels of pollution in exchange for low-wage employment.99 As an example, underenforcement of environmental regulation in Mexico functioned as an incentive to attract foreign investment to the maquiladoras, ‘foreign-owned assembly plants clustered along the Mexico-U.S. border’.100 In the mid-1980s, more than 60 per cent of the workers in Mexican maquiladoras were women.101 A survey of Maquiladora operators during the 1990s ‘found that 26% of Maquiladora operators in Mexicali cited Mexico’s lax environmental enforcement as an important reason for their location there’.102 Studies suggest that the underenforcement of environmental regulations had negative effects on the health of the workers in this female-intensive industry. Studies of Maquiladora workers conducted in the early 1990s concluded that they were exposed to airborne substances that caused headaches, chest pressure, stomach pain, nausea, vomiting and eye or nose secretions.103 They also documented reports of optical nerve and musculoskeletal disorders, chronic pain and birth defects.104 In addition, a study led by Sylvia Guendelman found that Maquiladora workers had similar health outcomes compared with non-wage earners.105 One conclusion that could be drawn from these studies is that the harms caused by the airborne substances were not confined within the

 Ibid.  Ibid.  98   Mabey and McNally, n 18, 3 and 5; Lisbeth Colen, Miet Maertens, and Jo Swinnen, ‘Foreign Direct Investment as an Engine for Economic Growth and Human Development: A Review of the Arguments and Empirical Evidence’ (2008) 37, Leuven Centre for Global Governance Studies, Working Paper No 16, https://ghum.kuleuven.be/ggs/publications/­working_ papers/2008/16colenmaert​ensswinnen.  99   See Pazienza, n 29, 28; Braunstein, n 15, 27–8; Mabey and McNally, n 18, 3 and 5; Colen, Maertens and Swinnen, n 98, 37. 100   Joshua M. Kagan, Note, ‘Workers’ Rights in the Mexican Maquiladora Sector: Collective Bargaining, Women’s Rights, and General Human Rights: Law, Norms, and Practice’ (2005) 15 Journal of Transnational Law & Policy 153. 101   Aaron Freiwald, ‘Mexico: A Multinational Haven,’ Multinational Monitor (15 Nov. 1985), www.multinationalmonitor.org/hyper/issues/1985/1115/freiwald.html. 102   Pazienza, n 29, 28–9. 103   Kagan, n 100, 161. 104  Ibid. 105   Marlene Clark, ‘Women in Motion: Labour Dynamics and Health Consequences for Mexico’s Maquiladora Workers’ (1 Dec. 2003) http://clasarchive.berkeley.edu/Events/fall2003/1110-03-guendelman/index.html.  96  97

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Environment, foreign investment and gender  453 walls of the maquiladoras but instead had broader negative effects on the health of people living in nearby communities. 2.3.3 Technology Foreign investment may contribute to reducing environmental harm through the inflow of environmentally friendly technologies.106 As discussed previously, scholars argue that multinational corporations operating in developing countries benefit the environment through the introduction of green investment.107 Women’s living and working conditions can, in turn, be improved through the implementation of cleaner and more efficient technology and energy sources, which can reduce the likelihood of negative health effects.108 Access to better technology can make better water quality, improved sanitation and more efficient food production available to women.109 With this in mind, scholars have proposed the ‘pollution halo hypothesis’, whereby international investment in various sectors, such as high technology,110 raises environmental standards;111 the implications of this again point to the nuances in the relationship between the different stakeholders in the GELFI nexus. Scholars argue that multinational corporations can also benefit the environment in developing countries through green investment.112 It is argued that foreign investment can contribute to reducing environmental harm through the inflow of environmentally friendly technologies (‘green technologies’).113 For example, foreign investment can provide technology that reduces or controls pollution and contributes to an environmentally friendly business culture, as will be discussed presently.114 Scholars have pointed to particular gender-differentiated issues related to the environment, health and safety and technology in the intersection of foreign investment and environment.115 For example, women and men may have different energy needs and energy technology needs stemming from gender roles.116 In particular, the potential for energy technology to benefit women and girls can be seen in the areas of ‘improved food production and processing t­ echnologies, and improved

  See Pazienza, n 29, 15 and 18.   Colen, Maertens and Swinnen, n 98, 37. 108   See United Nations Conference on Trade and Development (‘UNCTAD’), ‘Applying a Gender Lens to Science, Technology and Innovation’ (2011) 3, http://unctad.org/en/docs/ dtlstict2011d5_en.pdf (‘Technology has the potential to improve women’s situations through improved energy sources that have less negative impact on health, improved food production and processing technologies, and improved water quality and sanitation’). 109   See ibid. 110   ‘[S]cientific technology involving the production or use of advanced or sophisticated devices especially in the fields of electronics and computers’. Definition of ‘high technology’ in  Mirriam-Webster Online Dictionary, www.merriam-webster.com/dictionary/high%20techno​ logy. 111   Mabey and McNally, n 18, 5. 112   Colen, Maertens and Swinnen, n 98, 37. 113   See Pazienza, n 29, 15 and 18. 114   Stephen S. Golub, Céline Kauffmann and Philip Yeres, ‘Defining and Measuring Green FDI: An Exploratory Review of Existing Work and Evidence’ (2011) 13, OECD Working Papers on International Investment, 2011/02, http://dx.doi.org/10.1787/5kg58j1cvcvk-en. 115   See, e.g., Williams, n 38, 9. 116   OSCE, n 1, 37. 106 107

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454  Research handbook on environment and investment law water quality and sanitation’.117 The existence or absence of ‘green regulations’ and their enforcement also play an important role in determining whether ‘green technologies’ will be a part of the FDI regime in a specific country or SDJ.118 2.4  Climate Change Foreign investment contributes to climate change and its related environmental conditions in both a generic sense, through increased commercial activity, and more specifically via particular projects that impact directly on, for example, deforestation or biodiversity loss.119 There is a growing body of literature that explores the ways in which climate change affects women differently from men.120 For example, in many countries, labour is divided by gender and women are responsible for subsistence farming and the collection of water and firewood.121 As a result, women in these countries are more heavily affected by disruptions to their access to firewood, clean water and arable land.122 Amelia H.X. Goh reviewed literature on the gendered impacts of climate change in six areas: agricultural production, food security, health, water and energy sources, migration and conflict and natural disasters.123 This extensive and indepth literature review provides numerous examples of gendered and nongendered effects of climate change. However, although Goh found examples of different effects on women in each of these areas, they may vary from country to country. For example, in Mexico, warmer temperatures meant that water was scarce, which affected women’s ability to generate income at home by processing vegetables and fruits.124 Drought in Zimbabwe led to negative effects on women’s body mass that were not documented in men.125 In Europe, women were found to be more likely than men to die from heat waves.126 It is clear that changes in the climate can negatively affect human health.127 And it is now apparent that this can impact women to a greater extent than men. Around the world, climate variability leads to women having a ‘[h]igher incidence of eclampsia in pregnancy’.128 Experts also argue that climate change causes meteorological conditions with social consequences that have impacts and responses that are gendered in their effects.129 For example, in South Africa and Nigeria, outward male migration in response

  UNCTAD, n 108.   See Golub, Kauffmann and Yeres, above n 114, 15. 119   Pazienza, n. 29, 2; see WHO, n 33, 5. 120   See, e.g., Amelia H.X. Goh, ‘A Literature Review of the Gender-Differentiated Impacts of Climate Change on Women’s and Men’s Assets and Well-Being in Developing Countries’ (2012), CAPRi Working Paper No 106, International Food Policy Research Institute, http://ebrary.ifpri. org/cdm/ref/collection/p15738coll2/id/127247. 121   Ergas and York, n 91, 966. 122  Ibid. 123   Goh, n 120, 4. 124   Ibid, 20. 125   Ibid, 21. 126   Ibid, 22. 127   WHO, n 33, 5. 128   Goh, n 120, 20. 129   WHO, n 33, 5. 117 118

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Environment, foreign investment and gender  455 to climate change and its effects, such as ‘[f]loods and dry seasons’, resulted in greater responsibilities and a heavier workload for women.130 Illustrating the interconnected nature of the GELFI issues, women’s gendered roles in some societies may make them more likely to be affected by a lack of clean water or a lack of clean and safe sanitation facilities,131 which, in turn, has human rights implications. For example, in the Commonwealth of Independent States, the lack of ‘separate sanitation facilities’ is one of the main barriers to teenage girls attending school.132 Gendered roles and societal status often leave women and girls more vulnerable to natural disasters and negative effects of climate change.133 For example, women in India were found to be more vulnerable to floods and hurricanes because they ‘lack the ability to swim compared to men’.134 As is often the case in this discourse, however, the issues are complex and others have argued that foreign investment can in fact help to reduce climate change via environmentally friendly technologies and in response to green incentives.135 This would in turn reduce the negative impacts of climate change, which are disproportionately experienced by women and girls. 2.5 Health Weak regulation of international investment can negatively affect women’s health directly and indirectly through the health effects of a lack of protection for the environment and changes in the environment.136 A lack of ‘labour laws that promote healthy and safe working conditions’ can contribute to the likelihood of negative effects of foreign investment on women’s health.137 Negative health effects may be accompanied by other issues such as lack of health insurance or increased insurance costs and the effects of weakened health on earning capacity, among others. Scholars have also noted evidence that suggests there may be a link between contamination from oil spills and long-term health effects such as cancer.138 In the Niger Delta, more than 70 per cent of the population is dependent on the natural environment for survival.139 This dependency makes them vulnerable to environmental degradation and its effects.140 At the same time, the country is dependent on earnings from foreign exchange.141 In total, 45 per cent of the country’s earnings from foreign

  Goh, n 120, 24.   OSCE, n 1, 33. 132   Ibid, 33. 133   Ergas and York, n 91, 967; OSCE, n 1, 44. 134   OSCE, n 1, 24. 135   See Pazienza, n 29, 15 and 18 and 19; Golub, Kauffmann and Yeres, n 114. 136   See Organization for Economic Cooperation and Development (‘OECD’), OECD Environmental Outlook (2001) 249; WHO, n 33, 5; Williams, n 38, 9. 137   Williams, n 3, 167. 138   T.E. Ogbija, A.O. Atubi and V.N. Ojeh, ‘Effects of Environmental Degradation on Human Health in Selected Oil Communities in Delta State’ (2015) 5(9) Journal of Environmental and Earth Science 75. 139  Ibid. 140  Ibid. 141  Ibid. 130 131

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456  Research handbook on environment and investment law exchange come from oil.142 Farming and fishing are key traditional industries in the Niger Delta.143 Oil spills harm the fishing industry by killing fish, endangering fish ponds and contaminating fish that would otherwise be a valuable commodity.144 Many fish are killed immediately.145 Toxins that poison algae can reduce the availability of edible fish by disrupting food chains.146 According to a recent survey conducted in the Niger Delta, the main causes of environmental degradation in the oil producing communities are ‘negligence of duty by government agencies (30.8%), [n]eglect of [e]nvironmental regulations/ compliance (26.8%), corruption (23.6%), [l]ack of Environmental Impact Assessment (EIA) reports from [c]ompanies . . . (14.7%)[,] and [l]ack of environmental laws (4%)’.147 Fish also ingest toxins from oil spills.148 Some of those fish die immediately and some do not;149 those that do not may be caught and eaten by people.150 Eating fish that have ingested toxins from oil spills can cause infections and other still unknown effects that may result from genetic mutations.151 However, as we continue to see, there is another side to the GELFI relationships and some argue that foreign investment can in fact reduce negative environment-related effects on women’s health through the use of more advanced and better quality technology.152 Such benefits potentially come from ‘improved energy sources that have less negative impact on health, improved food production and processing technologies, and improved water quality and sanitation.’153 The GELFI nexus also manifests on another level: weak regulation of international investment can affect women’s health indirectly through the health effects of environmental harm. The potential for foreign investment to contribute to environmental degradation is a well-understood link and this can take a number of forms.154 Foreign investment has clearly been associated with, for example, deforestation and the pollution of air and water.155 However, environmental degradation is not limited solely to those more obvious areas, but encompasses all forms of damage to the natural environment, including to air, land, water and reduced biodiversity and natural resources.156 In this context, the GELFI relationship comes into play because this FDI-associated environmental degradation can have a negative effect on human health and, in particular, it is now becoming clear that it is women and girls that disproportionately suffer those effects.157  Ibid.   Ibid, 75 and 77. 144   See, e.g., ibid, 75–6. 145   Ibid, 75. 146   Ibid, 76. 147   Ibid, 80. 148   Ibid, 74. Other animals in addition to fish also ingest toxins from oil spills. Ibid. 149  Ibid. 150  Ibid. 151  Ibid. 152   See UNCTAD, above n 108; Golub, Kauffmann and Yeres, n 114. 153   UNCTAD, n 108. 154   Pazienza, n 29, 15. 155   Ibid, 18. 156   Ogbija, Atubi and Ojeh, n 138, 72. 157   See OECD, n 136, 249, http://dev.ulb.ac.be/ceese/CEESE/documents/ocde%20­environment%​ 20outlook.pdf. 142 143

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Environment, foreign investment and gender  457 2.6 Decisionmaking Increasingly, theoretical and empirical literature suggests that gender equality affects environmental stewardship.158 The literature indicates that more gender equality results in decisions that are better for the environment and less gender equality results in decisions that are worse for the environment.159 Higher levels of vertical gender equality in public decisionmaking have been linked to public decisionmaking supporting protection of the environment.160 In addition, in some sectors such as energy or waste management, gender roles mean that men and women are affected differently; for example, they may have different technology needs and are subject to different health hazards that should be considered in decisionmaking.161 For example, women are often responsible for unpaid waste removal but are excluded when waste removal becomes paid and mechanized.162 In addition, direct, nonmechanized contact with potentially biologically or chemically contaminated waste increases women’s exposure to health hazards.163 Gender-aware decisionmaking could include consulting with women as well as men and ensuring equal opportunities for women and men when introducing new policies and technologies.164 Increasing the role of women as decisionmakers in environmental governance and via ‘civil society empowerment, processes of collective action, collective bargaining and social expression’ may offer an avenue to address some of the weaknesses in current decisionmaking processes.165 Such weaknesses include the exclusion of women from formal and civil society engagement in environmental politics, a lack of gender awareness among environmental decisionmakers and insufficient awareness of ‘women’s right to a clean and healthy environment’.166 At the same time, scholars have argued that gender plays a role in decisionmaking in other ways, for example, where women are the objects of the effects of the decisionmaking.167 The creation of SDJs and their use as a site of female-intensive industries, combined with their use as a site of underregulation and underenforcement to attract foreign investment, is illustrative of this issue. Scholars have argued that decisionmakers may be more likely to choose to use regulatory exceptions to attract foreign investment into female-intensive industries.168 These exceptions may be in the form of no or low environmental standards or regulations.169 As discussed previously, the effects of investment on decisionmaking related to environmental and labour standards vary based on several factors, including the competition for investment in that sector, the mobility of capital in that sector and the credibility of     160   161   162   163   164   165   166   167   168   169   158 159

Ergas and York, n 91, 966. See ibid. Ibid, 974. See OSCE, above n 1, 37 and 47. Ibid, 47. See ibid, 47. Ibid, 48. Ibid, 49. See ibid, 50. See, e.g., Braunstein, n 15, 27. See ibid. See Pazienza, n 29, 28–30.

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458  Research handbook on environment and investment law disinvestment threats for existing investments.170 This can feed directly into the GELFI relationship. The GELFI nexus becomes an explicit factor in foreign investment decisionmaking when investors are seeking to decide between host countries that have made it to a shortlist based on more general political and economic factors.171 At this second stage of the decisionmaking process, GELFI nexus incentives have the potential to be dispositive if an investor is deciding between two substantially similar options.172 The importance of the GELFI nexus at this stage of decisionmaking can increase the likelihood of host countries choosing to offer incentives in the form of weaker or waived environmental regulations to lower production costs and attract investment. It can also influence governments’ decisionmaking regarding enforcement or nonenforcement of environmental regulations.173 Decisionmakers may feel pressured to underenforce labour regulations in light of the high level of competition for international investment in labour-intensive, femaleintensive industries.174 In addition, weaker labour laws and underenforcement of labour laws can inhibit employees, and particularly female employees, from seeking enforcement of their rights.175 Further, investors may actively try to stifle employee efforts to obtain better working conditions and pay by threatening loss of employment and income via plant closures.176 Decisions to segregate women into female-intensive export industries with depressed wages may have short-term benefits for both the investor and the immediate economy of the host state, but those same decisions can cause long-term societal harm.177 Scholars have argued that gender discrimination can lower wages, encouraging investment and resulting in short-term economic growth via investment.178 According to Seguino, the short-term effects of gender discrimination in labour and employment ‘reduce . . . costs, stimulate . . . investment and exports, and thereby [stimulate] growth’.179 However, longterm effects may include reduced incentives to innovate and harmful effects on children’s capabilities.180

  Mabey and McNally, n 18, 5.   Braunstein, n 15, 27. 172  Ibid. 173   Mabey and McNally, n 18, 5. 174   Braunstein, n 15, 31; Mabey and McNally, n 18, 5. 175   Braunstein, n 15, 31. 176   Ibid, 30. 177   See Seguino, n 7. 178   Seguino, n 7. However, this effect may be sector specific (‘In agricultural economies, these dynamics may differ, and gender inequality might have more immediate negative effects on growth’). Ibid. 179   Ibid, 13. 180  Ibid. 170 171

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Environment, foreign investment and gender  459

3. GENDER BLINDNESS, GENDER MAINSTREAMING AND TOOLS TO IDENTIFY AND FILL THE GAPS 3.1  Explaining the Omissions Currently, legal research and scholarship at the intersection of foreign investment and the environment tends to be characterized by genderblindness.181 As a result, much of that research fails to consider gender as an influencing factor in regulatory and policy decisions and outcomes. Gender analyses are still the exception in such literature rather than the norm. Consequently, researchers, scholars and policymakers in this area are often genderblind and laws and policies may be assumed to be genderneutral.182 For this reason, such research and policy development often omit influences on, and effects of, the interrelationship between gender, environment and foreign investment.183 However, as discussed previously, the intersection of gender with foreign investment and the environment has gender-differentiated effects on women and girls, rendering a disconnect between the official regulatory and policy approaches adopted and the actual female experience of that intersection. Understanding the ways in which foreign investment affects the intersection of gender and environment is important for the development and implementation of effective national and international policies and regulations.184 The failure to examine genderspecific effects can lead to results that are biased towards preexisting gender dynamics, that are explicitly or implicitly male-biased and that contradict expectations based on theoretical hypotheses.185 In addition, understanding that intersection allows countries to prioritize policies that steer foreign investment away from more harmful industries to those with lower risks of negative effects.186 At the international level, there has been a general consensus as to how to address genderblindness since at least 1995, specifically through gender mainstreaming, which is both a strategy and a process.187 Gender mainstreaming requires assessment of how laws, policies, programmes and other acts may affect women and men.188 Gender mainstreaming increases gender awareness and makes it possible to identify, collect and analyse relevant information and then engage in informed decisionmaking to select from a range of gender-sensitive policy approaches. Effective gender mainstreaming requires a ‘full[]

181   United Nations Development Programme (‘UNDP’), ‘Gender in Development Programme: Learning & Information Pack’ (2000) 62, www.undp.org/content/dam/undp/library/gender/Instituti​ onal%20Development/TLGEN1.6%20UNDP%20GenderAnalysis%20toolkit.pdf. 182   Pazienza, n 29, 2; Anderson, n 38, 2; UNDP, n 181. 183   Pazienza, n 29, 2. 184   See ibid, 2. 185   See UNDP, n 181. 186   See Pazienza, n 29, 19. 187   United Nations, ‘Gender Mainstreaming: An Overview’ (2002) v (‘Gender mainstreaming was established as a major global strategy for the promotion of gender equality in the Beijing Platform for Action from the Fourth United Nations World Conference on Women in Beijing in 1995’): www.un.org/womenwatch/osagi/pdf/e65237.pdf. 188   United Nations (‘UN’), UN General Assembly, 52nd Session, Supplement 3 (A/52/3/Rev1), Chapter IV, Paragraph 4.

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460  Research handbook on environment and investment law understand[ing of] the relevant policy and its context’, implementation capacity and ‘the ability to influence institutional decision-making processes’.189 3.2  Mainstreaming: Spectrum of Gender-Sensitive Policy Approaches Gender mainstreaming as a strategy aims to ‘mak[e] women’s as well as men’s concerns and experiences an integral dimension of the design, implementation, monitoring and evaluation of policies and programmes in all political, economic and societal spheres so that women and men benefit equally and inequality is not perpetuated’.190 Gender-sensitive policy approaches are tools to inform the process and achieve the strategic goals of gender mainstreaming. The spectrum of gender-sensitive policy approaches includes genderneutral, genderspecific and gender-redistributive policy approaches.191 Genderneutral policy approaches are expected to retain the status quo in terms of vertical and horizontal distribution of access, resources, rights status and influence.192 Genderspecific policy approaches are expected to only affect one gender and are intended to affect that gender’s access, resources, rights status or influence.193 Gender-redistributive policy approaches are expected to transform the vertical or horizontal distribution of access, resources, rights status and influence of existing gender relations.194 The selection of one or more strategies in a specific context should be informed by the overall goal of gender mainstreaming, which ‘is to achieve gender equality’.195 3.3  Gender Mainstreaming Tools for Environmental Projects: An Example The Organization for Security and Co-operation in Europe (‘OSCE’) has developed a guide for integrating gender aspects into their environmental projects.196 The guide, Gender and Environment: A Guide to the Integration of Gender Aspects in the OSCE’s Environmental Projects (2009), was developed in the context of the OSCE’s Gender Action Plan that was adopted in 2004.197 The guide includes specific tools for gender mainstreaming at the project level in terms of both the process and substantive environmental fields.198 The tools include ‘a checklist for the integration of a gender perspective into the different components of the OSCE lifecycle’ and ‘information on how gender issues are related to different environmental thematic areas’.199 The extensive sets of questions included in the OSCE guide target a range of envi189   See United Nations Development Programme (‘UNDP’), ‘Learning & Information Pack: Gender Analysis’ (2001) 14. 190   UN, n 188. 191   Adapted from UNDP, n 189, 64. 192   See ibid. 193   See ibid. 194   See ibid. 195   UNDP, n 189. 196   OSCE, n. 1. 197   Ibid, Foreword and 6. 198   Ibid, 5. 199   OSCE, n 1, 5.

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Environment, foreign investment and gender  461 ronmental issues and projects.200 The questions in the guide facilitate the integration of gender considerations by increasing the visibility of gendered effects of policies.201 Raising the visibility of gendered effects helps reduce genderblindness and increase awareness of the intersection of gender and the environment so that gender can be included in environmental policies, analyses and practices.202 The questions are grouped into two categories, with one focusing on the stages ‘of the OSCE project cycle’ and the other on ‘environmental thematic areas’.203 The project cycle includes project identification, development, implementation, monitoring and evaluation.204 Project cycle questions focus on a set of key issues and then are tailored to specific project stages and environmental issues. The core questions are: ‘Who is doing what? Who has access to which resources? Who has control over which resources? Who needs what? . . . [W]ho is gaining what and who is losing what through the project intervention[?]’205 The questions for ‘environmental thematic areas’ address water, energy, land management, toxic chemicals, climate change, waste management and the environment generally.206 The OSCE’s guide is one of many examples of gender mainstreaming tools for environmental projects and policymaking. There are many other national, regional and international gender mainstreaming studies, guides and tools. Examples focusing on specific countries and regions include the Republic of South Africa Department of Energy’s Strategy toward Gender Mainstreaming in the Environment Sector 2016–2021,207 the European Institute for Gender Equality’s Gender in Environment and Climate Change,208 the United Nations Economic and Social Commission for Asia and the Pacific’s Gender, the Environment and Sustainable Development in Asia and the Pacific,209 and the United Nations Entity for Gender Equality and the Empowerment of Women’s Empowering Women for Sustainable Energy Solutions to Address Climate Change: Experiences from UN Women and UNDP-UNEP PEI Africa.210 At the international level, examples include the United Nations Environment Programme’s Policy and Strategy for Gender

  Ibid, 33, 37, 40, 42, 44, 47 and 49.   Ibid, Foreword. 202  Ibid. 203   Ibid, 5. 204   Ibid, 17. 205   Ibid, 16. 206   Ibid, 33, 37, 40, 42, 44, 47 and 49. 207   Republic of South Africa, Department of Energy, ‘Strategy toward Gender Mainstreaming in the Environment Sector 2016–2021’, 2016, www.environment.gov.za/sites/default/files/docs/ publications/strategytowardgendermainstreamingintheenvironmentsector2016_2021.pdf. 208   European Institute for Gender Equality, ‘Gender in Environment and Climate Change’ (2016) www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=2&cad=rja&uact=8&ved=0ahU KEwib5pTpmKjYAhVrwVQKHb_DBPcQFggzMAE&url=http%3A%2F%2Feige.europa.eu%2F sites%2Fdefault%2Ffiles%2Fdocuments%2Fti_pubpdf_mh0216901enn_pdfweb_20170124144008. pdf&usg=AOvVaw0-3HlleOEzJTcbOU9amcPk. 209   United Nations Economic and Social Commission for Asia and the Pacific, ‘Gender, the Environment and Sustainable Development in Asia and the Pacific’ (2017) www.unescap.org/sites/ default/files/publications/SDD-Gender-Environment-report.pdf. 210   United Nations Entity for Gender Equality and the Empowerment of Women, ‘Empowering Women for Sustainable Energy Solutions to Address Climate Change: Experiences from UN 200 201

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462  Research handbook on environment and investment law Equality and the Environment 2014–17,211 the United Nations Development Programme’s training manual, Gender Mainstreaming: A Key Driver of Development in Environment & Energy,212 and the United Nations Industrial Development Organization’s Guide on Gender Mainstreaming: Environmental Management Projects.213

4.  FUTURE RESEARCH As discussed previously, the environment, foreign investment and gender are issues that are often addressed as independent areas of research, law and policy,214 and genderblindness has contributed to the neglect of the role of gender in influencing policy and regulatory decisions at the GELFI nexus. It remains an underexplored area of research;215 however, the increasing national and international focus on environmentally sustainable investment and gender equality is helping to promote interest in the GELFI nexus.216 Further, in addition to literature focusing primarily on the intersection of gender with either foreign investment or the environment, there is a growing body of data and scholarship that provides qualitative and quantitative insights into the GELFI nexus. Continuing this work of delving into the raw data will be invaluable in determining appropriate regulatory and policy options at both the international and national levels. Literature on gender and foreign investment is limited but growing and is often published by international and nongovernmental organizations. In particular, in foreign investment-oriented literature, gender analyses tend to focus on economic effects of foreign investment on women and girls as they differ from men and boys or the economy as a whole. This includes direct economic effects such as employment availability and quality, business ownership and wages, and indirect effects such as access to investment capital.217 To expand the scope, research from other fields can serve as a roadmap for other possible areas of analysis.

Women and UNDP-UNEP PEI Africa’, Working Paper (2015) www.unpei.org/sites/default/files/ publications/working%20paper-feb26-web.pdf. 211   United Nations Environment Programme, ‘Policy and Strategy for Gender Equality and the Environment 2014–17’, http://apps.unep.org/publications/index.php?option=com_pub&​task=down​ load&file=012103_en. 212   United Nations Development Programme, ‘Gender Mainstreaming: A Key Driver of Development in Environment & Energy’, Training Manual (2007) www.undp.org/content/dam/undp/ library/Environment%20and%20Energy/Sustainable%20Energy/Gender_Mainstreaming_Training_ Manual_2007.pdf. 213   United Nations Industrial Development Organization, ‘Guide on Gender Mainstreaming: Environmental Management Projects’ (2015) www.unido.org/sites/default/files/2015-02/Gender_ Environmental_Management_Projects_0.pdf. 214   However, there has been some research, both qualitative and quantitative, and occasionally data or references related to this intersection find their way into literature that focuses on one of these three areas. See Pazienza, n 29, 15. 215   United Nations Conference on Trade and Development (‘UNCTAD’), ‘Investment by TNCs and Gender: Preliminary Assessment and Way Forward’ (2014) 40, http://unctad.org/en/ PublicationsLibrary/webdiaeia2014d4_en.pdf. 216   See UNCTAD, n 55, 127. 217   Williams, n 38, 9.

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Environment, foreign investment and gender  463 In literature on the environment, gender-sensitive analyses include a focus on the effects of environmental degradation, climate change and natural disasters on women and girls. Areas addressed include effects from pollution, meteorological conditions or exposure, and human or social consequences of environmental degradation, climate change and natural disasters. This material is often published in association with international and nongovernmental organizations. As discussed previously, the availability of literature on gender and the environment and the implementation of gender mainstreaming is growing and formal efforts are being made to ‘incorporate gender perspectives into the international environmental and sustainable development deliberations and agendas’.218 Gender mainstreaming is being incorporated into national legislation, international programming, crossborder aid programmes and a range of environmental projects. Gender-sensitive approaches in scholarly research offer an avenue by which research can be in a position to contribute insights to GELFI nexus policies and practices. Deepening research into the GELFI nexus has the potential to offer rich opportunities for identifying, developing and evaluating gender-sensitive policy approaches. As research into the GELFI nexus expands and deepens, we will be able to compare practices and effects. Enriched theoretical analyses and approaches will allow us to develop a deeper understanding of how foreign investment and the environment affect women and girls differently from men and boys. In the bigger picture, a more comprehensive and sophisticated understanding of the GELFI nexus will be an important contribution to better understanding the multidimensional interactions between law, economics, environment, gender, health and social structures.

218   See, generally, United Nations Development Programme, ‘On the Road to Sustainable Development: Promoting Gender Equality and Addressing Climate Change’ (2015) 1–4, www. undp.org/content/dam/undp/library/gender/Gender%20and%20Poverty%20Reduction/On%20the%​ 20Road%20to%20Sustainable%20Development.pdf.

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19.  Natural resources and indigenous cultural heritage in international investment law and arbitration Valentina Vadi*

1.  INTRODUCTION The protection of indigenous cultural heritage constitutes one of the cornerstones of the identity of indigenous peoples and contributes to the realisation of their human rights. Although the protection of indigenous rights and heritage has gained some momentum in international law since the adoption of the 2007 United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP),1 law and policy tend to favour macroeconomic notions of growth regardless of actual or potential infringement of indigenous human rights.2 Many of the estimated 370 million indigenous peoples around the world have lost, or are under imminent threat of losing, their ancestral lands because of the exploitation of natural resources. This chapter explores the clash between economic development and indigenous peoples’ rights through the perspective of international investment law, examining whether the protection of cultural heritage can prevail over international economic governance. The protection of indigenous heritage has frequently intersected with international investment law, resulting in tension between the safeguarding of indigenous culture and the promotion of foreign direct investment. For example, when a state adopts cultural policies that interfere with foreign investments, they may be deemed to amount to indirect expropriation or a violation of other investment treaty provisions. Therefore, the question arises whether international investment law has embraced an international economic culture—a culture strictly focused on productivity and economic development—or whether it is open to integrating cultural concerns in its operation. While international investment law has traditionally developed only limited tools for the protection of cultural heritage through dispute settlement,3 recent arbitral awards

*  The author wishes to thank Kristy Barker, Emily Den, Kara F., and Kate Miles for helpful comments on an earlier draft. The usual disclaimer applies. The research leading to these results received funding from the European Research Council under the European Union’s ERC Starting Grant Agreement no 639564. The chapter reflects the author’s views only and not necessarily those of the Union. 1   United Nations Declaration on the Rights of Indigenous Peoples, A/RES/61/295 (2007). 2   Lila Barrera-Hernández, ‘Indigenous Peoples, Human Rights and Natural Resource Development: Chile’s Mapuche Peoples and the Right to Water’ (2005) 11 Annual Survey of International & Comparative Law 1. 3   See generally Valentina Vadi, ‘When Cultures Collide: Foreign Direct Investment, Natural Resources and Indigenous Heritage in International Investment Law’ (2011) 42 Columbia Human Rights Law Review 797–889.

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Natural resources and indigenous cultural heritage  465 have shown a growing awareness of the need to safeguard indigenous cultural heritage within investment disputes. The incidence of cases in which arbitrators have balanced the different values is increasing.4 This chapter proceeds as follows. The chapter opens with the question of whether the governance of indigenous heritage—which is inherently ‘local’ by definition—is purely local or whether it also pertains to international law, as indicated in part by the UNDRIP and relevant international law instruments. The international norms protecting indigenous cultural heritage are scrutinised within this chapter and particular reference is made to the UNDRIP. The international investment law regime is then briefly outlined, and relevant arbitrations are analysed and critically assessed. The chapter subsequently offers several legal options to better reconcile the different interests at stake. Finally, the conclusions are drawn. The chapter argues that although the UNDRIP significantly contributes to the current discourse on indigenous heritage, further steps must be taken. The collision between international investment law and indigenous rights makes a case for strengthening the current regime protecting indigenous heritage, in particular through the participation of indigenous peoples in the decisions which affect them and their heritage.

2. GLOBAL VS. LOCAL: THE INTERNATIONAL PROTECTION OF INDIGENOUS HERITAGE As indigenous heritage is inherently ‘local’ by definition, the question arises whether its governance should be purely local or should more broadly pertain to international law. Prior to the 1970s, indigenous peoples were not viewed as ‘legal unit[s] of international law’;5 rather, they were almost exclusively regulated under domestic law.6 As Daes stated, ‘[i]nternational law knew no other legal subjects than the state . . . and had no room for indigenous peoples’.7 However, due to national law’s failure to address indigenous peoples’ rights adequately, international law has increasingly regulated indigenous ­peoples’ matters in the past four decades, reaffirming their rights and entitlements. This has signalled a paradigm shift in international law, through which indigenous peoples have been deemed as ‘legal subjects’ under its purview.8 While a number of international law instruments protect different aspects  Ibid.   Cayuga Indians (Gr. Brit.) v. United States (1926) 6 Review of International Arbitral Awards 173, 176 (stating that an Indian tribe ‘is not a legal unit of international law’). 6   Siegfried Wiessner, ‘Indigenous Self-Determination, Culture, and Land: A Reassessment in Light of the 2007 UN Declaration on the Rights of Indigenous Peoples’, in Elvira Pulitano (ed.), Indigenous Rights in the Age of the UN Declaration (Cambridge University Press 2012) 31–63 at 38. 7   Erica-Irene Daes, ‘Indigenous Peoples’ Rights to their Natural Resources’, in Aristotle Constantinides and Nikos Zaikos (eds), The Diversity of International Law (Martinus Nijhoff 2009) 363–79. 8   For a seminal study, see R.L. Barsch, ‘Indigenous Peoples in the 1990s: From Object to Subject of International Law’ (1994) 7 Harvard Human Rights Journal 33. See also Jérémie Gilbert, Indigenous Peoples’ Land Rights under International Law: From Victims to Actors (Transnational Publishers 2006). 4 5

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466  Research handbook on environment and investment law of ­indigenous  heritage,9 indigenous culture plays a central role in UNDRIP.10 The Declaration  is the product of two decades of preparatory work and ‘a milestone of re-empowerment’ of indigenous peoples.11 It constitutes a significant achievement for indigenous peoples worldwide,12 bringing indigenous peoples’ rights to the cutting edge of international law with a cogency that was previously missing. While this landmark human rights instrument is currently not binding, this may change in the future to the extent that its provisions reflect customary international law and/or general principles of law.13 As Stavenhagen noted, ‘[t]he Declaration provides an opportunity to link the global and local levels, in a process of glocalization.’14 Indigenous culture is a key theme of the Declaration.15 Many articles are devoted to different aspects of indigenous culture, and the word ‘culture’ appears no less than 30 times in its text.16 Not only does the UNDRIP recognise the dignity and diversity of indigenous peoples’ culture, but it also acknowledges its essential contribution to the ‘diversity and richness of civilization and cultures which constitute the common heritage of mankind’.17 Moreover, the Declaration recognises indigenous peoples’ right to practice their cultural traditions,18 and to maintain their distinctive spiritual and material relationship with the land which they have traditionally owned, occupied or otherwise used.19 For most, if not all, indigenous peoples, land is not only the basis of economic livelihood, but also the source of spiritual and cultural identity.20 They ‘see the land and the sea, all of the sites they contain, and the knowledge and the laws associated with those  9   For an overview, see e.g. Marina Hadjioannou, ‘The International Human Right to Culture: Reclamation of the Cultural Identities of Indigenous Peoples under International Law’ (2005) 8 Chapman Law Review 201. 10   United Nations Declaration on the Rights of Indigenous Peoples (UNDRIP) GA Res. 61/295, UN Doc A/RES/61/295, 13 September 2007. The Declaration was approved by 143 nations, but was opposed by the United States, Canada, New Zealand and Australia. These four nations did subsequently endorse the Declaration, however. 11   Wiessner, ‘Indigenous Self-Determination, Culture, and Land’, at 31. 12   Elvira Pulitano, ‘Indigenous Rights and International Law: An Introduction’, in Elvira Pulitano (ed.), Indigenous Rights in the Age of the UN Declaration (Cambridge University Press 2012) 1–30 at 25. 13   On the legal status of the Declaration, see Mauro Barelli, ‘The Role of Soft Law in the International Legal System: The Case of the United Nations Declaration on the Rights of Indigenous Peoples’ (2009) 58 ICLQ 957 at 983 (arguing that ‘regardless of its non-binding nature, the Declaration has the potential effectively to promote and protect the rights of the world’s indigenous peoples’ and that ‘the relevance of a soft law instrument cannot be aprioristically dismissed’). 14   Rodolfo Stavenhagen, ‘Making the Declaration Work’, in Claire Charters and Rodolfo Stavenhagen (eds), Making the Declaration Work: The United Nations Declaration on the Rights of Indigenous Peoples (IWGIA 2009) 357. 15   See generally Siegfried Wiessner, ‘The Cultural Rights of Indigenous Peoples: Achievements and Continuing Challenges’ (2011) 22 European Journal of International Law 121 at 139. 16   See Yvonne Donders, ‘The UN Declaration on the Rights of Indigenous Peoples. A Victory for Cultural Autonomy?’ in Ineke Boerefijn and Jenny Goldschmidt (eds), Changing Perceptions of Sovereignty and Human Rights (Intersentia, 2008) 99. 17   UNDRIP, preamble. 18   UNDRIP, Article 11. 19   See e.g. Declaration on the Rights of Indigenous Peoples, preamble, Articles 8, 11, 12.1 and 13.1. 20   Jérémie Gilbert, ‘Custodians of the Land – Indigenous Peoples, Human Rights and Cultural

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Natural resources and indigenous cultural heritage  467 sites, as a single entity that must be protected as a whole’.21 As indigenous peoples often adopt this holistic approach, a UN study insists that ‘all elements of heritage should be managed and protected as a single, interrelated and integrated whole’.22 Among the various theoretical models addressing indigenous peoples’ rights, the cultural integrity approach ‘emphasizes the value of traditional cultures in and of themselves as well as for the rest of society.’23 The cultural integrity approach places cultural entitlements at the centre of the human rights catalogue and emphasizes the importance of cultural considerations to protect indigenous peoples’ rights and their dynamic nexus with their lands. More importantly, as a Native American scholar contended, indigenous sovereignty relies on a continued cultural integrity: ‘to the degree that a nation loses its sense of cultural identity, to that degree it suffers a loss of sovereignty.’24 Some scholars have criticised the cultural integrity approach, contending that emphasising the cultural entitlements of indigenous peoples de facto reduces their political rights and limits their claims to self-determination.25 According to such scholars, overemphasising indigenous culture risks undermining indigenous self-determination.However, without the protection of indigenous cultural identity, all of the other claims of indigenous peoples lose strength. Cultural claims do not replace other claims; rather, they complement and strengthen them. For this reason, the UNDRIP endorses the cultural integrity model, adopting a holistic understanding of indigenous peoples’ rights. In fact, the protection of the cultural identity of indigenous peoples is its raison d’être,26 and ‘one can find the cultural rights angle in each article of the Declaration’.27 Moreover, if one understands the cultural integrity approach as complementary to other issues of importance to indigenous peoples, then it becomes clear that such an approach not only adds to, but is of fundamental importance to understanding and better protecting the culture and human rights of indigenous peoples. A particularly significant limitation of the current legal framework protecting indigenous  cultural heritage is the absence—aside from the classical human rights ­ ­mechanisms—of adjudicative mechanisms at the international level by which indigenous Integrity’, in Michele Langfield, William Logan and Mairead Craith (eds), Cultural Diversity, Heritage and Human Rights (Routledge 2010) 31–44 at 31. 21   Ciaran O’Faircheallaigh, ‘Negotiating Cultural Heritage? Aboriginal Mining Company Agreements in Australia’ (2003) 39 Development and Change 25–51, at 27. 22   Erica-Irene Daes, Study on the Protection of the Cultural and Intellectual Property of Indigenous Peoples, Sub-Commission on Prevention of Discrimination and Protection of Minorities, UN Doc E/CN.4/Sub 2/1993/28. 23   Laura Westra, Environmental Justice and the Rights of Indigenous Peoples (Earthscan 2008) 10. 24   Vine Deloria Jr., ‘Self-Determination and the Concept of Sovereignty’, in John R. Wunder (ed.), Native American Sovereignty (Garland 1996) 118. 25   See generally Claire Cutler, ‘The Globalization of International Law, Indigenous Identity, and the “New Constitutionalism”’, in William D. Coleman (ed.), Property, Territory, Globalization: Struggles over Autonomy (University of British Columbia Press, 2010). 26   Francesco Francioni, ‘The Human Dimension of International Cultural Heritage Law: An Introduction’ (2011) 22 European Journal of International Law 9 at 15. 27   Elsa Stamatopoulou, ‘Taking Cultural Rights Seriously: The Vision of the UN Declaration on the Rights of Indigenous Peoples’, in Stephen Allen and Alexandra Xanthaki (eds), Reflections on the UN Declaration on the Rights of Indigenous Peoples (Hart Publishing 2011) at 392.

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468  Research handbook on environment and investment law peoples can raise complaints regarding measures that affect them.28 The UNDRIP does not address this gap. Therefore, notwithstanding the major political merits of the Declaration, the ‘UNDRIP does not definitively resolve, but at best temporarily mediates, multiple tensions’.29 In light of this limitation, section 3 examines the international investment law regime and the adjudicative mechanisms it offers.

3. INTERNATIONAL INVESTMENT GOVERNANCE AND THE DIASPORA OF INDIGENOUS CULTURE-RELATED DISPUTES BEFORE INTERNATIONAL INVESTMENT TREATY TRIBUNALS International investment law is a well-developed field of study within the broader international law framework and is characterised by sophisticated dispute settlement mechanisms. As there is no single comprehensive global treaty, investors’ rights are defined by an array of bilateral and regional investment treaties and by customary international law. International investment law provides extensive protection to investors’ rights in order to encourage foreign direct investment (FDI) and to foster economic development. At the substantive level, investment treaties provide, inter alia, for adequate compensation for expropriated property, protection against discrimination, fair and equitable treatment, full protection and security and assurances that the host country will honour its ­commitments regarding the investment. At the procedural level, while state-to-state arbitration has been rare,30 investor–state arbitration has become the most successful mechanism for settling investment-related disputes.31 Investment treaties provide investors with direct access to an international arbitral tribunal. The use of the arbitration model is aimed at depoliticising disputes, avoiding potential national court bias and ensuring the advantages of confidentiality and

28   Human rights may be claimed before national courts and regional human rights courts, as well as through particular complaint mechanisms at the UN level. Irene Watson and Sharon Venne, ‘Talking Up Indigenous Peoples’ Original Intent in a Space Dominated by State Interventions’, in Elvira Pulitano (ed.), Indigenous Rights in the Age of the UN Declaration (Cambridge University Press 2012) 87–109 at 106. 29   See Karen Engle, ‘On Fragile Architecture: The UN Declaration on the Rights of Indigenous Peoples in the Context of Human Rights’ (2011) 22 European Journal of International Law 141–63 at 163 (contending that ‘If we are willing to examine it critically, the UNDRIP may have the potential to become an important site for the ongoing struggle over the meaning of human rights’). 30   On state-to-state investment treaty arbitration, see generally Anthea Roberts, ‘State-toState Investment Treaty Arbitration: A Hybrid Theory of Interdependent Rights and Shared Interpretive Authority’, 55 Harvard International Law Journal (2014) 1–70; Michele Potestà, ‘Towards a Greater Role for State-to-State Arbitration in the Architecture of Investment Treaties?’ in Shaheeza Lalani and Rodrigo Polanco Lazo (eds) The Role of the State in Investor–State Arbitration (Brill 2015) 249, 250 (noting that ‘despite being incorporated in almost every BIT, State-to-State dispute settlement clauses have attracted very little attention . . . due to [their] limited use in practice’). 31   Susan Franck, ‘Development and Outcomes of Investor–State Arbitration’ (2009) 9 Harvard Journal of International Law 435–89.

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Natural resources and indigenous cultural heritage  469 effectiveness.32 Once proceedings are initiated by an investor, arbitral tribunals review state acts in light of their investment treaties. Given the structural imbalance between the dispute settlement mechanisms provided by human rights treaties and the highly effective and sophisticated dispute settlement mechanisms available under international investment law, cultural disputes involving investors’ and indigenous peoples’ rights have been repeatedly brought before international investment treaty tribunals. This does not mean that investment arbitral tribunals are the only available fora for such disputes. Additional available tribunals include national courts, human rights courts, regional economic courts, traditional state-to-state courts such as the International Court of Justice, and even inter-state arbitration. Indeed, some of these dispute settlement mechanisms may be more suitable for addressing cultural concerns than investor–state arbitration is. However, given the fact that indigenous rights-related disputes have been frequently brought before investment arbitral tribunals, this chapter specifically aims to unveil and critically assess their jurisprudence. It is first important to understand whether the adjudication of cultural disputes before investment arbitral tribunals results in institutional bias. Investment treaty standards are generally vague and their language encompasses a potentially wide variety of state regulation that may interfere with economic interests. When a state adopts regulatory measures that interfere with foreign investments, foreign investors may consider the regulation as a breach of substantive investment treaty standards of treatment, and they may claim compensation before arbitral tribunals. Furthermore, the architecture of the arbitral process raises significant concerns in the context of disputes involving indigenous heritage. While arbitration structurally constitutes a private model of adjudication, substantively, investment treaty arbitration can be viewed as international public law adjudication.33 Arbitral awards ultimately shape the relationship between the state and private individuals.34 Moreover, arbitrators determine matters such as the legality of governmental activity, the degree to which individuals should be protected from regulation and the appropriate role of the state.35 Therefore, disputes determined within this model can potentially have significant impacts on indigenous culture, heritage, and rights. Investor–state arbitration, however, distinguishes between two types of non-state actors: (1) the investor, and (2) the FDI-impacted non-state actors, in casu, indigenous peoples.36 As FDI-impacted local communities Indigenous peoples do have access to local courts and can eventually make complaints to regional human rights courts or the UN Committee on Economic, Social and Cultural Rights, if they have exhausted domestic remedies and believe a member state has failed to observe its obligations under 32   Ibrahim F.I. Shihata, ‘Towards a Greater Depoliticization of Investment Disputes: The Role of ICSID and MIGA’ (1986) 1 ICSID Review Foreign Investment Law Journal 1–25. 33   Gus Van Harten, ‘The Public–Private Distinction in the International Arbitration of Individual Claims against the State’ (2007) 56 International & Comparative Law Quarterly 371–93 at 372. 34   Gus Van Harten, Investment Treaty Arbitration and Public Law (Oxford University Press 2007) 70. 35   M. Sornarajah, ‘The Clash of Globalizations and the International Law on Foreign Investment’ (2003) 10 Canadian Foreign Policy 1. 36   Noemi Gal-Or, ‘The Investor and Civil Society as Twin Global Citizens: Proposing a New Interpretation in the Legitimacy Debate’ (2008–9) 32 Suffolk Transnational Law Review 271–301.

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470  Research handbook on environment and investment law the Covenant.37 Yet, as FDI-impacted local communities, they do not have automatic access to arbitral tribunals; rather, they can request permission to participate to the proceedings as amici curiae, but depending on the applicable arbitral rules, arbitral tribunals can reject such requests or restrict their admissibility to various requirements. Host states can raise indigenous rights-related arguments during the arbitral proceedings. Indeed, they may be required to raise such arguments under human rights law. Nonetheless, not always states raise relevant human rights-related arguments in arbitral proceedings. Therefore, arbitral proceedings risk undercutting the consideration of indigenous rights and heritage. Furthermore, court decisions in the host state which uphold complaints brought by private parties against a foreign investor may be challenged by the investor before an arbitral tribunal on the grounds that they constitute wrongful interference with the investment.38 The increasing impact of FDI on the social sphere of the host state has raised the question of whether the principle of access to justice, as successfully developed to the benefit of investors through the provision of binding arbitration, should be matched by a corresponding right to a remedial process for individuals and groups adversely affected by the investment in the host state.39 While the recognition of multinational corporations (MNCs) as ‘international corporate citizens’ has progressed,40 the procedural rights of indigenous peoples have remained unchanged. The paradox is that the foreign company and indigenous peoples lie at the opposite ends of the same spectrum: the company is characterised by its foreignness while indigenous peoples are characterised by their indigeneity,41 descending from those who inhabited the area before colonisation. At the same time, however, both parties have clearly defined rights under international law. Section 4 addresses the question of whether indigenous peoples’ cultural rights play any role in the context of international disputes before international investment treaty tribunals.

4.  WHEN CULTURES COLLIDE This section explores the clash of cultures between the promotion of foreign investment and the safeguarding of indigenous cultural heritage. While the international investment

37   Optional Protocol to the International Covenant on Economic, Social and Cultural Rights, GA Res. 63/117, UNGAOR, 63d Sess, Supp No. 49, UN Doc A/RES/117 (2008), adopted 10 December 2008, in force 5 May 2013. 38   Francesco Francioni, ‘Access to Justice, Denial of Justice, and International Investment Law’, in Pierre-Marie Dupuy, Francesco Francioni and Ernst-Ulrich Petersmann (eds), Human Rights in International Investment Law and Arbitration (Oxford University Press 2009) 72. 39   Ibid, 71. 40   Peter Muchlinski, ‘Global Bukovina Examined: Viewing the Multinational Enterprise as a Transnational Law Making Community’, in Gunther Teubner (ed.) Global Law Without a State (Dartmouth 1997) 79. 41   Michele Langfield, ‘Indigenous Peoples are Not Multicultural Minorities – Cultural Diversity, Heritage and Indigenous Human Rights in Australia’ in Michele Langfield, William Logan and Mairead Craith (eds), Cultural Diversity, Heritage and Human Rights (Routledge 2010) 135–52.

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Natural resources and indigenous cultural heritage  471 legal culture is characterised by efficiency, productivity and the pursuit of economic growth, indigenous cultural heritage is based on a holistic understanding of natural resources, cultural practices and human development. The development of natural resources is increasingly occurring in, or very close to, traditional indigenous areas. While development analysts highlight extractive projects as antipoverty measures and advocate FDI as a major catalyst for development,42 the peoples in the areas where the resources are located tend to bear a disproportionate share of the negative impacts of development, such as reduced access to resources and direct exposure to pollution and environmental degradation. Rising investment in the extractive industries can therefore have a devastating impact on the livelihood of indigenous peoples, their rights and culture.43 The linkage between economic globalisation and indigenous peoples’ rights has been frequently discussed by administrative and constitutional courts at the national level,44 and by human rights bodies at the regional and international level.45 The resulting jurisprudence and the relevant literature are extensive. However, there has been limited attention devoted to the emerging jurisprudence of investment treaty arbitral tribunals dealing with elements of indigenous cultural heritage.46 Given the impact that arbitral

 OECD, Foreign Direct Investment for Development (OECD 2002) 3.   Kyla Tienhaara, ‘What You Don’t Know Can Hurt You: Investor–State Disputes and The Protection of the Environment in Developing Countries’ (2006) 6 Global Environmental Politics 73–100. 44   At the national level, see e.g. Hupacasath First Nation v. The Minister of Foreign Affairs Canada and The Attorney General of Canada, Judgment of 9 January 2015, 2015 FCA 4 (CanLII) (the Canadian Federal Court dismissed an application by the Hupacasath First Nation, an aboriginal band in British Columbia, to stay the Canada–China investment treaty until First Nations have been consulted, holding that any potential adverse impacts are nonappreciable and speculative in nature); Yanner v. Eaton (1999) 166 ALR 258, 301 (Austl.) (the High Court of Australia dismissed a charge against a member of an aboriginal tribe who had caught two young crocodiles in Queensland using a traditional harpoon. Although the appellant did not have a hunting permit, the Court concluded that he was exempted from the obligation of obtaining a permit, since his act was based on a traditional aboriginal custom that deems catching young crocodiles to be of high spiritual significance). 45   At the international level, see e.g. Ivan Kitok v. Sweden (Commc’n No. 197/1985), UN Human Rights Comm., para. 4.2, UN Doc CCPR/C/33/D/197/1985, 27 July 1988 (the Human Rights Committee stated that reindeer husbandry, as a traditional livelihood of the indigenous Saami people, is an activity protected under ICCPR Article 27); Jouni Lansman v. Finland (Commc’n No 671/1995), UN Human Rights Comm., para. 10.2, UN Doc CCPR/C/58/D/671/1995, 22 November 1996 (the Committee found that reindeer herding fits into the definition of cultural activities). At the regional level, see e.g. Inuit Tapiriit Kanatami e.a. v. Parliament and Council, Case T 18/10 R, Order of the General Court, 6 September 2011, available at http://eur-lex.europa.eu/ LexUriServ/LexUriServ.do?uri=CELEX:62010TO0018(04):EN:HTML (the Canadian Inuit filed a lawsuit before the European Court of Justice to overturn the EU ban on the import of seal products into the EU. While the regulation exempted the Inuit from the ban, the Inuit people did not export seal products themselves, but rather via nonindigenous exporters. Therefore, they claimed that the exception in their favor would remain an ‘empty box’. Although the Court rejected the claim as inadmissible, the case reveals the way in which the operation of aboriginal exemptions in practice may in fact be inadequate to sustain cultural practices). 46   But see Valentina Vadi, Cultural Heritage in International Investment Law and Arbitration (Cambridge University Press 2014). 42 43

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472  Research handbook on environment and investment law awards can have on indigenous peoples’ lives, culture and rights, scrutiny and critical assessment of this jurisprudence is particularly important. Investment disputes with indigenous cultural elements are characterised by the need to balance the safeguarding of indigenous cultural heritage by the host state and the protection of foreign investments. To date, the crossover of international investment law and indigenous cultural heritage has arisen in four ways.47 First, as investors, indigenous peoples have complained about measures adopted by the host states, alleging that the states failed to take into account their human rights. For example, in Grand River v. United States,48 a Canadian tobacco company composed of indigenous peoples contended that the Master Settlement Agreement—an agreement between tobacco companies and major tobacco producers in the United States—was being applied to their business without their input. For the company, such lack of consultation allegedly violated customary law that requires consultation with (if not the consent of) indigenous peoples on regulatory matters potentially affecting them.49 The Arbitral Tribunal, however, did not find any violation of fair and equitable treatment,50 albeit admitting, in passing, that indigenous peoples should be consulted on matters potentially affecting them.51 Second, foreign investors have filed claims against the host state contending that regulatory measures protecting indigenous cultural rights or heritage were in breach of relevant investment treaty provisions. For example, in Glamis Gold v. United States of America,52 a Canadian investor claimed, inter alia, that measures requiring the backfilling of a previously extracted open-pit gold mine to preserve the skyline of ancient indigenous cultural sites amounted to an indirect expropriation of its investment and /or a violation of fair and equitable treatment.53 The Arbitral Tribunal, however, dismissed the claims, holding that the investment remained profitable and that none of the government actions breached the fair and equitable treatment standard.54 In a less well-known dispute, John Andre v. Canada, a US-based investor lodged a Notice of Intent to Arbitrate, alleging that legislative measures affecting his caribou47   Here I follow the useful analytical framework elaborated by Judith Levine. See Judith Levine, ‘The Interaction of International Investment Arbitration and the Rights of Indigenous Peoples’, in Freya Baetens (ed.) Investment Law within International Law – Integrationist Perspectives (Cambridge University Press 2013) 106–28. 48   Grand River Enterprises Six Nations, Ltd et al. v. United States of America, Award, 12 January 2011, available at www.state.gov/documents/organization/156820.pdf. 49   Ibid at para. 182(3). 50   Ibid at para. 187 (holding that ‘whatever unfair treatment was rendered [the claimant] or his business enterprise, it did not rise to the level of an infraction of the fair and equitable treatment standard of 1105, which is limited to the customary international law standard of treatment of aliens’). 51   Ibid para. 210 (noting that ‘It may well be, as the Claimants urged, that there does exist a principle of customary international law requiring governmental authorities to consult indigenous peoples on governmental policies or actions significantly affecting them’). 52   Glamis Gold, Ltd. v. United States of America, Award, 8 June 2009, available at www.state. gov/documents/organization/125798.pdf. 53   Ibid at para. 359. 54   Ibid at para. 366 (holding that ‘the California backfilling measures did not result in a radical diminution in the value of the . . . Project’).

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Natural resources and indigenous cultural heritage  473 hunting outfitters in Northern Canada violated NAFTA.55 The claimant had previously enjoyed the use of 360 caribou-hunting licenses (caribou quota tags) and had specialised in the organisation of hunting camps for tourists and hunters into aboriginal lands in Canada’s North West Territories (NWT).56 In 2007, the government of the NWT brought in emergency hunting restrictions to conserve the Bathurst caribou population, resulting in the grant of only 75 caribou quota tags per outfitter.57 The claimant alleged that the authorities cut the number of hunting licences in a discriminatory manner58 designed to minimise the negative effect on local outfitters and maximise the negative effects on the investor.59 The justification was that the majority of locally owned outfitters tended to use only 75–100 caribou quota tags annually. The investor therefore claimed to have been discriminated against on the basis of his US nationality.60 However, further regulation ultimately imposed a full hunting ban throughout the NWT. The hunting ban initially extended even to the traditional caribou hunt. This was later revised, resulting in the prohibition of commercial hunting of caribou,61 and the preservation of aboriginal subsistence hunting.62 The aboriginal exemption was due to the fact that for indigenous hunters, the hunt is part of their culture and supports subsistence. The dispute did not proceed to a hearing and is now described by the Canadian government as inactive. Third, foreign investors have filed claims against host states contending that the state failed to protect their investments against actions of indigenous peoples. In Burlington v. Ecuador, the claimant sought, inter alia, to hold Ecuador liable for failing to provide physical protection and security for the company’s hydrocarbon concession in blocks 23 and 24 of the Amazonian rain forests.63 Burlington complained, inter alia, that indigenous communities’ opposition to oil development had impeded its business and that Ecuador’s purported failure to provide physical security violated the standard of full protection and security under the US–Ecuador BIT.64 The Arbitral Tribunal dismissed this specific claim on jurisdictional grounds, stressing the importance of notifying states of disputes so that they have the opportunity to remedy a possible breach and thereby avoid arbitration proceedings.65 Burlington had failed to give clear notice to Ecuador of its claims for denial of full protection and security; therefore, arbitrators ruled that the treaty’s mandatory 55   John R. Andre v. Government of Canada, Notice of Intent to Submit Claim to Arbitration Pursuant to Chapter Eleven of the North American Free Trade Agreement, para.  8, 19 March 2010, available at www.italaw.com/sites/default/files/case-documents/italaw6335.pdf. 56   Ibid, para. 12. 57   Ibid, para. 51. 58  Ibid, para. 35. 59  Ibid, para. 51. 60  Ibid, para. 35. 61   ‘Debate over N.W.T. Caribou Hunting Goes Public’, CBC News, 9 February 2010, www. cbc.ca/canada/north/story/2010/02/09/nwt-caribou-debate.html. 62   ‘New Plan for Canadian Bathurst Caribou Herd Management’, Eye on the Arctic, 2 June 2010, http://eyeonthearctic.rcinet.ca/en/news/canada/35-geopolitics/232-new-plan-for-canadian-bathurstcaribou-herd-management. 63   Burlington Resources, Inc. v. Republic of Ecuador, ICSID Case No. ARB/08/5, Decision on Jurisdiction, 2 June 2010, at paras 27–37. 64   Ibid at paras 26 and 53. 65   Ibid at para. 315.

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474  Research handbook on environment and investment law six-month waiting period before the initiation of arbitration had not passed. The claim was consequently declared inadmissible.66 Fourth, groups of indigenous peoples who are not party to a given arbitration, but have an interest in the outcome of the same, can seek permission to intervene in the proceedings. The first amicus curiae submissions by indigenous peoples before a NAFTA arbitral tribunal were made in the Softwood Lumber case.67 In the Glamis Gold case, the Tribunal granted the Quechan Indian Nation leave to file a non-party submission.68 However, in reaching its decision, the Tribunal did not refer to any of the arguments advanced by their brief. More recently, in Border Timbers Limited and others v Republic of Zimbabwe,69 as well as Bernhard von Pezold and others v Republic of Zimbabwe,70 the claimants alleged unlawful expropriation of their farms in Zimbabwe, which were compulsorily acquired by the government of Zimbabwe as part of its land reform programme. An NGO and four indigenous communities requested permission to file a written submission as amici curiae to the Arbitral Tribunals.71 The farms are allegedly located on the ancestral territories of indigenous peoples,72 and the indigenous communities submitted that ‘the outcome of the present arbitral proceedings w[ould] determine not only the future rights and obligations of the disputing parties with regard to these lands, but m[ight] also potentially impact on the indigenous communities’ collective and individual rights’.73 The Tribunal ultimately rejected the petition.74 It acknowledged that the indigenous tribes have ‘some interest in the land over which the Claimants assert full legal title’, and that ‘it may therefore well be that the determinations of the Arbitral Tribunals in these proceedings will have an impact on the interests of the indigenous communities’.75 However, it held that the ‘apparent lack of independence or neutrality of the petitioners [wa]s a sufficient ground for denying the application’.76 What is the relevance of these and similar cases for international investment law and international law more generally? In general, the issues raised have a significance that extends beyond international investment law itself because of their potential impact on indigenous rights and heritage. From the perspective of investment law, the aforementioned (and similar) cases exemplify how arbitral tribunals have dealt with (or   Ibid at paras 317 and 336.   See ‘WTO Members Comment on Indigenous Amicus Brief in Lumber Dispute’, 2 Bridges Trade BioRes, 16 May 2002. 68   Glamis Gold, Ltd., v. the United States of America, Decision on Application and Submission by Quechan Indian Nation, 16 September 2005, available at www.state.gov/documents/­ organi​ zation/53592.pdf. 69   Border Timbers Limited, Border Timbers International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe, ICSID Case No ARB/10/25. 70   Bernhard von Pezold and others v. Republic of Zimbabwe, ICSID Case No ARB/10/15. 71   Bernhard von Pezold and others v. Republic of Zimbabwe (ICSID Case No ARB/10/15) and Border Timbers Limited, Border Timbers International (Private) Limited, and Hangani Development Co. (Private) Limited v. Republic of Zimbabwe (ICSID Case No ARB/10/25), Procedural Order No 2, 26 June 2012. 72   Ibid, para. 18. 73   Ibid, para. 21. 74   Ibid, para. 64. 75   Ibid, para. 62. 76   Ibid, para. 56. 66 67

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Natural resources and indigenous cultural heritage  475 chosen not to deal with) arguments concerning indigenous peoples’ rights. While arbitral tribunals have demonstrated some level of deference to state regulatory measures aimed at protecting indigenous cultural heritage, tribunals have adopted a more cautious stance when indigenous peoples present arguments as claimants or amici curiae. The arbitral jurisprudence is divided as to whether local protests can amount to a breach of relevant investment treaty provisions. From a broader international law perspective, the collision between international investment law and indigenous human rights law exemplifies the alleged fragmentation of international law and the general question of regime collision. While regime collisions are not a new phenomenon, due to the proliferation of international legal instruments and dispute settlement mechanisms, the mechanisms to cope with such conflicts are far from settled. Section 5 provides a critical assessment of the current interaction of international investment law with the rights of indigenous peoples and proposes two methods for improving their interaction.

5.  CRITICAL ASSESSMENT The collision between international investment law and indigenous human rights law takes place at both procedural and substantive levels. At the procedural level, the right of indigenous peoples to participate in the decisions that affect them is crucial to the protection of their cultural heritage.77 However, international arbitral tribunals constitute an uneven playing field: indigenous peoples do not have direct access to these fora; instead, their arguments must be espoused by their home government, unless they are the investors. While indigenous peoples can, and have, present(ed) amicus curiae briefs reflecting their interests, investment tribunals are not legally obligated to consider such briefs; rather, they have the ability to do so should they deem it appropriate. Moreover, the interaction between international investment law and other sets of law raises the substantive question as to whether the former is a ‘self-contained’ system.78 The increased proliferation of treaties and specialisation of different branches of international law make some overlapping with various sets of law unavoidable. In several investment treaty arbitrations, the arguments in support of foreign direct investment are intertwined with indigenous claims. General treaty rules on hierarchy—namely, first, lex posterior derogat priori,79 and second, lex specialis derogat generali80—may not be wholly adequate to govern the 77   See Article 18 of the UNDRIP (stating that ‘Indigenous peoples have the right to participate in decision-making in matters which would affect their rights, through representatives chosen by themselves in accordance with their own procedures, as well as to maintain and develop their own indigenous decision-making institutions’). 78   Joel P. Trachtman, ‘The Domain of WTO Dispute Resolution’ (1999) 40 Harvard International Law Journal 333 ff. 79   Vienna Convention on the Law of Treaties (VCLT), opened for signature 23 May 1969, in force 27 January 1980, 1155 UNTS 331, Article 30. 80   The concept lex specialis derogat legi generali is ‘a generally accepted technique of interpretation and conflict resolution in international law’. It indicates that ‘whenever two or more norms deal with the same subject matter, priority should be given to the norm that is more specific’. See Conclusions of the Work of the Study Group on the Fragmentation of International Law:

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476  Research handbook on environment and investment law i­nterplay between treaty regimes, as the given bodies of law do not exactly overlap, but have different scopes, aims and objectives.81 Unless a cultural norm constitutes jus cogens,82 it is difficult to foresee and to govern the interaction of different legal regimes. Can investment treaty tribunals take into account and/or apply other bodies of law in addition to international investment law? Given their institutional mandate to settle investment disputes, there is a risk that investment treaty tribunals will water down or overlook noteworthy cultural aspects. International adjudicators may be perceived as detached from indigenous communities and their cultural concerns. For example, they may not have specific expertise in indigenous human rights law, as their appointment instead requires expertise in international (investment) law. Furthermore, due to the emergence of a jurisprudence constante in international investment law, there is a risk that tribunals conform to these de facto precedents without necessarily considering analogous indigenous cultural heritage-related cases adjudicated before other international courts and tribunals. This is not to say that consistency in decision-making is undesirable; indeed, it can enhance the coherence and predictability of the system contributing to its legitimacy. However, the selection of the relevant precedents matters, as it can impact the award. Two avenues can facilitate the consideration of indigenous peoples’ entitlements in international investment disputes: a ‘treaty-driven approach’ and a ‘judicially driven approach’.83 The treaty-driven approach makes the case for: a) strengthening the current regime protecting indigenous entitlements, and/or b) inserting relevant exceptions in the text of investment treaties. Although the UNDRIP constitutes the outcome of decades of elaboration and marks a milestone, it should also constitute the point of departure for further analysis and action. As international investment agreements are periodically renegotiated, treaty drafters can expressly accommodate indigenous peoples’ entitlements in the text of these treaties.84 For example, renegotiation of international investment agreements might take into account the requirements of free prior informed consent and benefit sharing. This and similar forms of differential treatment may be justified under human rights law, and already characterise other branches of international law, such as international environmental law. ‘Aboriginal exemptions’ commonly feature in a number of international environmental treaties which include derogations to their main principles to ‘accommodate the needs of traditional subsistence users of such species’,85 thus protecting traditional hunting practices linked to the cultural heritage of the indigenous Difficulties Arising from the Diversification and Expansion of International Law, adopted by the International Law Commission at its fifty-eighth session, in 2006, and submitted to the General Assembly as a part of the Commission’s report covering the work of that session (A/61/10, para. 251), at p. 2. 81   Donald McRae, ‘International Economic Law and Public International Law: The Past and the Future’ (2014) 17 Journal of International Economic Law 627 at 635. 82   For discussion, see Valentina Vadi, ‘When Cultures Collide: Foreign Direct Investment, Natural Resources and Indigenous Heritage in International Investment Law’ (2011) 42 Columbia Human Rights Law Review 797 at 857 ff. 83   Mihail Krepchev, ‘The Problem of Accommodating Indigenous Land Rights in International Investment Law’ (2015) 6 Journal of International Dispute Settlement 42–73, at 45. 84  Ibid. 85   Convention on Conservation of Migratory Species Article 3, para. 5, 23 June 1979, 19 ILM 11.

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Natural resources and indigenous cultural heritage  477 communities concerned.86 For example, the 1946 International Convention for the Regulation of Whaling, which superseded the 1931 Convention, retains aboriginal rights to subsistence whaling.87 In parallel, investors can take into account the existence of protected groups when assessing the economic risks of the given investment,88 and consider incorporating local communities as part of multiactor contracts.89 Second, the judicially driven approach addresses the question of whether investment arbitral tribunals can acknowledge and/or apply other bodies of law in addition to international investment law. The approach relies on the interpretation and application of international investment law by arbitral tribunals. Investment arbitral tribunals are of limited jurisdiction and cannot adjudicate on eventual infringements of indigenous peoples’ rights. Arbitral tribunals lack the jurisdiction to hold states liable for breaches of their human rights obligations. Rather, they can only determine if the protections in the relevant investment treaty have been breached. Nevertheless, this does not mean that indigenous rights should be irrelevant in the context of investment disputes. When interpreting a treaty, arbitrators can consider additional international obligations of the parties according to customary rules of treaty interpretation as restated by the Vienna Convention on the Law of Treaties (VCLT).90 Arbitral tribunals can and should interpret international investment law in conformity with jus cogens,91 as well as with a state’s obligations under the United Nations Charter.92 Some norms protecting indigenous rights have acquired jus cogens status, such as the right to self-determination and the prohibition of discrimination and of genocide. Moreover, international investment law is not a self-contained regime, but constitutes an important field of international law. As such, it should not frustrate the aim and objectives of the latter, which include the protection of indigenous human rights as expressed,

86   For instance, Article VII of the 1957 Convention on Conservation of North Pacific Fur Seals describes the aboriginal hunting practices that are exempted by the application of the Convention. Interim Convention on Conservation of North Pacific Fur Seals Article 7, 9 February 1957, 314 UNTS 105. 87   The International Convention for the Regulation of Whaling permits the taking of various baleen whales by aborigines, but stipulates that ‘the meat and products of such whales are to be used exclusively for local consumption by the aborigines’. International Convention for the Regulation of Whaling Article III(13)(b), 2 December 1946, 161 UNTS 72, available at www. iwcoffice.org/commission/schedule.htm. 88   Krepchev, ‘The Problem of Accommodating Indigenous Land Rights in International Investment Law’, 71. 89   Ibironke T. Odumosu-Ayanu, ‘Governments, Investors and Local Communities: Analysis of a Multi-Actor Investment Contract Framework’ (2014) 15 Melbourne Journal of International Law 473–510. 90   VCLT, Article 31(3)(c). 91   Vienna Convention on the Law of Treaties (VCLT), done at Vienna on 23 May 1969, in force on 27 January 1980. United Nations Treaty Series, vol. 1155, p. 331, Article 53 (recognizing a jus cogens norm as one ‘accepted and recognized by the international community of states as a whole as a norm from which no derogation is possible’). 92  On jus cogens and international investment law, see Andrea K. Bjorklund, ‘Mandatory Rules of Law and Investment Arbitration’ (2007) 18 American Review of International Arbitration 175–203; Valentina Vadi, ‘Jus Cogens in International Investment Law and Arbitration’ (2015) 46 Netherlands Yearbook of International Law 357–88.

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478  Research handbook on environment and investment law inter alia, in the UNDRIP, the Universal Declaration of Human Rights (UDHR),93 the International Covenant on Civil and Political Rights (ICCPR)94 and the Covenant on Economic, Social and Cultural Rights (ICESCR).95 Instead, arbitral tribunals should interpret international investment law, considering ‘any relevant rules of international law applicable in the relations between the parties’.96 Indigenous cultural entitlements are a significant component of human rights law with provisions across both hard law and soft law.97 Indeed, there are many examples of binding cultural entitlements. Article 1 of both the ICCPR and the ICESCR, for example, recognises the right of self-determination, that is, a people’s right to ‘freely determine their political status and freely pursue their economic, social and cultural development’.98 The same provision also clarifies that international economic cooperation is ‘based upon the principle of mutual benefit, and international law’, and that ‘in no case may a people be deprived of its own means of subsistence’.99 The principle of self-determination is commonly regarded as a jus cogens rule. Furthermore, as previously stated, indigenous culture plays a central role in the UNDRIP. Although the UNDRIP per se is not binding, it can coalesce in customary international law and therefore become binding. Some of its contents already express customary international law or repeat provisions appearing in (binding) treaty law.100 In short, although international investment law pays little attention to culture—­ particularly in the texts of international investment agreements—and international arbitral tribunals consequently have limited or no specific mandate to protect cultural heritage-related rights, provisions such as those of the UNDRIP can influence the interpretation and application of international investment law. This is especially the case with regard to cultural entitlements that are binding or have a peremptory character.

6. CONCLUSIONS The effective protection of indigenous cultural heritage is important per se and for its contribution to the common heritage of humankind and the protection of human rights.

 93   Universal Declaration of Human Rights (UDHR), adopted by the United Nations on 10 December 1948.  94   International Covenant on Civil and Political Rights (ICCPR) adopted and opened for signature by General Assembly resolution 2200A (XXI) of 16 December 1966; 999 UNTS 171; 6 ILM 368 (1967).  95   International Covenant on Economic, Social and Cultural Rights (ICESCR), adopted and opened for signature by General Assembly resolution 2200A (XXI) of 16 December, 1966; 993 UNTS 3; 6 ILM 368 (1967).  96   VCLT, Article 31.3.c.  97   Due to space limitations, this section can provide only a limited number of examples of human rights law provisions recognizing cultural entitlements.  98   ICCPR, Article 1.1 and ICESCR, Article 1.1 (emphasis added).  99   ICCPR, Article 1.2 and ICESCR, Article 1.2. 100   On the role of soft law in international investment law, see e.g. Andrea K. Bjorklund, ‘Assessing the Effectiveness of Soft Law Instruments in International Investment Law’, in Andrea K. Bjorklund and August Reinisch (eds), International Investment Law and Soft Law (Edward Elgar 2012) 51–81.

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Natural resources and indigenous cultural heritage  479 The UNDRIP has furthered the ‘culturalization of indigenous rights’,101 emphasising the importance of indigenous peoples’ cultural entitlements and highlighting the linkage between the safeguarding of their cultural identity and the protection of their human rights. Although the Declaration per se is not binding, it may effectively be or become so, insofar as it reflects customary international law and/or general principles of law and/or jus cogens. At the very least, the UNDRIP constitutes a standard that states should strive to achieve. The interplay between foreign direct investment and indigenous cultural heritage in international investment law and arbitration has risen to the forefront of legal debate. The cases analysed in this chapter provide a snapshot of the clash of cultures between international economic governance and indigenous heritage. They also highlight a fundamental clash between local and global dimensions of regulation. Indigenous heritage is local, belonging to specific peoples and places; meanwhile economic governance has an inherently international character. At the same time, however, indigenous rights and heritage also belong to the international discourse. Investment disputes concerning indigenous cultural heritage have been frequently brought before international investment treaty arbitral tribunals. Such disputes often present a public dimension, because they reflect a conflict between fundamental rights, such as cultural and property rights. Therefore, arbitral tribunals may not be the most suitable fora to settle indigenous cultural heritage disputes as they may face difficulties in finding an appropriate balance between the different interests concerned. Investment arbitral tribunals are courts of limited jurisdiction, and cannot adjudicate on state violations of indigenous peoples’ entitlements. This is not to say, however, that arbitrators should not take indigenous cultural entitlements into account. This chapter has identified two main avenues for considering indigenous peoples’ concerns in the context of investment treaty arbitration. First, de lege lata, according to customary rules of treaty interpretation, as reflected in Article 31.3.c of the VCLT, arbitrators can interpret international investment law while taking into account other international law commitments of the state. If this provision refers to customary law and/or treaty law, a fortiori it includes reference to jus cogens. Second, de lege ferenda, states should introduce relevant provisions in their treaties to protect paramount interests and/or reinforce the international mechanisms for safeguarding indigenous rights. In conclusion, this chapter does not negate the possibility that FDI can represent a potentially positive force for development. However, state policy and practice concerning economic activities must be mindful of the implications for the culture of indigenous peoples. As Reisman contended almost 20 years ago in discussing a draft of the UNDRIP: ‘It remains to be seen whether the words in these noble instruments will be transformed into effective practice or will simply . . . collec[t] the alligator tears that have been shed for centuries for the victims of cultural imperialisms.’102

101   Isabelle Schulte-Tenckhoff, ‘Treaties, Peoplehood, and Self-Determination: Understanding the Language of Indigenous Rights’, in Elvira Pulitano (ed.), Indigenous Rights in the Age of the UN Declaration (Cambridge University Press 2012) 64–86 at 67. 102   Michael Reisman, ‘International Law and the Inner Worlds of Others’ (1996) 9 Saint Thomas Law Review 25, 30.

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20.  Local communities, environment and development: the case of oil and gas investment in Africa Ibironke T. Odumosu-Ayanu*

1. INTRODUCTION The Chad–Cameroon Petroleum Development and Pipeline Project (‘CCPDP’/‘project’) proceeded, inter alia, on the basis of a promise of ‘development’ – or, in the language of the World Bank, ‘poverty alleviation’ – made to the people of Chad and Cameroon.1 The project also incorporated promises of environmental integrity.2 Environmental assessment documents affirmed that the ‘project will be developed in a manner that is compatible with the balanced environmental and economic needs of the communities in which it operates’.3 The CCPDP, a large investment project spanning Chad and *  Associate Professor, College of Law, University of Saskatchewan. Thanks to the Social Sciences and Humanities Research Council (Canada) for funding this research, to Robin Hansen for comments on an earlier draft and to Olufunmi Ayotunde for research assistance. A version of this chapter was presented at the Canadian Association of African Studies Conference at Ryerson University, Toronto in June 2017. Thanks to the participants, including Brendan Schwartz, for their comments on the presentation. 1   Schedule 2 of the Loan Agreement (Petroleum Development and Pipeline Project) between the Republic of Chad and International Bank for Reconstruction and Development (29 March 2001) (Loan Number 4558 CD), online: http://web.worldbank.org/archive/website01210/WEB/ IMAGES/TD_LA_EN.PDF, provides: ‘The objective of the Project is to assist in the development and export through Cameroon of the petroleum reserves of the Doba Basin Oil Fields in an environmentally and socially sound manner and thereby, inter alia, increase the Borrower’s resources and expenditures for poverty alleviation.’ See also Loan Agreement (Petroleum Development and Pipeline Project) between Republic of Cameroon and International Bank for Reconstruction and Development (29 March 2001) (Loan Number 7020 CM), online: http://web.worldbank.org/archive/ website01210/WEB/IMAGES/CM_LA_EN.PDF, sch. 2, noting that: ‘The objective of the Project is to assist in the development and export through the Borrower’s territory of the petroleum reserves of the Doba Basin Oil Fields in an environmentally and socially sound manner, and thereby, inter alia, increase the Borrower’s fiscal revenues available for financing priority development expenditures in the context of the Borrower’s strategy for economic growth and poverty reduction’. 2   One of the Chad–Cameroon Petroleum Development and Pipeline Project’s (CCPDP) mechanisms established in Cameroon is the Foundation for Environment and Development in Cameroon (FEDEC), which World Bank Management have referred to as ‘a consultation and financial mechanism to provide for the biological diversity offset and implementation of the IPDP [Indigenous Peoples Development Plan] as an important aspect of capacity building in Cameroon’. Bank Management Response to Request for Inspection Panel Review of the Cameroon Petroleum Development and Pipeline Project and Cameroon Petroleum Environment Capacity Enhancement Project (29 October 2002), online: http://ewebapps.worldbank.org/apps/ip/PanelCases/27-Management%20Response%​ 20(English).pdf, 9 (‘Bank Management Response: Cameroon’). See also the Foundation for Environment and Development in Cameroon, online: http://fedec.cm/en/mot_de_directeur, citing its work with the CCPDP’s Environmental Management Plan. 3   Environmental Assessment Chad Export Project, Cameroon Portion (October 1997),

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Local communities, environment and development  481 Cameroon, involves a large consortium of transnational corporations (TNCs), including Esso/ExxonMobil – which is the operator – as well as Petronas and Chevron. The project was financed in part with the aid of loans from the World Bank and the International Finance Corporation (IFC).4 Oil and gas projects in African countries that involve foreign investors and other transnational actors, as the CCPDP does, are apt illustrations of the close relationship between economic promises of oil and gas production and environmental degradation. Invoking development as a purpose for these projects, governments, transnational extractive corporations and international financial institutions (IFIs) promise economic returns from large oil and gas projects, and the countries often benefit economically, but the experience of local communities (which in this chapter includes individuals) in African countries demonstrate that the projects often simultaneously have environmental impacts within the host communities that paradoxically exacerbate poverty.5 The interactions between promises of economic development and environmental degradation and the views on these interactions that are espoused by local communities are the focus of this chapter. These are complicated interactions, for the mainstream concept of economic development that is invoked in articulations of encounters with local communities in African countries is one that is contested and a subject of fierce debate.6 The chapter demonstrates that though local communities do not share the privileged status of states and investors in oil and gas investment, instead being placed at the margins of core decisionmaking, they seize opportunities to express views that foster stronger appreciation of the interconnection between the economy and the environment. Even though local communities are at the core of most large investment projects, international investment law gives primacy to state–investor relationships. In oil and gas production in African countries, most of these investors are TNCs. These – mostly foreign – corporations that invest in African countries are large organizations, which some commentators have estimated to be economically larger than some national economies.7 online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI0-4.PDF, at s. 1.7 (‘Environmental Assessment: Cameroon’). See also sections 1.1 and 2.2 of the Environmental Assessment: Cameroon. The environmental assessment document for Chad notes similarly: ‘Business will be conducted in a manner that is compatible with the balanced environmental and economic needs of the community, including communication with the public on environmental matters.’ Environmental Assessment Chad Export Project, Chad Portion (October 1997), online: http:// web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI0PA.PDF, s. 1.7 (‘Environmental Assessment: Chad’). See also sections 1.1 and 2.2 of the Environmental Assessment: Chad. 4   The Inspection Panel, Report and Recommendation on Request for Inspection – Chad: Petroleum Development and Pipeline Project (Loan No 4558-CD); Management of the Petroleum Economy Project (Credit No 3316-CD); Petroleum Sector Management Capacity-Building Project (Credit No 3373-CD), online: http://ewebapps.worldbank.org/apps/ip/PanelCases/22-Eligibility%20 Report%20(English).pdf, at para. 2 (‘Inspection Panel, Report and Recommendation – Chad’). 5   Broken Promises: Gender Impacts of the World Bank-Financed West-African and ChadCameroon Pipelines (Friends of the Earth International; Gender Action, 2011), online: www. genderaction.org/publications/11/chad-cam-wagp-pipelines.pdf. 6   See the discussion in section 2 of this chapter. 7   See Errol P. Mendes, Global Governance, Human Rights and International Law: Combating the Tragic Flaw (Routledge, 2014) 175.

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482  Research handbook on environment and investment law Foreign direct investment (FDI) in the Third World is often premised on its contribution to economic development in host countries.8 Investment treaties9 and dispute settlement institutions such as the International Centre for Settlement of Investment Disputes also refer to the economic development contributions made by foreign investment.10 These investments, especially in extractive industries including oil and gas, have significant environmental impacts; these have included a number of high-profile environmental disasters that have involved Chevron in Ecuador, Shell in Nigeria, Bhopal in India and many others.11 As a result, FDI’s contributions to economic development,12 as well as the relationship between economic development and the environment, have been the subject of debate for many decades.13 This relationship is especially relevant to oil and gas projects that promise large returns, have the potential to cause serious environmental degradation, greatly impact local communities and often involve significant financial and technical investment from foreign investors. It is also a relationship that cannot be separated from the larger context of foreign investment in oil and gas and the law that regulates such investment. Oil and gas disputes were at the forefront of the investment arbitration debate in the early postcolonial era. From Lord Asquith’s assertions in the Abu Dhabi Arbitration that ‘it would be fanciful to suggest that in this very primitive region there is any settled body of legal principles applicable to the construction of modern commercial instruments’14 to Professor Dupuy’s comments in the Texaco v. Libya Arbitration,15 oil and gas production quickly assumed a polarizing position in international disputes. Today, the contested rules

 8   See Theodore H. Moran, Edward M. Graham and Magnus Blostrom (eds), Does Foreign Direct Investment Promote Development (Institute for International Economics, 2005); J. Benson Durham, ‘Absorptive Capacity and the Effects of Foreign Direct Investment and Equity Foreign Portfolio Investment on Economic Growth’ (2004) 48 Eur. Econ. Rev. 285.  9   See Jeswald W. Salacuse and Nicholas P. Sullivan, ‘Do BITs Really Work? An Evaluation of Bilateral Investment Treaties and Their Grand Bargain’ (2005) 46 Harv. Int’l L.J. 67. 10   See paragraph 1 of the preamble to the Convention on the Settlement of Investment Disputes between States and Nationals of other States, 18 March 1965 (1965) 5 ILM 532. See also Paragraph 9 of the Report of the Executive Directors on the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (1965) 5 ILM 524. 11   See Mendes, supra note 7 at 179–85; Kate Miles, The Origins of International Investment Law: Empire, Environment and the Safeguarding of Capital (Cambridge University Press, 2013) 133 to 150 (‘Miles, Origins of International Investment Law’). 12   See Kevin P. Gallagher and Lyuba Zarsky, ‘No Miracle Drug: Foreign Direct Investment and Sustainable Development’ in Lyuba Zarsky (ed.), International Investment for Sustainable Development: Balancing Rights and Rewards (Earthscan, 2005) 13. 13   See generally Report of the United Nations Conference on the Human Environment, Stockholm, 5–16 June 1972, UN Doc. A/CONF.48/14/Rev/1, online: http://www.un-docume​ nts.net/aconf48-14r1.pdf; Rio Declaration on Environment and Development, UN Doc. A/ CONF.151/Rev.1 (1992) 31 ILM 874; Report of the World Commission on Environment and Development: Our Common Future, 4 August 1987, UN Doc. A/42/427, online: https://daccess-ods. un.org/TMP/9233985.54325104.html; Report of the United Nations Conference on Sustainable Development, Rio de Janeiro, 20–22 June 2012, UN Doc. A/CONF.216/16. 14   Petroleum Development (Trucial Coast) Ltd. v. Sheikh of Abu Dhabi (1951) 18 ILR 144 at 149. 15   Texaco Overseas Oil Petroleum Co. v. Libyan Arab Republic (1978) 17 ILM 1; (1979) 53 ILR 389.

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Local communities, environment and development  483 established partly through these arbitral awards have become entrenched through investment treaties, investment arbitration and state-investor oil and gas contracts, regarded as ‘economic development agreements’ by Dupuy in the Texaco v. Libya Arbitration,16 as well as by some commentators.17 Whether or not such connotation is justified, economic development is ascribed to oil and gas contracts and to investment treaties, and is even used as a basis for investor-state arbitration.18 The ascribed economic development connotations of these principal instruments of investment law do not, however, translate into concrete obligations that may be enforced by local communities. Some of the CCPDP contracts include provisions with the potential to benefit local communities but they specifically exclude third parties from enforcing any terms of the contracts.19 While international investment law regulates state conduct and provides protection for investors, many oil and gas production issues that impact local communities and the communities’ perspectives, concerns and rights are negotiated outside the confines of investment ­treaties and arbitration.20 Since decolonization, the relationship between Third World states and the international investment regime has varied,21 ranging from contestation and ambivalence to adoption

16   Ibid. at para. 45, p.16 of the ILM (noting that these agreements ‘tend to bring developing countries investments and technical assistance . . . Thus, they assume a real importance in the development of the country where they are performed: it will suffice to mention here the importance of the obligations assumed in the case under consideration by the concession holders in the field of road and port infrastructures and the training on the spot of qualified personnel. The party contracting with the State was thus associated with the realization of the economic and social progress of the host country’). 17   See e.g. Christopher T. Curtis, ‘The Legal Security of Economic Development Agreements’ (1988) 29 Harv. Int’l L.J. 317 at 318, noting: ‘Many economic development agreements have as their object exploration for and production of oil.’ 18   See supra notes 9 and 10 and accompanying text. 19   Section 6.07 of the Project Agreement (Petroleum Development and Pipeline Project) between International Bank for Reconstruction and Development and Cameroon Oil Transportation Company SA (Dated 29 March 2001) states: ‘A person who is not a party to this Agreement has no right under the Contract (Rights of Third Parties) Act 1999 to enforce any term of this Agreement.’ See also Project Agreement (Petroleum Development and Pipeline Project) between International Bank for Reconstruction and Development and Tchad Oil Transportation Company SA (Dated 29 March 2001), section 6.07; Project Agreement (Petroleum Development and Pipeline Project) between International Bank for Reconstruction and Development and Chevron Petroleum Chad Company Limited (Dated 29 March 2001), section 6.07; Project Agreement (Petroleum Development and Pipeline Project) between International Bank for Reconstruction and Development and Esso Exploration and Production Chad Inc. (Dated 29 March 2001), section 6.07; Project Agreement (Petroleum Development and Pipeline Project) between International Bank for Reconstruction and Development and Cameroon Oil Transportation Company SA (Dated 29 March 2001); Project Agreement (Petroleum Development and Pipeline Project) between International Bank for Reconstruction and Development Petronas Carigali (Chad EP) Inc. (Dated 29 March 2001), section 6.07. 20   See Ibironke T. Odumosu, ‘The Law and Politics of Engaging Resistance in Investment Dispute Settlement’ (2007) 26 Penn State Int’l L. Rev. 251 for a discussion of arbitrators’ reluctance to incorporate communities’ perspectives. 21   For early analysis of the Third World’s relationship with international law, see Mohammed Bedjaoui, Towards a New International Economic Order (Holmes & Meier, 1979); U.O. Umozurike, International Law and Colonialism in Africa (Nwamife Publishers, 1979); R.P. Anand, New States

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484  Research handbook on environment and investment law in some cases.22 This attitude could be explained in part by the colonial history of Western investment in most of the Third World, including Africa, and ‘the colonial origins of foreign investment law’.23 Unequal relationships have continued in engagements with local communities in large transnational projects that often involve many powerful actors able to custom design legal instruments of protection within the broader international law framework. Proponents of these projects recognize the importance of engaging local communities, but engagement often exists at a peripheral level, leaving communities marginalized. Some of the tools that aid marginalization of local communities in large oil and gas projects include limited consultation, limited and mostly informal complaint/dispute settlement mechanisms and outlining environmental matters and the rights of communities in soft instruments. Proponents of the CCPDP designed several plans, including Environmental Management Plans,24 which incorporated a compensation plan,25 a compensation and resettlement plan,26 and an indigenous peoples plan,27 among other plans addressing issues that directly impact local communities.28 This differentiation in legal protection and the (in)ability to design legal instruments reveals a hierarchical approach to extractive industry decisionmaking that places local communities in a position that is less protected than those of the other core actors. Relying on insights drawn from Third World Approaches to International Law (TWAIL), ‘a critical internationalist movement that trains its lenses squarely on the experiences of third-world peoples’,29 this chapter’s analysis of local communities’ perspectives on intersections between the environment and and International Law (Vikas Publishing House, 1972); Taslim O. Elias, Africa and the Development of International Law (A.W. Sijthoff, 1972). 22   See Ibironke T. Odumosu, ‘The Antinomies of the (Continued) Relevance of ICSID to the Third World’ (2007) 8 San Diego Int’l L.J. 345; M. Sornarajah, ‘Mutations of Neoliberalism in International Investment Law’ (2011) 3 Trade L. & Dev. 203. 23   Antony Anghie, Imperialism, Sovereignty and the Making of International Law (Cambridge University Press, 2007) 224 (‘Anghie, Making of International Law’). 24   Environmental Management Plan Chad Portion – Volume 1 (May 1999), online: http:// web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI_-7.PDF; Environmental Man­ agement Plan Cameroon Portion – Volume 1 (May 1999), online: http://web.worldbank.org/archive/ website01210/WEB/IMAGES/MULTI-13.PDF. 25   Environmental Management Plan Cameroon Portion – Volume 3, Compensation Plan (May 1999), online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI-15.PDF. 26   Environmental Management Plan Chad Portion – Volume 3, Compensation and Resettlement Plan (May 1999), online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MUL​ TI_-9.PDF. 27   Environmental Management Plan Cameroon Portion – Volume 4, Part III: Indigenous Peoples Plan (May 1999), online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/ MULTI-16.PDF, from page 153 of the PDF document. 28   Other plans developed for the purpose of the CCPDP include Waste Management Plans. See, e.g., Environmental Management Plan Chad Portion – Volume 5, Waste Management Plan (May 1999), online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI-11.PDF; Environmental Management Plan Cameroon Portion – Volume 5, Waste Management Plan (May 1999), online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI-17.PDF. 29   Obiora Chinedu Okafor, ‘Newness, Imperialism and International Legal Reform in Our Time: A TWAIL Perspective’ (2005) 43 Osgoode Hall L.J. 171 at 191. See also Mukau Mutua, ‘What Is TWAIL?’ (2000) 94 ASIL Proc. 31; B.S. Chimni, ‘Third World Approaches to International Law: A Manifesto’ in Antony Anghie et al (eds), The Third World and International Order: Law, Politics and Globalization (Martinus Nijhoff, 2003) 47.

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Local communities, environment and development  485 the potential economic benefits of oil and gas production focuses on an approach that is ‘antihierarchical’ and ‘counterhegemonic’.30 An antihierarchical perspective permits an analysis of environmental and economic impacts of foreign investment in oil and gas that refuses to place local communities within a hierarchy that does not sufficiently account for their agency and contributions. This chapter studies communities’ views of the CCPDP based on complaints submitted to the World Bank Inspection Panel and the IFC’s Office of the Compliance Advisor Ombudsman (CAO). The CCPDP is an apt choice given that the designers of the project contemplated impacts on local communities. Environmental assessments were undertaken,31 and Environmental Management Plans developed.32 The Development Credit Agreement between Chad and the International Development Association set out to facilitate ‘poverty reduction’ objectives,33 while the Loan Agreement between Cameroon and the International Bank for Reconstruction and Development required Cameroon to establish national parks and implement the project’s plans, including the indigenous peoples plan, land acquisition plan and compensation plan.34 Periodical reports detail the project’s contributions to local employment and business development, continuing consultation, compensation and environmental monitoring and management.35 Hence, the argument here is not that the CCPDP completely failed to take environmental impacts on local communities into account along with its promises of poverty alleviation. Rather, the analysis reveals a hierarchical approach to engaging with local communities that defeats ‘development’ robustly defined. The analysis allows insights into local communities’ invaluable views regarding interactions between the economy and the environment from the lens of complaints and requests submitted to the CAO and Inspection Panel respectively. The merits and challenges of the CAO and the Inspection Panel, as IFI-sponsored mechanisms, are also not the focus of this analysis. The focus instead is on the views that communities expressed using these mechanisms as fora for articulating these views. Communities’ views expressed before the CAO and Inspection Panel demonstrate that local communities present economic and environmental issues simultaneously.   Mutua, supra note 29.   Environmental Assessment Chad Export Project, Cameroon Portion (October 1997); Environmental Assessment Chad Export Project, Chad Portion (October 1997). 32   Environmental Management Plan Chad Portion, Volume 1 (May 1999); Environmental Management Plan Cameroon Portion, Volume 1 (May 1999), online: http://web.worldbank.org/ archive/website01210/WEB/IMAGES/MULTI-13.PDF. 33   Development Credit Agreement (Management of the Petroleum Economy Project) between Republic of Chad and International Development Association (March 20, 2000) (Credit Number 3316 CD), schedule 2. 34   Loan Agreement (Petroleum Development and Pipeline Project) between Republic of Cameroon and International Bank for Reconstruction and Development (March 29, 2001) (Loan Number 7020 CM), section 4.01. See also Development Credit Agreement (Petroleum Sector Management Capacity-Building Project) between Republic of Chad and International Development Association (July 7, 2000) (Credit Number 3373 CD), section 3.01(a); schedules 2, 4 and 7. 35   Chad/Cameroon Development Project, Project Update No 32, Mid-Year Report 2012 prepared by Esso Exploration and Production Chad Inc., in its capacity as Operator of the Consortium and as Project Management Company on behalf of the Tchad Oil Transportation Company SA (TOTCO) and the Cameroon Oil Transportation Company SA (COTCO), online: http://cdn.exxonmobil.com/~/media/global/files/chad-cameroon/32_allchapters_eng.pdf. 30 31

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486  Research handbook on environment and investment law Communities appear to view the two as parts of a single narrative. Their insights are displayed through an articulation of views expressed through a clear sense of agency and have the potential to inform more holistic perspectives on what constitutes development for local communities. Section 2 of this chapter explores perspectives on development and characterizations of the development and environment debate, and situates these within critical perspectives on local communities and international law. Section 3 of the chapter focuses on an analysis of local communities’ views regarding the CCPDP and section 4 concludes with a call for local community participation through the principal instruments that define the scope of projects, as a basis for the concrete adoption of local communities’ views on development and the environment.

2. DEVELOPMENT, ENVIRONMENT AND LOCAL COMMUNITIES IN AFRICA Foreign investment, development, and environment and the relationships these engender with Third World peoples are contentious issues. ‘Development’ is a contested concept.36 The practice of economic development and mechanisms for achieving such development, however designed, vary. One perspective suggests that, like most ideas, the concept of development that animated the relationship between the Third World and the international system for the latter half of the twentieth century was socially constructed.37 For Gustavo Esteva and other contributors to the Development Dictionary anthology, the political usages of the terms ‘developed’ and ‘underdeveloped’ were coined by United States President Harry Truman in 1949. Beyond that coinage, and for development to attain its level of acceptance, the development discourse had immense institutional support from the World Bank and the International Monetary Fund. Development was entrenched in popular discourse when it became a major World Bank project.38 Regardless of the subsequent acknowledgement that one size does not fit all,39 for the World Bank, development is mostly synonymous with somewhat linear economic development.40 Under the neoliberal order, Third World states also at times adopt a linear approach to development and, in some cases, expressly adopt laws and policies that support a ‘catching

36   Some of the discussion in this part of the chapter was presented in Ibironke Odumosu, ICSID, Third World Peoples and the Re-Construction of the Investment Dispute Settlement System (PhD Dissertation, University of British Columbia, April 2010). 37   Gustavo Esteva, ‘Development’ in Wolfgang Sachs (ed.), The Development Dictionary: A Guide to Knowledge as Power (Witwatersrand University Press; Zed Books, 1993) 6. 38   See Martha Finnemore, National Interests in International Society (Cornell University Press, 1996) for an analysis of the World Bank’s role in redefining development. 39   See Hassane Cisse, ‘Legal Empowerment of the Poor: Past, Present, Future’ in Hassane Cisse et al (eds), The World Bank Legal Review Volume 4: Legal Innovation and Empowerment for Development (World Bank, 2013) 31 at 43 (noting that ‘[d]evelopment policy makers have learned through bitter experience that a uniform, one-size-fits-all approach to policy intervention in poor countries can have unfortunate, and sometimes disastrous, consequences’. 40   On economic growth, see generally W.W. Rostow, ‘The Stages of Economic Growth’ (1959) 12(1) Econ. Hist. Rev., New Series, 1. See also Walt W. Rostow, The Stages of Economic Growth: A Non-Communist Manifesto (Cambridge University Press, 1960).

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Local communities, environment and development  487 up’ approach. For example, the first paragraph of the preface to Egypt’s Customs Law provides as follows: It is no fact for the keen objective observer that Egypt currently witnesses a great transitional period as well as a serious approach towards development and modernization in order to catch up with the modern societies and progress. This stage requires intensifying the efforts to provide the necessary investments to make this development happen. It is clear to all how keen the GoE [government of Egypt] is to provide an atmosphere for investment that is characterized by its support to the development process in addition to the GoE giving the private sector the priority and the real chance to invest in the various fields in order to participate in this development by increasing the investments in the various projects.41

Esteva adopts a critical view, arguing that development envisages a form of progress, ‘a favourable change, a step from the simple to the complex, from the inferior to the superior, from worse to better. The word indicates that one thing is doing well because one is advancing in the sense of a necessary, ineluctable, universal law and toward a desirable goal.’42 For African countries, the term ‘development’ is more complex. Esteva observes that the meaning of the word ‘development’ for the Third World ‘is a reminder of what they are not. It is a reminder of an undesirable undignified condition. To escape from it, they need to be enslaved to others’ experiences and dreams.’43 In practice, many Third World states choose to adopt a less critical view of development, and in many cases view it mostly in terms of poverty reduction and the ability to meet basic needs. Amartya Sen espouses a ‘development as freedom’ perspective.44 There are also rightsbased approaches to development.45 For Stiglitz, development encompasses a wide range of issues. Development involves a ‘transformation of society’.46 It is a ‘movement from traditional relations, traditional ways of thinking, traditional ways of dealing with health and education, traditional methods of production, to more “modern” ways’.47 In a revised version of this definition, Stiglitz substitutes the movement from ‘traditional ways of thinking’ for movement from ‘traditional cultures and social mores’.48 Development, for local communities confronted with oil and gas production, is complicated. Large projects, including oil and gas production activities, within communities 41   Customs Law (Egypt) No 66 of the Year 1963 as Amended by Law No 95/2005, online: http://www.mof.gov.eg/SiteCollectionDocuments/Customs%20Law.pdf (emphasis added). 42   Esteva, supra note 37 at 10. 43   Ibid (emphasis in original). 44   Amartya Sen, Development as Freedom (Knopf, 1999). But see B.S. Chimni, ‘The Sen Conception of Development and Contemporary International Discourse: Some Parallels’ (2008) 1 Law & Devp. Rev. Article 2. 45   See Arjun Sengupta, ‘On the Theory and Practice of the Right to Development’ (2002) 24 Hum. Rts. Q. 837; Brigitte I. Hamm, ‘A Human Rights Approach to Development’ (2001) 23 Hum. Rts. Quart. 1005. 46   Joseph Stiglitz, ‘Towards a New Paradigm for Development: Strategies, Policies, Processes’ in Joseph Stiglitz and the World Bank: The Rebel Within/Selected Speeches by Joseph Stiglitz; with a commentary by Ha-Joon Chang (Anthem Press, 2001) 57 at 58. 47  Ibid. 48   Joseph Stiglitz, ‘Towards a New Paradigm of Development’ in John H. Dunning (ed.), Making Globalization Good: The Moral Challenges of Global Capitalism (Oxford University Press, 2003) 76 at 77.

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488  Research handbook on environment and investment law are often life-altering without commensurate opportunities for communities to define and determine project goals within the larger context of their visions for their communities. Community-based perspectives of development, which actively incorporate the views of different groups of individuals within communities, would contribute to concrete changes, as defined by local communities, in the socioeconomic and cultural wellbeing of African peoples, as well as the health of the natural environment.49 They rely on individuals’ views and needs and on community expectations and aspirations. Sometimes, community aspirations might involve decisions not to pursue oil and gas production if the costs are too great. Especially for Indigenous communities, concepts and practices such as resettlement and compensation developed to mitigate the impacts of oil and gas production do not always adequately correspond to communities’ visions. Resettlement, compensation and other like practices are mechanisms that foster natural resource production but are not panacea for the ills of resource production, for in spite of plans to adopt these practices, individuals and communities report significant detriments that contradict holistic development on people’s terms. These practices are situated within a capitalist system that seeks to mitigate negative impacts of ‘development’ projects. This system does not appear to fully possess the language to articulate a coherent view of development that accounts for the complete wellbeing of local communities. The complainants in Centre for Minority Rights Development (Kenya) and Minority Rights Group International on behalf of Endorois Welfare Council v. Kenya50 argued in favour of ‘choice and self-determination’ as including ‘the ability to dispose of natural resources as a community wishes’.51 In the words of the African Commission on Human and Peoples’ Rights (‘African Commission’), for the Endorois, development is: [A]n increase in peoples’ well-being, as measured by capacities and choices available. The realisation of the rights to development, they say, requires the improvement and increase in capacities and choices. They argue that the Endorois have suffered a loss of well-being through the limitations on their choice and capacities, including effective and meaningful participation in projects that will affect them.52

Regardless of the interpretation of development adopted in a specific context, development acquires challenging connotations once placed within the frames of international law, global politics and transnational economics because of the manner in which it has proceeded in international fora. Rajagopal critiques development as a part of ‘hegemonic international law’, arguing that the ‘content of development has expanded to include every goal that is seen as desirable for the Third World, from poverty alleviation,

49  The Declaration on the Right to Development recognizes that ‘[t]he human person is the central subject of development and should be the active participant and beneficiary of the right to development’. United Nations General Assembly, Declaration on the Right to Development, GA Res. 41/128 of December 4, 1986 at art. 2(1). 50   Centre for Minority Rights Development (Kenya) and Minority Rights Group International on behalf of Endorois Welfare Council v. Kenya, African Commission on Human and Peoples’ Rights, 273/2003 (25 November 2009). 51   Ibid at para. 129. 52  Ibid.

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Local communities, environment and development  489 ­ emocratization, rule of law, human rights, environmental sustainability to anti-corrupd tion, with the result that the idea has come to assume a hegemonic function’.53 Rajagopal, however, argues that possibility remains for ‘a reformulation of international law’.54 In one frame, individuals and local communities are engaged as ‘the main participant[s] and beneficiar[ies] of development’55 and, more importantly, they define ‘development’ on terms compatible with their wellbeing. Given development’s purchase with international actors, the language of development retains some potential as a strategic discourse of interaction and as a discourse of resistance. It remains useful for its ‘radical democratic possibilities’.56 Economic development cannot be separated from environmental impacts of oil and gas production. Nowhere is this connection clearer than in experiences of local communities. Both developed and Third World countries are sometimes concerned about the relationship between the environment and the economy,57 even though Third World states are often depicted as ‘grudging participant[s] in environmental regimes’.58 This depiction is, however, not always accurate, for Third World countries have, at times, been at the fore in developing international measures for addressing environmental problems.59 Aside from major environmental issues that have global impacts, interactions between economic development and the environment are most relevant to the local communities that host or are directly impacted by natural resource extraction. Even on a global level, as Philippe Cullet notes, since the late 1980s the environment and economic development have been considered in tandem.60 Cullet argues that ‘at the same time as it was the poverty of developing countries that provided the trigger for broadening the scope of environmental

53   Balakrishnan Rajagopal, ‘Counter-Hegemonic International Law: Rethinking Human Rights and Development as a Third World Strategy’ (2006) 27 Third World Quarterly 767 at 769. 54  Ibid. 55   Declaration on the Right to Development, supra note 49 at preamble. 56   Rajagopal, supra note 53 at 769. 57   On relations between developed countries and the Third World with regard to climate justice, see generally Karin Mickelson, ‘Beyond a Politics of the Possible? South–North Relations and Climate Justice’ (2009) 10 Melb. J. Int’l L. 411. For a discussion inter alia of the United States’ response to the Kyoto Protocol, see Karin Mickelson, ‘Leading towards a Level Playing Field, Repaying Ecological Debt, or Making Environmental Space: Three Stories about International Environmental Cooperation’ (2005) 43 Osgoode Hall L.J. 137 at 148. 58   Karin Mickelson, ‘South, North, International Environmental Law, and International Environmental Lawyers’ (2000) 11 Yearbook of Int’l Envt’l L. 52 at 54, 60 (‘Mickelson, “International Environmental Lawyers”’). See Sumudu Atapattu, ‘The Significance of International Environmental Law Principles in Reinforcing or Dismantling the North-South Divide’ in Shawkat Alam, Sumudu Atapattu, Carmen G. Gonzalez and Jona Razzaque (eds), International Environmental Law and the Global South (Cambridge University Press, 2015) 74 at 82. 59   Mickelson, ‘International Environmental Lawyers’, supra note 58 at 66–7, citing the example of Third World leadership on hazardous waste. 60   Philippe Cullet, ‘Environment and Development – The Missing Link’ in Julio Faundez and Celine Tan (eds), International Economic Law, Globalization and Developing Countries (Edward Elgar, 2010) 354 at 356. Cullet notes that ‘since the publication of the World Commission on Environment and Development (WCED) report in 1987, environmental issues have in principle not been considered in international law in isolation from their development component . . . Thus the 1992 Rio Conference was tasked by the UN General Assembly to address “environmental issues in the development context”’ (footnote omitted).

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490  Research handbook on environment and investment law law, the actual poverty of the majority of poor people in developing countries has not become the core concern of environmental law’.61 Third World states’ attitudes towards development and the environment are not necessarily synonymous with the actual experiences and needs of Third World peoples who live the reality of oil and gas production. While Third World states and international institutions such as the World Bank Group sometimes embrace environmental standards simultaneously with the promise of economic development in oil and gas projects, the experiences of local communities often reveal enduring tensions. These are experiences that expose the influences of neoliberalism on the environmental aspects of oil and gas development.62 They help to understand local communities’ ambivalence towards natural resource extraction flowing partly from historical narratives and experiences, including the plunder of colonialism, and continued mixed experiences that pervade communities’ interactions in this area. Indeed, ‘the colonial background of international law is one that international environmental law shares’.63 Local communities’ perspectives and responses are essential to understanding the interactions between the environment and development in the law related to foreign investment in oil and gas, for ‘international law makes sense only in the context of the lived history of the peoples of the Third World’ – and indeed, in the context of the ‘lived experiences’ of these peoples.64 As Anghie and Chimni note, ‘it is the actualized experience of these peoples, and not merely that of the States that represent them in international fora, that is the interpretive prism through which rules of international law are to be evaluated’.65 Third World states’ views and actions do not always represent the interests and perspectives of these communities.66 International law’s characterization of the relationship between the state and its peoples, especially communities impacted by activities that have the potential to provide significant economic benefits to the larger country, casts these peoples as communities that act against the interest of the state and which the state needs to discipline in order to represent. Anghie argues in this regard that there is a ‘dynamic of difference’ where ‘minority is characterized as the “primitive” that must be managed and controlled in the interests of preserving the modern and universal state’.67 Miles similarly observes that ‘the marginalisation by host states of their own communities can ensue’ when one considers ‘the development policies of the government in partnership with foreign investors on the one hand and the environmental needs of local

  Ibid at 356.   Ibid at 372–3. 63   Mickelson, ‘International Environmental Lawyers’, supra note 58 at 57–8. 64   Antony Anghie and B.S. Chimni, ‘Third World Approaches to International Law and Individual Responsibility in Internal Conflict’ (2004) 36 Studies in Transnational Legal Policy 185 at 186. 65  Ibid. 66   Ibironke T. Odumosu-Ayanu, ‘Governments, Investors and Local Communities: Analysis of a Multi-Actor Investment Contract Framework’ (2014) 15 Melb. J. Int’l L. 473 at 478 (‘Odumosu-Ayanu, “Governments, Investors and Local Communities”’); Anghie and Chimni, ibid (noting that ‘Third World states often act in ways that are against the interests of their peoples . . . Third World peoples’ resistance to, or acceptance of, international rules and practices that affect their lives offers strong evidence of the justice or injustice of those rules and practices’). 67  Anghie, Making of International Law, supra note 23 at 207. 61 62

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Local communities, environment and development  491 communities on the other’.68 Complaints emanating from the CCPDP aptly illustrate this schism. In a Request for Inspection submitted to the World Bank’s Inspection Panel, Chadian communities argued inter alia that consultation was inadequate.69 The Inspection Panel concluded that during the first phase of consultations between Esso, one of the TNCs involved with the CCPCP, and local communities, there was instability and ‘consultations were conducted in the presence of security forces’.70 The Panel noted that NGOs referred to the consultations with the public as ‘“one-way” processes’ where the communities received information regarding planned activities and could not oppose the project or present their views because government representatives and security forces bearing arms, who could intimidate or arrest the people, were present.71 The Panel emphasized that ‘full and informed consultation is impossible if those consulted perceive that they could be penalized for expressing their opposition to, or honest options about, a Bank financed project’.72 Although subsequent consultation efforts appeared stronger and the Panel viewed these positively, early consultation efforts were hampered inter alia by negative state-community relations. In addition, the challenge of potential regulatory chill in the face of foreign investors’ claims,73 and the often difficult relationship between international investment law and the environment,74 could serve as points of difference between states’ perspectives and the interests of local communities. While a single narrative on the environmental interests of local communities does 68  Miles, Origins of International Investment Law, supra note 11 at 105. She further notes that ‘it is not without irony that the goals of furthering development and attracting foreign capital have been used, at times, by developing host states to justify acting in a manner adverse to the interests of certain local communities and their environments’. 69   Chad–Cameroon Development and Pipeline Project, Management of the Petroleum Economy Project, and Petroleum Sector Management Capacity Building Project (2001), Request for Inspection, online: http://ewebapps.worldbank.org/apps/ip/PanelCases/22-Request%20for%20Inspection%20 (English).pdf (‘Chad: Request for Inspection’). 70   The Inspection Panel, Investigation Report: Chad–Cameroon Petroleum and Pipeline Project (Loan No 4558-CD); Petroleum Sector Management Capacity Building Project (Credit No 3373-CD); and Management of the Petroleum Economy (Credit No 3316-CD), online: http:// ewebapps.worldbank.org/apps/ip/PanelCases/22-Investigation%20Report%20(English).pdf at 42. 71   Ibid at 40. 72   Ibid at 42. 73   See generally, Kyla Tienhaara, ‘Regulatory Chill and the Threat of Arbitration: A View from Political Science’ in Chester Brown and Kate Miles, Evolution in Investment Treaty Law and Arbitration (Cambridge University Press, 2011) 606; Julia G. Brown, ‘International Investment Agreements: Regulatory Chill in the Face of Litigious Heat?’ (2013) 3:1 Univ. of Western Ontario J. Leg. Stud. 3, online: http://ir.lib.uwo.ca/uwojls/vol3/iss1/3. 74   See generally, Miles, Origins of International Investment Law, supra note 11; Jorge E. Vinuales, Foreign Investment and the Environment in International Law (Cambridge University Press, 2012); Kyla Tienhaara, The Expropriation of Environmental Governance: Protecting Foreign Investors at the Expense of Public Policy (Cambridge University Press, 2009); Pierre-Marie Dupuy and Jorge E. Viñuales (eds), Harnessing Foreign Investment to Promote Environmental Protection: Incentives and Safeguards (Cambridge University Press, 2013); Rosalien Diepeveen, Yulia Levashova and Tineke Lambooy, ‘“Conference Report: Bridging the Gap between International Investment Law and the Environment”, 4 and 5 November, The Hague, The Netherlands’ (2014) 30 Utrecht J. of Int’l & Eur. L. 145; Kathryn Gordon and Joachim Pohl, ‘Environmental Concerns in International Investment Agreements: A Survey’ OECD Working Papers on International Investment, No 2011/1 OECD Investment Division.

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492  Research handbook on environment and investment law not exist, the ‘resistance to environmental degradation resulting from private sector development’75 that local communities have displayed in their engagement with the CCPDP provides some insight into the navigation of tensions between the environment and promises of development through investment in oil and gas production. For the communities involved with the CCPDP, resistance resulted in transnational engagement beyond the state via complaints mechanisms established by the World Bank and IFC. The insights that communities offer through manifestations of resistance are instructive for a robust understanding of the contestations surrounding economic development and environmental protection and highlight the failings of a state- and investor-centric system steeped in an international order that perpetuates unequal relationships with local communities.

3. LOCAL COMMUNITIES’ ENGAGEMENT WITH FOREIGN INVESTMENT, DEVELOPMENT AND THE ENVIRONMENT 3.1  Local Communities, Resistance and Oil and Gas The CCPDP is only one of the extractive resource projects in Africa where local communities combine economic and environmental issues in articulating their concerns about projects. Such articulation of communities’ views is not foreign to African peoples; it mirrors broader community attempts to assert agency in states and with actors that often do not adequately represent these peoples’ positions and interests. The relationships between local communities, foreign investment in oil and gas and environmental degradation in the Niger Delta have been severally referenced and debated.76 In fact, local communities in Chad involved with the CCPDP invoked the situation of the Ogoni in the Niger Delta in voicing their concerns about the CCPDP before the World Bank’s Inspection Panel.77 The African Commission’s decision in Social and Economic Rights Action Center and Center for Economic and Social Rights v. Federal Republic of Nigeria (‘Ogoni Case’) is 75   Miles, ibid at 105. See also Joan Martinez-Alier, The Environmentalism of the Poor: A Study of Ecological Conflict and Valuation (Edward Elgar, 2002); Joan Martinez-Alier, ‘The Environmentalism of the Poor’ (United Nations Research Institute for Social Development and University of Witwatersrand: World Summit on Sustainable Development, 30 August 2002); Kishan Khoday and Usha Natarajan, ‘Fairness and International Environmental Law from Below: Social Movements and Legal Transformation in India’ (2012) 25 Leiden J.I.L. 415 (noting at 440 that ‘Major environmental movements today are shaped by subaltern social demands in the Third World articulating sustainability on their own terms . . . debates over sustainability in the Third World are driven not only by the evolution of IEL (international environmental law) from Stockholm to Rio, but by a history of colonial and post-colonial use and abuse of natural resources and the communities that host them. Environmental issues in the global South are justice issues. They are about sustainable and inclusive development’). 76   See e.g. Kaniye S.A. Ebeku, ‘The Right to a Satisfactory Environment and the African Commission’ (2003) 3 African Human Rights L.J. 149. 77   Chad–Cameroon Development and Pipeline Project, Management of the Petroleum Economy Project, and Petroleum Sector Management Capacity Building Project (2001), Request for Inspection, online: http://ewebapps.worldbank.org/apps/ip/PanelCases/22-Request%20for%20Inspection%20 (English).pdf at 2.

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Local communities, environment and development  493 one of the most referenced decisions of the African Commission.78 The allegations in the Communication intricately weave questions of economic benefits with environmental impacts of oil and gas production. The Communication alleged, inter alia, that Shell Petroleum Development Corporation and the Nigerian National Petroleum Corporation (NNPC) caused environmental degradation in Ogoniland.79 It alleged that the government was complicit in the environmental damage, not only because of the participation of the NNPC, which is the state oil company, but also because the government did not monitor operations, require ‘environmental impact studies’ or permit scientists or other organizations to conduct such studies, and the government ignored concerns raised by the Ogoni and did not require the oil companies to consult communities.80 All of this is in addition to the egregious conduct of Nigeria’s government of the time, which was a military dictatorship. The Communication related environmental degradation to the economic conditions of the Ogoni when it alleged that the ‘irresponsible oil development’ ‘poisoned much of the soil and water upon which Ogoni farming and fishing depended’.81 The environmental degradation was not only independently important, but also had an impact on the livelihood of the Ogoni. The right to a clean environment, as set out in the African Charter on Human and Peoples’ Rights,82 is presented as a ‘right to a general satisfactory environment favourable to . . . development.’83 The meaning of development in this context is, of course, open to interpretation. According to the Commission, ‘the importance of a clean and safe environment . . . is closely linked to economic and social rights in so far as the environment affects the quality of life and safety of the individual’.84 For the Commission, while the ‘income’ from oil is ‘used to fulfil the economic and social rights of Nigerians’, protection of the Ogonis is essential,85 as is cognizance of the need to ‘restore co-operative economic development to its traditional place at the heart of African Society’.86 The Commission also poignantly observed that: The pollution and environmental degradation to a level humanly unacceptable has made . . . living in the Ogoni land a nightmare. The survival of the Ogonis depended on their land and farms that were destroyed by the direct involvement of the government . . . They affected the life of the Ogoni society as a whole.87

The Commission did not appear to hold a view suggesting that economic development and environmental sustainability are mutually exclusive. It held strongly in favour of environmental protection while also retaining the view that TNCs ‘may be a potentially 78   Social and Economic Rights Action Center and Center for Economic and Social Rights v. Federal Republic of Nigeria, African Commission on Human and Peoples’ Rights, Communication No 155/96, 30th sess, Ref ACHPR/COMM/A044/1 (27 October 2001) [‘Ogoni Case’]. 79   Ibid, paras 1–2. 80   Ibid, paras 4–5. 81   Ibid, para. 9. 82   African Charter on Human and Peoples’ Rights (27 June 1981), 1520 UNTS 217. 83   Ibid, art. 24. 84   Ogoni Case, supra note 78, para. 51. 85   Ibid, para. 54. 86   Ibid, para. 56. 87   Ibid, para. 67.

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494  Research handbook on environment and investment law positive force for development if the State and the people concerned are ever mindful of the common good and the sacred rights of individuals and communities’.88 In the era referenced in the Ogoni Case, the Nigerian government’s engagement with economic development via oil production and environmental protection leaned heavily in favour of the former. Meanwhile the communities adopted a perspective that privileged an environmental consciousness which had a close relationship with their livelihoods. It would be incorrect to cast the allegations in the Ogoni Case as a relic of a military era. Even though most of the highhandedness that accompanied environmental degradation during Nigeria’s most recent military dictatorship is not as prevalent postdictatorship, debates regarding the relationship between economic development and environmental protection in an oil and gas industry that heavily relies on FDI continue unabated. In a case brought before the Community Court of Justice of the Economic Community of West African States in 2009, listing the Nigerian government and Attorney-General as well as Shell, Elf, Agip, Chevron, Total and ExxonMobil as defendants, the interaction between environmental degradation and the communities’ livelihood was evident.89 The applicant connected environmental degradation to deprivation and poverty,90 noting that ‘[h]undreds of thousands of people are affected, particularly the poorest and other most vulnerable sector of the population, and those who rely on traditional livelihoods such as fishing and agriculture’.91 The CCPDP complaints analysed in section 3.2 provide further insights into local communities’ assessments of the interconnections between economic development and environmental degradation. 3.2  The Chad–Cameroon Petroleum Development and Pipeline Project Santa Elena v. Costa Rica,92 Metalclad v. Mexico,93 Tecmed v. Mexico94 – all instances of relatively early examples of contemporary international investment arbitration disputes – and also more recent awards, such as Clayton v. Government of Canada,95 involved analysis of investment losses and environmental regulation. These cases assessed environmental regulation’s impacts on foreign investment and displayed international investment law’s unease with the place of local communities in the foreign investment and environmental   Ibid, para. 69.   The Registered Trustees of the Socio-Economic Rights & Accountability Project v. President of the Federal Republic of Nigeria & Ors, Community Court of Justice of the Economic Community of West African States, ECW/CCJ/APP/07/10 (10 December 2010). The Court ultimately concluded that it did not have jurisdiction over the corporations. 90   Ibid at para. 4. 91   Ibid at para. 5. See also paras 6 and 9. 92   Compania del Desarrollo de Santa Elena S.A. v. Republic of Costa Rica, (2000) 15 ICSID Rev.-FILJ 169. 93   Metalclad Corporation v. United Mexican States (ICSID Case No. ARB(AF)/97/1), (2002) 5 ICSID Report 209 at 226; (2001) 16 ICSID Rev.—FILJ 168. 94   Técnicas Medioambientales Tecmed, S.A. v. United Mexican States (ICSID Case No ARB(AF)/00/2) (2004) 19 ICSID Rev.—FILJ 158; (2004) 43 ILM 133. 95   William Ralph Clayton, William Richard Clayton, Douglas Clayton, Daniel Clayton and Bilcon of Delaware, Inc. v. Government of Canada (Permanent Court of Arbitration (PCA) Case No 2009-04), Award on Jurisdiction and Liability, UNCITRAL (17 March 2015) (Professor Donald McRae dissenting). 88 89

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Local communities, environment and development  495 protection conversation. Investment arbitration has proceeded and is understood as a mechanism that hardly engages local communities. Instead, local communities may employ project-specific grievance mechanisms or complaints mechanisms established under the auspices of the World Bank or the IFC. Unlike judicial processes or quasi­ judicial mechanisms that may yield compensation or damages awards, proceeding though the World Bank and the IFC’s complaint mechanisms – the Inspection Panel and the CAO, respectively – yields a much narrower result. In the case of the Inspection Panel, the process involves an examination of whether there has been a violation of the World Bank’s standards. CCPDP-related complaints submitted to the Inspection Panel and CAO provide a window into communities’ views about this project and offer some insights that allow a reading of the CCPDP from the lens of local community engagement. The CAO serves as a mechanism for individuals and communities to submit complaints regarding social and environmental issues arising from IFC and Multilateral Investment Guarantee Agency (MIGA) projects.96 As noted in the CAO’s Operational Guidelines, the ‘CAO is not an appeals court or a legal enforcement mechanism, nor is CAO a substitute for International court systems or courts systems in host countries’.97 Rather, it is an ‘independent recourse and accountability mechanism’ that ‘provides communities and individuals with access to a grievance mechanism that offers redress for negative environmental and/or social impacts associated with IFC/MIGA projects’.98 It assumes dispute resolution, compliance and advisory roles.99 Rather than adopt the more formal and adversarial processes to which other actors, including states and investors, in investment projects are party, the CAO offers ‘a flexible, collaborative, problem-solving approach’.100 In May 2011, communities and farmers from Cameroon filed a complaint with the CAO alleging that they were adversely affected by the CCPDP and had not received adequate compensation.101 Some of these complaints were situated at the intersection of investment in oil and gas, the development of the host countries and environmental protection. The complaint alleged, inter alia, that there were environmental and economic impacts from the destruction of a reef that impacted residents of Kribi, who are mainly fishermen.102 It alleged that not only were plans to mitigate damage to the reef not included in the Environmental Management Plan, but the reef’s destruction also ‘had a disastrous impact on the local economy’.103 In addition, the complaint included an allegation that oil spills,

 96   CAO Operational Guidelines (Washington, DC: World Bank Group, 2013) online: http:// www.cao-ombudsman.org/documents/CAOOperationalGuidelines2013_ENGLISH.pdf at 4.  97   Ibid, at 4.  98  Ibid.  99   Ibid, at 4–5. 100   Ibid, at 4. 101   Public Version of the Complaint filed with the Compliance Advisor/Ombudsman (CAO), online: http://www.cao-ombudsman.org/cases/document-links/documents/ComplaintWEB_English​ _May252011.pdf (‘Cameroon CAO Complaint’). The CAO issued its assessment report in January 2012. See CAO Ombudsman Assessment Report: Regarding Concerns from Community Members about the Chad-Cameroon Petroleum Development and Pipeline Project (#11124) in Cameroon, January 2012, online: http://www.cao-ombudsman.org/cases/document-links/documents/FINAL_ Cameroon_Assessment_Report__English_Jan5_2012.pdf. 102   Cameroon CAO Complaint, ibid, at 2. 103  Ibid.

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496  Research handbook on environment and investment law which are traditionally viewed from an environmental perspective, had negative economic impacts on the community.104 It also identified toxic waste as a problem.105 The complaint also made specific reference to the impacts of the Chad–Cameroon pipeline on the Bagyeli Indigenous peoples in Cameroon.106 This was not the first time that the spotlight had been turned on the CCPDP and the Bagyeli. The World Investment Report of 2007 noted the CCPDP’s environmental and economic impacts on the Bagyeli people, outlining damage to forests, hunting and fishing.107 These complainants from Cameroon were concerned about their wellbeing, viewed in terms of their livelihoods and their environment. Issues related to their wellbeing were presented comprehensively and both the environmental and economic dimensions were simultaneously highlighted. A complaint was filed before the CAO in October 2011 by NGOs representing 25,220 people from 4,107 households in 25 villages from the Chadian side of the project.108 This complaint accentuated the World Bank Group’s poverty reduction rationale for the CCPDP as well as what it referred to as ‘exacerbation of poverty in Chad’, especially in the oil production area.109 The complaint outlined a variety of issues related to environmental and poverty-related themes. In this regard, the complainants referenced and expressed concerns about the impacts of pollution on the environment, animals and people’s livelihood. The complaint from the Chad project area alleged that the project reduced and destroyed agricultural land and caused erosion, loss of fertility and declining crop produce.110 The allegations also included claims of fleeing wildlife and destruction of fish.111 According to the complaint, the effects of gas flaring impacted plant development and communities’ livelihood.112 The complaint often placed environmental and economic concerns side by side. In one instance it noted that burying used equipment in landfills resulted in pollution of land, while also noting a decline in farm yields.113 Concerns also included toxic waste management and flooding.114 The complaint referred to ‘irreversible environmental impact’, pollution of rivers, oil spills and air pollution.115 It also included allegations of limited remedies for pollution and other environmental degradation, as well as limited community consultation.116 The CAO completed its assessment noting that the  Ibid.  Ibid. 106  Ibid, at 3. The documents referred to in this part of the chapter refer to the Bagyeli, the Bakola or the Bakola/Bagyeli. I have retained the original usage in each document in this discussion. 107  UNCTAD, World Investment Report: Transnational Corporations, Extractive Industries and Development (United Nations, 2007) 151. 108   Complaint from Local Inhabitants and Communities in the Chad Project Area to Compliance Advisor/Ombudsperson of the International Finance Corporation (IFC) of the World Bank Group (October 10, 2011), online: http://www.cao-ombudsman.org/cases/document-links/ documents/ComplainttoCAO_Chad_webversion_Dec2011.pdf 3 (‘Chad CAO Complaint’). 109   Ibid, at 4. 110   Ibid, at 7. 111   Ibid, at 7. 112   Ibid, at 14. 113  Ibid. 114   Ibid, at 24–5. 115   Ibid, at 27. 116   Ibid, at 33–4. 104 105

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Local communities, environment and development  497 complainants, community representatives and Esso Exploration and Production Chad Inc ‘agreed to participate in a voluntary dispute resolution process’.117 The CAO appears to be a useful mechanism for addressing grievances that involve local communities. The CAO is, however, illustrative of the different form of engagement and dispute resolution that is often established for communities impacted by large projects. The contracts formed between the TNCs, governments, World Bank and other actors include clearly defined independent dispute settlement processes which mostly do not exist in the case of the communities. As noted in the CAO’s Assessment Report, the purpose of CAO Assessment is not to make a judgment based on ‘the merits of the complaint’.118 The complainants from the Chad side of the CCPDP challenged the complaints process. They argued before the CAO that the structures established for project management are ‘advisory councils’ with ‘no power of compulsion’ and the work of the established structures is ‘limited to recommendations made to the various parties involved in the project’.119 In addition, the complaint alleged that there was no ‘national mechanism to monitor environmental and social aspects of the project in the field’ and that remedies for the communities are weak or nonexistent.120 The complaint also alleged that there were ‘weak mechanisms or no mechanism at all for supervision, surveillance and monitoring of environmental and social aspects’.121 Some of the CCPDP’s primary instruments include a number of soft mechanisms targeted at addressing complaints from local communities. In the Environmental Management Plan for the Chad portion of the CCPDP, the Ministry of Justice, for example, is charged with monitoring compliance with conflict resolution related to complaints regarding land occupancy issues.122 In addition, Chad’s Compensation and Resettlement Plan, one of the documents that is most relevant to the local communities, includes limited grievance mechanisms such as notifying affected people about ‘post-contract grievance procedures’123 and procedures for local communities to direct complaints to representatives of the companies with regard to resettlement and compensation.124 Cameroon’s Compensation and Resettlement Plan 117   CAO Ombudsman Assessment Report regarding Community and Civil Society Concerns in Relation to the Chad–Cameroon Petroleum Development and Pipeline Project (#11125) in Chad (October 2012), online: http://www.cao-ombudsman.org/cases/document-links/documents/ CAOChadCamAssessmentReport_October2012.pdf at 5 (‘Ombudsman Assessment Report: Chad’). In a progress report released in January 2014, the CAO outlined the status of the ‘mediated negotiation process’ to which the parties had agreed. CAO Progress Report: Chad/Chad-Cameroon Pipeline-03/ Chad (January 2014), online: 3. 118   Ombudsman Assessment Report: Chad, ibid, at 6. 119   Chad CAO Complaint, supra note 108 at 30. 120   Ibid, at 33. 121   Ibid, at 4. 122   Chad Export Project, Environmental Management Plan: Chad Portion (Volume 1) May 1999, online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI_-7.PDF, art. 4.4.9. 123   Environmental Management Plan, Chad Portion (Volume 3): Chad Compensation and Resettlement Plan, May 1999, online: http://web.worldbank.org/archive/website01210/WEB/IMAG​ ES/MULTI_-9.PDF, s. 6.9.5. 124   Environmental Management Plan, Chad Portion (Volume 3): Chad Compensation and Resettlement Plan, May 1999, Section 8.7.1. See also sections 8.7.2 and 8.7.3. See also Environmental

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498  Research handbook on environment and investment law also refers grievances to the companies’ designated representatives.125 These grievance procedures do not provide avenues for challenging the Compensation and Resettlement Plan itself. Referencing existing Cameroonian laws, the Environmental Assessment for the Cameroon Portion of the CCPDP reaffirms that disputed compensation claims may be submitted to a court within Cameroon.126 In spite of the marginal complaints mechanisms established to address local communities’ concerns, which foster a hierarchical engagement structure, individuals and communities are not deterred in their efforts to express their views. As noted in the complaint submitted to the CAO from Cameroon, there had been ‘tripartite dialogue’ between the NGOs, the consortium of companies and the government of Cameroon for several years and there had been no resolution of the disputes.127 The World Bank’s Inspection Panel was one of those bodies that had received requests regarding local communities’ concerns regarding the CCPDP. Like the CAO, complaints filed before the Inspection Panel offer insights into communities’ interests and positions regarding the environmental and economic impacts of oil and gas projects. The Inspection Panel, another body with a limited mandate to review communities’ complaints that they or the environment have been negatively impacted by World Bank-financed projects, determines whether the World Bank has complied with its own policies and procedures.128 The Panel sends a report of its ‘findings’ to the World Bank’s Board of Executive Directors and Management prepares recommendations to address the Inspection Panel’s ‘findings’.129 The Inspection Panel’s reliance on World Bank procedures and operational policies is a significant limiting factor but a deliberate delineating mandate. As long as the actions complained of comply with these directives and policies, requesters do not have any recourse through this channel. The Inspection Panel does not determine fault and it does not award compensation for damage. It is not a court. Like the CAO, the Inspection Panel is a limited mechanism. While it provides an avenue for communities’ complaints, recourse is limited. Early in the life of the CCPDP, some communities in Chad submitted a Request for Inspection (‘Request’) to the Inspection Panel arguing that the World Bank had not followed its rules and procedures.130 The Request, which included substantial allega-

Management Plan, Cameroon Portion (Volume 3): Cameroon Compensation Plan, May 1999, online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI-15.PDF. 125   Chad Export Project: Cameroon Compensation Plan, COTCO/ESSO Pipeline Company (June 1998), online: http://web.worldbank.org/archive/website01210/WEB/IMAGES/MULTI0-8. PDF, s. 7.4; Chad Export Project: Chad Compensation and Resettlement Plan, ESSO Exploration and Production Chad Inc. (February 1998), online: http://web.worldbank.org/archive/website01210/ WEB/IMAGES/MULTI0-3.PDF, s. 8.7. 126   Environmental Assessment: Cameroon, supra note 3 at s. 5.2.2.3. 127   Cameroon CAO Complaint, supra note 101 at 4–5. 128   The World Bank, Inspection Panel, ‘About Us’, online: http://ewebapps.worldbank.org/ apps/ip/Pages/AboutUs.aspx. 129   The World Bank, Inspection Panel, ‘Panel Mandate and Bank Policies’, online: http:// ewebapps.worldbank.org/apps/ip/Pages/Panel-Mandate.aspx. See also International Bank for Reconstruction and Development, International Development Association, Resolution No IBRD 93-10; Resolution No IDA 93-6, ‘The World Bank Inspection Panel’ (22 September 1993). 130   Chad: Request for Inspection, supra note 69.

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Local communities, environment and development  499 tions regarding violations of environment-related policies, outlined concerns related to ­environmental impact assessments; potential pollution of rivers and water tables and other environmental degradation; impacts on native inhabitants and cultural heritage; and inadequate consultation and compensation. It expressed concerns about medicinal plants and a ‘densely populated’ region that it called Chad’s ‘breadbasket’.131 The Request was not only concerned about feeding Chadian peoples, but also referred to ‘the great ecological danger posed by the exploitation of Chadian oil.’132 The Bank Management’s Response outlined the requests as 26 allegations and concluded that the World Bank complied with all applicable procedures and operational policies.133 It did, however, acknowledge that some of the ‘areas of concern require sustained attention’.134 The Inspection Panel took an alternative view; it concluded that the Request for Inspection and Management’s Response included conflicting contentions and adopted conflicting interpretations of the issues, and decided to recommend an investigation.135 It is instructive that the Chadian requesters were not completely opposed to the project. As the Inspection Panel noted, they ‘generally supported the Pipeline Project within the context of their Request’.136 The requesters used the limited resources available – in this case the Inspection Panel – to express concerns about the project, prompting the Inspection Panel to determine whether Management was in compliance with its policies, directives and procedures and sometimes finding that Management was not in compliance.137 By virtue of the Inspection Panel’s recommendations, the communities were able to raise awareness about important issues and potentially secure greater environmental and other protection. The communities’ requests generated the Inspection Panel’s discussion and criticism of the project’s environmental challenges as well as some of the troubling economic issues raised, including concerns about Chad’s expected rate of return from the project and local leaders’ ‘deep reservations on whether Chadians would be the ultimate beneficiaries of the Project’.138 The communities worked within a limited system but were able to exercise agency with regard to issues that they deemed important.

  Ibid, at 2–3.   Ibid, at 3. 133   Bank Management Response to Request for Inspection Panel Review of the Chad–Cameroon Petroleum Development and Pipeline Project, Chad Petroleum Sector Management Capacity Building Project, and Chad Management of the Petroleum Economy Project (10 May 2001), online: http://ewebapps.worldbank.org/apps/ip/PanelCases/22-Management%20Response%20(English).pdf. 134   Ibid, at 49. 135   Inspection Panel, Report and Recommendation – Chad, supra note 4 at x–xi. 136   Ibid, at x. 137   The Inspection Panel, Investigation Report: Chad–Cameroon Petroleum and Pipeline Project (Loan No 4558-CD); Petroleum Sector Management Capacity Building Project (Credit No 3373-CD); and Management of the Petroleum Economy (Credit No 3316-CD), online: http://ewebapps.worldbank.org/apps/ip/PanelCases/22-Investigation%20Report%20(English).pdf (‘Chad: Investigation Report’). For Management’s Response, see IBRD and IDA, Management Report and Recommendation in Response to the Inspection Panel Investigation Report, Chad: Chad– Cameroon Petroleum Development and Pipeline Project (Loan No. 4558-CD); Petroleum Sector Management Capacity-Building Project (Credit No 3373-CD); and Management of the Petroleum Economy Project (Credit No 3316-CD) (21 August 2002), online: http://ewebapps.worldbank.org/ apps/ip/PanelCases/22-Management%20Report%20and%20Recommendation%20(English).pdf. 138   Chad: Investigation Report, ibid, at 84, para. 280. 131 132

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500  Research handbook on environment and investment law Communities from Cameroon also filed a Request for Inspection in 2002.139 The Centre for Environment and Development filed the Request on behalf of individuals and communities.140 The Bakola claimed they had been negatively impacted by the project and did not benefit from the ‘advantages’ outlined in the Indigenous Peoples Plan. According to World Bank Management in its Response, ‘[t]he central goal of the IPDP [Indigenous Peoples Development Plan] is to work with the Bakola to raise their standard of living and empower their communities so that they can take their place as full citizens of Cameroon and establish their position within the local customary land use system’.141 The Bakola argued that rivers were polluted, environmental disturbance that negatively impacted animals and people’s ‘subsistence’ occurred, compensation was unpaid and information provided to the community was inadequate.142 Members of other communities also alleged that promises were not kept, consultation was not adequate, drinking water sources were destroyed, they were not able to fish and, in fact, environmental studies did not adequately consider fishing and fishing rights.143 Some specifically complained about the pace of dispute settlement, noting that they did not receive information concerning available dispute settlement mechanisms.144 The Request for Inspection also noted that the ‘analysis of alternatives’ was ‘carried out solely from the point of view of the companies promoting the project, and not from the point of view of society as a whole’.145 In addition to the allegations regarding the environment, including concerns regarding the project’s impacts on climate change,146 the Request for Inspection specifically claimed that the project ‘caused structural impoverishment of numerous persons living along the pipeline’, again weaving environmental and economic concerns while also noting the inadequacy of the plans put in place to mitigate negative project impacts.147 Following its finding of conflicts in the Request for Inspection and World Bank Management’s Response to the Request,148 the Inspection Panel recommended an investigation into the allegations included in the Request for Inspection.149 Even though the focus of this analysis is the communities’ interpretations of the impacts of the project and not the reports of

139   See Cameroon Petroleum Development and Pipeline Project, and Petroleum Environment Capacity Enhancement Project (2002), online: http://ewebapps.worldbank.org/apps/ip/Pages/ ViewCase.aspx?CaseId=57 for documents related to the request from individuals and communities in Cameroon. 140   Request for Inspection – Cameroon: Petroleum Development and Pipeline Project (Loan No 7020-CM); and Petroleum Environment Capacity Enhancement (CAPECE) Project (Credit No 3372-CM) (20 September 2002), online: http://ewebapps.worldbank.org/apps/ip/PanelCases/27Request%20for%20Inspection%20(English).pdf (‘Request for Inspection – Cameroon’). 141   Bank Management Response: Cameroon, supra note 2, page 15 at para. 50. 142   Request for Inspection – Cameroon, supra note 140 at 4–5. 143   Ibid, at 5–6. 144   Ibid, at 5. 145   Ibid, at 6. 146   Ibid. On climate change and ‘vulnerable groups’, see Report of the Special Rapporteur on the Issue of Human Rights Obligations Relating to the Enjoyment of a Safe, Clean, Healthy and Sustainable Environment, 1 February 2016, Human Rights Council A/HRC/31/52. 147   Request for Inspection – Cameroon, supra note 140 at 7. 148   Bank Management Response: Cameroon, supra note 2. 149   The Inspection Panel, Report and Recommendation on Request for Inspection – Cameroon: Petroleum Development and Pipeline Project (Loan No 7020-CM); and Petroleum Environment

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Local communities, environment and development  501 the CAO or the Inspection Panel, it is apposite to note that the Inspection Panel issued an Investigation Report,150 and World Bank Management responded.151 The Inspection Panel, referring to the ‘Bakola/Bagyeli’ peoples, observed that they are ‘usually “spoken for”’.152 Regarding the Bakola/Bagyeli, the Inspection Panel mostly found compliance but observed that although it is often the case that ‘project-affected people’ are regarded as a much narrower group, ‘the impact of the pipeline may indeed be greater for the Bakola/ Bagyeli, whose subsistence still include, to a large extent, hunting areas covering a larger segment of the littoral forest in addition to their agricultural settlements along the pipeline route’.153 It further observed that a narrow designation ‘ignores the wider social, economic and ecological dimensions of Bakola/Bagyeli subsistence patterns’.154 Local communities’ views of the CCPDP, expressed through complaints and requests submitted to the CAO and Inspection Panel, provide a number of insights into the economic development/environmental protection debate. Communities remind us, through their engagement and resistance, that there is no single narrative regarding environmental protection and neither is it helpful to essentialize communities or individuals within communities. Communities’ views could be as diverse as the number of communities that express their views about projects. The Inspection Panel Request from Cameroon outlined communities’ views according to the specific concerns of a number of communities, identifying differences in experience. They also clearly establish that environmental issues are as important as economic issues and they are not mutually exclusive. Each complaint and request outlined economic and environmental issues, demonstrating how one impacts the other for the communities. Issues that the international community compartmentalizes as environmental or as economic do not always translate into ‘boxes’ for local communities. Rather, local communities present their experiences holistically and expect to engage on those terms. The CCPDP is illustrative of the international community’s limited acknowledgement that local communities are stakeholders whose cooperation and participation are essential to the success of large projects. However, this acknowledgement does not translate into active inclusion in the mechanisms of international investment law that determine the course of the rules that bind states in their engagement within this system. African states are bound by their commitments in investment treaties, which make cursory, mostly

Capacity Enhancement (CAPECE) Project (Credit No 3372-CM), online: http://ewebapps.worldbank.org/apps/ip/PanelCases/27-Eligibility%20Report%20(English).pdf 18. 150   The Inspection Panel, Investigation Report – Cameroon: Petroleum Development and Pipeline (Loan No 7020-CM) and Petroleum Environment Capacity Enhancement (CAPECE) Project (Credit No 3372-CM) (2 May 2003), online: http://ewebapps.worldbank.org/apps/ip/ PanelCases/27-Investigation%20Report%20(English).pdf (‘Cameroon: Investigation Panel Report’). 151   IBRD and IDA, Management Report and Recommendation in Response to the Inspection Panel Investigation Report – Cameroon: Petroleum Development and Pipeline Project (Loan No 7020-CM) and Petroleum Environment Capacity Enhancement (CAPECE) Project (Credit No 3372-CM), Report No INSP/R2003-0003 (28 May 2003), online: http://ewebapps.worldbank.org/ apps/ip/PanelCases/27-Management%20Report%20and%20Recommendation%20(English).pdf. 152   Cameroon: Investigation Panel Report, supra note 150 at 59 (referring to the relationship between the Bakola/Bagyeli and the Bantu). 153   Ibid, at 65. 154  Ibid.

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502  Research handbook on environment and investment law unenforceable references to economic development, while the peoples that these states purport to represent do not possess much, if any, direct influence or recourse under that system.155 Nevertheless, communities continue to engage within available mechanisms articulating views on issues of economic development and environmental degradation. While they might be limited in their interactions with the core apparatuses of investment law, they remain engaged in a manner that has the potential to expand the economic development and environmental degradation conversations and resultant practices. The analysis of the CCPDP complaints also demonstrates that local communities regard environmental protection highly, they present economic and environmental matters as issues that impact each other in oil and gas production and they sometimes hold standards of environmental protection that are higher than those stipulated in the guiding soft instruments upon which they are required to rely for the purposes of complaints. The experiences of local communities buttress the point that financial returns flowing from projects do not necessarily suggest that economic development is occurring. Project proponents are evidently aware of the mutual coexistence of economic and environmental matters but do not appear to show sufficient appreciation for the interconnectedness of these matters in the manner allowed by the ‘lived experiences’ of local communities.156 The views expressed by communities regarding the CCPDP urge conversations regarding conceptual interpretations of economic development and environmental protection. Beyond conversation, they inspire praxis flowing from reconceptualization of what development entails. Communities must be engaged on their own terms as core actors with important stakes in ‘development’ projects. Although they are not without challenges, alternative modes of interaction that extend beyond privileging states and extractive companies contest the hegemony of transnational capital in global extractive industries.157 Of course, participating in a system does not by itself challenge the representative nature of dominant ideologies, although the ability to engage within a system carries the potential to effect change within that system. The law related to oil and gas has proceeded on a dominant view that natural resource extraction is ‘good’; extractive companies’ interests must be protected including through treaties, statute and contracts; and local communities are required to be passive hosts who are protected through limited provisions. Local communities’ participation in all aspects of oil and gas projects that concern them permits robust interactions and an assessment of these interactions’ impacts on the discourses and practices of development and environmental protection. Development can only be fully understood and established within a framework codefined and cocrafted by communities. It must also involve the ability to challenge, reimagine or even reject ‘development’, for in the experience of some communities that host or are impacted by oil and gas, development can hardly be separated from the environment.

155   On African countries and the investment treaty regime, see Ibironke T. Odumosu-Ayanu, ‘South–South Investment Treaties, Transnational Capital and African Peoples’ (2013) 21 Afr. J. of Int’l & Comp. L. 172. 156   Anghie and Chimni, supra note 64. 157   For local community engagement through contract approaches, see James Thuo Gathii and Ibironke T. Odumosu-Ayanu, ‘The Turn to Contractual Responsibility in the Global Extractive Industry’ (2015) 1 Bus. & Hum. Rts J. 69.

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Local communities, environment and development  503

4. CONCLUSION Interest in environmental protection and economic development is not new.158 In fact, sustainable development has become a staple of international commitments.159 Reference to local communities in United Nations documents regarding economic development and environmental protection is also not new. However, there is palpable reluctance to translate this awareness into concrete commitments that are enforceable by local communities engaging with oil and gas investment projects. This reluctance is fuelled in part by a hierarchical approach to foreign investment law and large project design that is not sufficiently cognizant of the place of host and impacted communities in these projects. This chapter has demonstrated that local communities hold an important position in defining the relationship between economic development and environmental protection in a manner that draws directly from their experiences, and which none of the other actors share. Key to actively incorporating the views expressed by local communities about economic development and environmental protection in oil and gas projects is involving communities, if they are of the view that a project should proceed, in the design of core project documents, and not only at the consultation level, as is currently the case in the more sophisticated projects. There is emerging practice in the contract area, where African communities are parties to community development agreements in Ghana and the Global Memorandum of Understanding in Nigeria.160 However, these benefits and compensation agreements do not afford local communities opportunities to express holistic views of economic development that incorporate environmental protection. Those would be better expressed at the time of project design and in the contracts and other instruments that determine the course of projects that are currently the purview of states and investors. International investment law proceeds on the basis that states represent local communities in international fora, although twenty-first century international investment law no longer shares that view with regard to states’ representation of investors. States and local communities often disagree on the best course for development and environmental protection, what development entails and how its impacts on the environment are interpreted. Contrary to views that the Third World category is no longer relevant, local communities in Africa continue to make the Third World’s place in international law, international politics and the global economy extremely important.

  For United Nations Conferences on environment and development, see supra note 13.   Transforming Our World: The 2030 Agenda for Sustainable Development, Resolution adopted by the United Nations General Assembly on 25 September 2015, A/RES/70/1. 160   See Odumosu-Ayanu, ‘Governments, Investors and Local Communities’, supra note 66; Ibironke T. Odumosu-Ayanu, ‘Foreign Direct Investment Catalysts in West Africa: Interactions with Local Content Law and Industry-Community Agreements’ (2012) 35 North Carolina Central L. Rev. 65. For a critique of compensation agreements under the CCPDP, see Marieme S. Lo, ‘Revisiting the Chad–Cameroon Pipeline Compensation Modality, Local Communities’ Discontent, and Accountability Mechanisms’ (2010) 30 Can. J. of Dev. Stud. 153. 158 159

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21.  Socially and environmentally responsible investment Benjamin J. Richardson

1.  IRRESPONSIBLE INVESTMENT This chapter, which draws on my long-standing scholarship in this field, examines how the financial sector shapes the environmental performance of the economy, focusing on the ebullient movement for socially responsible investing (SRI).1 The principal thesis is that the financial sector has generally negative environmental connotations, both in its own right and in regard to the companies it funds, and so far SRI’s influence on improving the sector’s impact has been modest but is improving. The role of legal governance in facilitating and hindering SRI is assessed as a variable relevant to the influence of SRI. This first section of the chapter outlines the environmental impacts of the financial sector and reasons why it should assume greater responsibility for promoting sustainable development. Section 2 introduces SRI, explaining its history, aspirations and methods. The core enquiry, about SRI’s influence, is explored in section 3. Some recommendations that may improve the impact of SRI are canvassed in the concluding section 4. The global economy is in an era of ‘finance capitalism’, which emerged in the late twentieth century as financial markets and institutions acquired preeminence in economic affairs.2 The financial system’s capacity to act as a vector of economic and social crisis because of its ‘irrational exuberance’3 became most evident with the global financial crisis (GFC) that erupted in 2008.4 However, finance capitalism’s complicity in environmental damage is less widely acknowledged.5 Institutional investors and banks have not traditionally regarded themselves as directly relevant to the environmental performance of the economy, taking the view, reinforced by some commentators, that ‘[t]here is nothing inherent in the structure of the financial system which necessarily leads to environmental destruction’.6 That assumption is changing, however, both through financial institu-

1   This chapter draws partially on my earlier work in B.J. Richardson, ‘Financial Markets and Socially Responsible Investing’ in B. Sjafjell and B.J. Richardson (eds), Company Law and Sustainability: Legal Barriers and Opportunities (Cambridge University Press, 2015): 226; and B.J. Richardson, Fiduciary Law and Responsible Investing: In Nature’s Trust (Routledge, 2013). 2   For data on key economic trends, see C. Boxburgh, S. Lund and J. Piotrowski, Mapping Global Capital Markets 2011 (McKinsey Global Institute, 2011). 3   R.J. Shiller, Irrational Exuberance (Princeton University Press, 2000). 4   See T. Ciro, The Global Financial Crisis: Triggers, Responses and Aftermath (Ashgate, 2012), D. Smith, The Age of Instability: The Global Financial Crisis and What Comes Next (Profile Books, 2010). 5   But see W. Sun, C. Louche and R. Pérez (eds), Finance and Sustainability: Towards a New Paradigm? A Post-Crisis Agenda (Emerald Books, 2011). 6   M.A. White, ‘Environmental finance: value and risk in an age of ecology’ (1996) 5 Business Strategy and the Environment 198, at 200.

504

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Socially and environmentally responsible investment  505 tions’ recognition of their potential to exacerbate corporate environmental impacts through financial support and through pressure from civil society groups campaigning for greater accountability from financiers, as is evident in their calls for divestment from fossil fuel industries.7 Among its positive virtues, the financial economy can help mobilize investment in environmental improvements, such as through project financing for renewable energy initiatives, and can efficiently broker transactions in carbon credit and biodiversity offset markets.8 Financial institutions may also price future environmental risks that could impinge on development. Financiers can also channel resources to poor communities and households through microfinance. More broadly, by shifting surplus capital to areas in deficit and in need, financial markets serve to boost economic prosperity. And investors can discipline companies to improve the quality of corporate governance, which in turn may lead to more socially acceptable business practices.9 As will be discussed shortly, the SRI movement is premised on the financial sector’s capacity to be an agent of sustainable development, given the right information, incentives and enabling legal framework. The global financial economy has several features that can hinder such enlightened practices.10 Corporate governance separates ownership and control, and thus many investors may have limited incentive to actively influence those firms they have a stake in. Such ‘passive’ investors tend to be spatially remote from the corporate activities that create environmental damage, thus diminishing their sense of moral or legal responsibility for the harm. Furthermore, investors’ portfolios comprise small stakes across numerous companies, which with the the ease of selling securities helps diminish the perceived importance of their relationship with the company. The overall result is diminution of investors’ perceived moral agency for the economic activities and companies they fund. A special problem is the financial economy’s short-term outlook, which impedes sustainable development given that the future must be valued highly in order to protect the biosphere.11 Planning over decades defies the normal outlook of most investors, as it does for most institutions and individuals. But short-termism is of special significance in global financial markets, given their capacity to wreak widespread social and economic damage. Myopia is evident in investors’ incessant trading and manoeuvring for quick profits.12 Its prevalence is detailed in the British government’s seminal Review of UK Equity Markets

 7   This is particularly evident through new networks and groups such as BankTrack, www. banktrack.org, and Fossil Free, http://gofossilfree.org/what-is-fossil-fuel-divestment/.  8   Delphi International, The Role of Financial Institutions in Achieving Sustainable Development (report to the European Commission, 1997); W. Thomas, ‘The green nexus: financiers and sustainable development’ (2001) 13 Georgetown International Environmental Law Review 899.  9   G. Clark and D. Wójcik, The Geography of Finance: Corporate Governance in the Global Marketplace (Oxford University Press, 2007). 10   B.J. Richardson, Socially Responsible Investing: Regulating the Unseen Polluters (Oxford University Press, 2008). 11   See B.J. Richardson, Time and Environmental Law: Telling Nature’s Time (Cambridge University Press, 2017), 330-331. 12   The average holding period for shares listed on the New York Stock Exchange plunged from about seven years in the 1940s to five years in 1970, and further to a miserly six months in 2009: H. Blodget, ‘You’re an investor? How quaint’ Business Insider (8 August 2009).

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506  Research handbook on environment and investment law and Long-Term Decision-Making.13 The myopic culture has been fuelled by several converging forces, including the self-interested behaviour of financial intermediaries whose performance is measured by short-term metrics, the huge reduction in trading costs owing to technological advances and the obsession with near-term equity prices rather than long-term business values.14 A further structural issue is that the volume of financial assets flowing in the global economy (for example, the value of loans and bonds) is greatly divorced from real, valueproducing economic activity. For example, the practice of fractional reserve banking, by which banks are permitted to hold capital reserves lower than their liabilities to depositors, fuels excess liquidity in the economy, inflating asset prices and accelerating economic development beyond real values.15 It is, in effect, a pyramid scheme in which the supply of finance increasingly exceeds economic fundamentals. One consequence of this finance-fuelled hypereconomy is intensified environmental pressure. Perversely, as the supply of financial capital has soared in the past half-century, natural capital has been markedly depleted, as measured by biodiversity decline, climate change and other markers of ecological decline.16 The financial system lacks an internal mechanism to manage the overall scale of the economy in order to keep it within the limits of the biosphere or to take account of very long-term environmental considerations such as climate change. Investors and lenders can thus be legitimately regarded as contributing to environmental problems that they fund and profit from even though they do not ordinarily have operational control in the production, trade or retail of goods and services. No governments have directly regulated the financial sector’s environmental impacts as yet, although in recent years they are introducing policy initiatives to help align investments with long-term sustainability objectives including managing climate change risks. Legal measures to promote SRI leave largely untouched the structural problems of the financial economy as just outlined.17 The current legal reforms emphasize incentive and informational policy instruments, which give investors considerable discretion in their financing decisions. One example is the requirement for pension funds to disclose their policies for SRI and for exercising their shareholder rights – as introduced in several European Community states, as well as Canada (in Ontario), Australia and New Zealand.18 The openended nature of these disclosure requirements, with little compliance control, can lead to vague or perfunctory statements by funds that do not illuminate 13   J. Kay, Kay Review of UK Equity Markets and Long-Term Decision-Making (UK Department of Business Innovation and Skills, 2012). 14   J.C. Bogle, ‘The clash of cultures’ (2011) 37(3) Journal of Portfolio Management 14. 15   P. Bagus, ‘Monetary policy as bad medicine: The volatile relationship between business cycles and asset prices’ (2008) 21(4) The Review of Austrian Economics 28. 16   Millennium Ecosystem Assessment (MEA), Living Beyond Our Means: Natural Assets and Human Well-Being, Statement from the Board (United Nations, 2005). 17   B.J. Richardson, Socially Responsible Investment Law: Regulating the Unseen Polluters (Oxford University Press, 2008). 18   E.g., UK’s Occupational Pension Schemes (Investment) Regulations, 2005: cl. 2(3)(b)(vi)– (3)(c); Australia’s Corporations Act, 2001 (Cth), s. 1013D(1)(l); France’s Projet de loi sur l’épargne salariale, 7 February 2001, No 2001-152, arts 21, 23; New Zealand’s KiwiSaver Act, 2006, s. 205A; Pension Benefits Act R.S.O. 1990, Ontario Regulation 235/14.

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Socially and environmentally responsible investment  507 how investment decisions are implemented, or their impacts.19 Economic incentives to motivate financiers to support green projects and other environmental initiatives have also been introduced.20 But many areas of legal governance of financial markets that could boost SRI remain unreformed. Fiduciary law is a significant omission from the reform agenda.21 This provides the core legal standard governing how trustees, fund managers and other custodians of investment assets must act on behalf of their beneficiaries. Under prevailing legal understandings, fiduciaries usually cannot accommodate environmental considerations that lack investment benefits unless the affected investors consent or the legal instrument establishing the fund provides a mandate.22 Promisingly, in 2016 an initiative called ‘Fiduciary Duty in the 21st Century’ was launched by the United Nations and the Generation Foundation to sponsor research and public debate aimed at shifting investors’ understandings on fiduciary duty in order to promote integration of environmental, social and governance issues into financial practice.23 Finally, corporate law itself is a potential impediment to sustainability. The lack of a legal duty on companies to integrate environmental factors into decisionmaking, undertake environmental assessments or disclose environmentrelated risks reduces the number of sustainable businesses for investors to finance.24

2.  SOCIALLY RESPONSIBLE INVESTING (SRI) In recent decades a global movement for SRI has emerged to challenge some of the foregoing problems and governance deficits.25 The SRI crusade has embraced a variety of concerns, of which the natural environment and its sustainable use is a preeminent theme. The history of SRI rooted in faith-based investors is well covered in the extant literature.26 Of greater relevance to our enquiry here is the renewal of SRI in the past two decades, as the globalisation of the financial economy and collateral social and environmental impacts have engendered increasing social unease about the ethical and legal connections 19   UK Sustainable Investment and Finance Association (UKSIF), Focused on the Future: 2000–2010 Celebrating Ten Years of Responsible Investment Disclosure by UK Occupational Pension Funds (UKSIF, 2010). 20   One notable example is the Netherlands’ Green Project Directive. The scheme was revamped and extended in 2002 and 2005: Regeling groenprojecten buitenland, Staatscourant 1 (2 January 2002), 31; Regeling groenprojecten, Staatscourant 131 (11 July 2005), 13. 21   See B.J. Richardson, Fiduciary Law and Responsible Investing: In Nature’s Trust (Routledge, 2013). 22   B.J. Richardson, ‘Fiduciary and other legal duties’ in K. Baker and J.R. Nofsinger (eds), Socially Responsible Finance and Investing (John Wiley & Sons, 2012), 69. 23   Fiduciary Duty in the 21st Century: www.fiduciaryduty21.org/about.html. 24   Beate Sjafjjell and Benjamin J. Richardson (eds), Company Law and Sustainability: Legal Barriers and Opportunities (Cambridge University Press, 2015). 25   Examples of the pioneering literature include A. Domini and P. Kinder, Ethical Investing (Addison Wesley, 1984); P. Kinder, S. Lydenberg and A. Domini, The Social Investment Almanac: A Comprehensive Guide to Socially Responsible Investing (Henry Holt, 1992); R. Sparkes, Socially Responsible Investment: A Global Revolution (Wiley, 2002); M. Jeucken, Sustainable Finance and Banking: The Financial Sector and the Future of the Planet (Earthscan, 2001). 26   J. Brill and A. Reder, Investing from the Heart (Crown Publishers, 1992).

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508  Research handbook on environment and investment law between financial investors and thus impacts. With changing social expectations, SRI has evolved from being a niche sector to, at least ostensibly, a mainstream concern for many types of financial institutions. They include institutional investors – notably, pension funds and insurance companies, as well as mutual funds that sell specialist investment portfolios, philanthropic organizations that invest their assets in a manner aligned with their missions and banks that consider social and environmental issues in their lending and other financial services. SRI is thus today a diverse movement,27 known by labels such as ‘ethical investment’, ‘mission investment’, ‘social investment’ and ‘sustainable finance’. The terminological differences reflect the variable cultural and market context of SRI, as well as the lack of legal oversight of the sector that allows a diversity of approaches to flourish.28 Some proponents believe SRI involves merely ‘taking into account’ social and environmental issues that might influence financial performance,29 while others see SRI as requiring an overriding ethical approach.30 The methods of SRI are eclectic. The two principal tactics are to choose industries or companies for investment on the basis of the social and environmental characteristics of their products or operations, and to engage with specific businesses so as to induce behavioural changes. These methods are respectively known as portfolio screening and corporate engagement. Other methods include ‘impact investing’ (that is, direct funding of specific community development initiatives) and ‘best in class’ (that is, investing in companies that are the perceived leading social and environmental performers in their sector). The SRI sector’s practices are also increasingly codified through standards, mostly drafted by the financial industry.31 These include the Equator Principles,32 the UN Principles for Responsible Investment (UNPRI)33 and the UN Environment Programme’s Finance Initiative (UNEP-FI).34 These are voluntary codes or regimes to which institutions may subscribe on a ‘take it or leave it’ basis, furnishing both normative standards for improved performance and procedures for more transparent and accountable financial decisions.35

27   J. Sandberg et al., ‘The heterogeneity of socially responsible investment’ (2009) 87(4) Journal of Business Ethics 519. 28   W. Ransome and C. Sampford, Ethics and Socially Responsible Investment: A Philosophical Approach (Ashgate Publishing, 2011) at 9. 29  UNEP-FI, The Materiality of Social, Environmental and Corporate Governance Issues in Equity Pricing (UNEP-FI, 2004). 30   B.J. Richardson and W. Cragg, ‘Being virtuous and prosperous: SRI’s conflicting goals’ (2010) 92(1) Journal of Business Ethics 21. 31   B.J. Richardson, ‘Socially responsible investing through voluntary codes’, in P.M. Dupuy and J.E. Viñuales (eds), Harnessing Foreign Investment to Promote Environmental Protection: Incentives and Safeguards (Cambridge University Press, 2012), 383. 32  www.equator-principles.com. 33  www.unpri.org. 34  www.unepfi.org. 35   See K. Miles, ‘Targeting financiers: Can voluntary codes of conduct for the investment and financing sectors achieve environmental and sustainability objectives?’ in K. Deketelaere et al. (eds), Critical Issues in Environmental Taxation, vol. 5 (Oxford University Press, 2008), 947; O. Perez, ‘The new universe of green finance: From self-regulation to multi-polar governance’, in O. Dilling, M. Herberg and G. Winter (eds), Responsible Business: Self-Governance and Law in Transnational Economic Transactions (Hart Publishing, 2008), 151.

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Socially and environmentally responsible investment  509 Such diverse practices, and ambiguities in the definitions of SRI, have no doubt contributed to some inaccuracies in surveys that attempt to measure the size and growth of the SRI market.36 While recent research from 2014 in North America and Western Europe by leading SRI associations heralds the sector as having captured 10–20 per cent of these investment markets,37 the survey methodologies likely exaggerate the numbers. The surveys tend to count the entire portfolio of a fund as ‘socially responsible’ money even though that portfolio may only display SRI practices in a few situations. In the US, the Forum for Sustainable and Responsible Investment (US-SIF) reported that 11.3 per cent of assets under professional management are linked to SRI.38 Yet, this and earlier surveys include funds that screen only against tobacco, alcohol or gambling.39 Further misleading claims are found in the 2012 benchmark study made by Canada’s Responsible Investment Association (formerly the Social Investment Organization), which trumpets that SRI is worth C$600 billion and holds 20 per cent of all assets under management in Canada.40 About 90 per cent of this figure seems to be based on the estimated value of investment portfolios even though such funds engage with only a small fraction of their portfolio companies.41 It would be more accurate to count as SRI only that small fraction of the portfolio in which engagement is practised. Despite deficiencies in the data, it is plausible to conclude that the SRI market is growing. With this growth, SRI may start to act as a means of market governance, by challenging the behaviour of the financial sector and the companies and other economic actors it supports. As most firms rely on debt or equity funding to sustain themselves at some stage in their evolution, in theory investors can exert influence by linking finance to environmental and social considerations.42 Thus, SRI may imply that economic agents need not only a legal licence, but also a ‘social licence’ from ethical investors.43 The recent growth of SRI has, however, been fuelled mainly by investors embracing a more conservative view of SRI that treats it as a due diligence strategy to achieve better financial returns, rather than as an ethical imperative.44

36   E.g. P. Aburdene, Megatrends 2010: The Rise of Conscious Capitalism (Hampton Roads Publishing, 2005), 140; T. Grant, ‘Social investment assets soar’, Globe and Mail (22 March 2007), B17. 37   European Social Investment Forum (Eurosif), European SRI Study 2014 (Eurosif, 2014); US-SIF (Forum for Sustainable and Responsible Investment), Report on Sustainable and Responsible Investment Trends in the United States 2014 (US-SIF, 2014). 38  US-SIF, Report on Sustainable and Responsible Investment Trends in the United States 2012, 11. 39  US-SIF, 2005 Report on Socially Responsible Investing Trends in the United States: A 10-Year Review (US-SIF, 2005), 9. 40   Social Investment Organization (SIO), Canadian Socially Responsible Investment Review 2012 (SIO, 2013), 4. This organisation is now known as the Responsible Investment Association. 41   Ibid, 27. 42   P. Rivoli, ‘Making a difference or making a statement? Finance research and socially responsible investment’ (2003) 13(3) Business Ethics Quarterly 271. 43   On ‘social licence’, see N. Guningham, R.A. Kagan and D. Thornton, ‘Social license and environmental protection: Why businesses go beyond compliance’ (2004) 29(2) Law and Social Inquiry 307. 44   J.M. Leger, ‘Socially responsible funds pique interest, but results often have been unimpressive’, Wall Street Journal (18 November 1982), 33; D. Shapiro, ‘Social responsibility mutual funds: Down the down staircase’ (1974–5) Business and Society Review 90.

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510  Research handbook on environment and investment law This ‘business case’ style of SRI is increasingly known as ‘ESG analysis’ (referring to ‘environment, social and governance’ issues).45 Numerous ESG research providers have emerged since 2000, and the Enhanced Analytics Initiative (EAI), launched in 2004, is perhaps the most influential for sharing ESG information among financiers.46 Rather than view SRI as an agent of social change, the business case approach presents ESG issues as ‘extrafinancial’ values having potential financial consequences for investors. The SRI ‘industry’ – a more accurate expression than ‘movement’ – has become preoccupied with the financial returns of SRI rather than the evaluation of its social and environmental returns and ability to improve corporate behaviour.47 Section 3 investigates more closely how SRI might govern the market.

3.  GOVERNING THE MARKET: INVESTORS’ INFLUENCE A commonly proclaimed idea is that SRI ‘considers both the investor’s financial needs and an investment’s impact on society. SRI investors encourage corporations to improve their practices on environmental, social, and governance issues’.48 As sources of finance for businesses, those in the financial industry may be able to influence the corporate sector’s environmental activities whenever a firm needs to raise funds or is otherwise sensitive to how investors perceive its environmental performance. Surprisingly, this issue has not been deeply researched,49 as both scholars and practitioners have dwelled on SRI’s financial performance.50 My own research, however, has examined the question of influence.51 It is exceedingly difficult to quantify the influence of SRI on the environmental performance of other financiers or companies because one cannot isolate the impact of specific variables, given the disparate range of factors that shape any business decision. Instead, 45   H. Jemel-Fornetty, C. Louche and D. Bourghelle, ‘Changing the dominant convention: The role of emerging initiatives in mainstreaming ESG’ in W. Sun, C. Louche and R. Pérez (eds), Finance and Sustainability: Towards a New Paradigm? A Post-Crisis Agenda (Emerald Group, 2011) 87. 46   See www.uss.co.uk/Documents/enhancedanalyticsinitiative.pdf. 47   Although the ‘business case’ has become the dominant theme of the RI narrative only since the early 2000s, it was present as early as the mid-1980s: A.L. Domini and P.D. Kinder, ‘Your money or your ethics: A choice investors no longer have to make’ (1985) 17 Environmental Action 16–20. 48   My emphasis. US-SIF, ‘Sustainable and responsible investment facts’, http://ussif.org/ resources/SRI guide/SRI facts.cfm. See also D. Ross and D. Wood, ‘Do environmental and social controls matter in Australian capital investment decision-making?’ (2008) 17(5) Business Strategy and the Environment 294; Worldwide Fund for Nature (WWF) and BankTrack, Shaping the Future of Sustainable Finance: Moving from Paper Promises to Sustainable Performance (WWF, 2008). 49   C. Louche and T. Hebb (eds), Socially Responsible Investment in the 21st Century: Does It Make a Difference for Society? (Emerald Group Publishing, 2015): M. Bowman, Banking on Climate Change: How Finance Actors and Transnational Regulatory Regimes Are Responding (Wolters Kluwer, 2015). 50   M. Barnett and R. Salomon, ‘Beyond dichotomy: the curvilinear relationship between social responsibility and financial performance’ (2006) 27 Strategic Management Journal 1101; N. Kreander et al., ‘Evaluating the performance of ethical and non-ethical funds: A matched pair analysis’ (2005) 32(7/8) Journal of Business Finance and Accounting 1465; R. Bauer, J. Derwall and R. Otten, ‘The ethical mutual fund performance debate: New evidence from Canada’ (2007) 70 Journal of Business Ethics 111–24. 51  Richardson, Fiduciary Law and Responsible Investing.

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Socially and environmentally responsible investment  511 one might rely on proxy indicators of change, such as the issuance of new corporate environmental policies or the establishment of new units within a business, to improve its environmental expertise. But a direct impact on business operations, including associated environmental impacts, is much more difficult to correlate. The clearest evidence is found in project financing, where a single bank’s actions in relation to a borrower can be quite readily correlated. One such example was seen when the Australia and New Zealand Banking Group (ANZ) declined to fund a huge pulp mill in the Australian state of Tasmania, a project proposed by Gunns, then a major forestry operator.52 Although in May 2008 ANZ publicly declined to explain its reasons for shunning the project,53 worth about A$1.5 billion, the bank was undoubtedly concerned about the pulp mill’s potential environmental impacts, or at least negative publicity about such impacts.54 The bank incurred hostile media press and pressure from some of its shareholders.55 As a signatory to the Equator Principles,56 a global SRI code, ANZ was conscious of the environmental due diligence standards it had pledged to follow. The lender’s stance is particularly curious given that the pulp mill had received conditional approval from both the Tasmanian and Australian governments.57 Other lenders and investors subsequently also backed off, and by 2012 Gunns was bankrupt.58 The actions of the ANZ are just one of several ways by which a social investor or lender may wield influence. Overall, there are five ways: ●

Demonstrating the relative financial advantages of SRI. Imposing financial sanctions against problematic businesses (as with the actions of the ANZ in the above example) or stimulating positive investment to reward good behaviour. ● Exerting influence through legal stakeholder rights in a company, as a shareholder or lender. ● Designing voluntary codes of conduct for investors. ● Advocating public policy and legal reforms for governing investors and companies. ●

Each of these five pathways of influence will be briefly discussed in what follows.

52   M. Wilkinson and B. Cubby, ‘ANZ exit from pulp mill project confirmed’ (28 May 2008) Melbourne Age 3. 53   ‘ANZ quiet on Gunns funding’, Sydney Morning Herald (22 May 2008), www.smh.com.au/ business/anz-quiet-on-gunns-funding-20080522-2h52.html. 54   ‘Lobby group ups pressure on ANZ’ ABC News, 7 April 2008, www.abc.net.au/news/200804-07/lobby-group-ups-pressure-on-anz/2395140. See further Q. Beresford, The Rise and Fall of Gunns Ltd (NewSouth, 2014). 55   M. Bowman, ‘The role of the banking industry in facilitating climate change mitigation and the transition to a low-carbon global economy’ (2010) 27 Environmental and Planning Law Journal 448, at 456. 56   See www.equator-principles.com. 57   A. Darby and D. Welsh, ‘Contentious pulp mill wins federal approval’, Sydney Morning Herald (11 March 2011), 7. 58   A. Krien, Into the Woods: The Battle for Tasmania’s Forests (Black Inc., 2012), 268–70; ‘Creditors liquidate former timber giant Gunns’ ABC News (6 March 2013), www.abc.net.au/ news/2013-03-05/gunns-faces-vote-for-liquidation/455247.

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512  Research handbook on environment and investment law 3.1  The Financial Advantages of SRI Undoubtedly, the most prominent way social investors seek to attract followers is by promoting SRI’s financial advantages.59 The UNEP-FI has advised that ‘[t]he first – and arguably for investors the most important – reason to integrate environmental, social and governance issues is, simply, to make more money’.60 In SRI parlance, the focus is on the financial materiality of ESG issues. Financial self-interest can be a powerful stimulant to act: depicting environmental threats such as climate change as financial risks or opportunities seemingly provides a sturdier basis to galvanize investors’ interest than amorphous, pious talk.61 A vibrant research industry has mushroomed to promote SRI’s financial advantage.62 While the validity of the research will not be examined in this chapter, it should at least be stressed that much of it is problematic; as Haigh and Hazelton explain, ‘[t]he reason for correlations between the performance of conventional and SRI funds may be that the portfolios of SRI funds are not markedly different to those of conventional mutual funds’.63 In other words, SRI can be too inclusive – for instance, merely screening out a few tobacco stocks, but otherwise mimicking the market.64 And if SRI were to be markedly different from a mainstream investment portfolio, corporate finance theory suggests that SRI cannot financially outperform the market as a whole.65 This is because exclusionary ethical screens that reduce the investment pool should increase financial risks without compensatory higher returns.66 SRI that relies on corporate engagement rather than exclusionary screens should be able to overcome that objection, as an SRI portfolio managed on this basis retains a reasonably diversified portfolio. That said, higher expenses and administrative overheads due to the additional ESG research and active shareholding might offset this advantage.

59   See P. Camejo, The SRI Advantage: Why Socially Responsible Investing Has Outperformed Financially (New Society Publishers, 2002); M. Barnett and R. Salmon, ‘Beyond dichotomy: The curvilinear relationship between social responsibility and financial performance’ (2006) 27(11) Strategic Management Journal 1101. 60  UNEP-FI, Show Me the Money: Linking Environmental, Social and Governance Issues to Company Value (Geneva: UNEP-FI, 2006), 4. 61  Mercer, Climate Change Scenarios: Implications for Strategic Asset Management (Mercer, 2011). 62   UNEP-FI and Mercer Consulting, Demystifying Responsible Investment Performance: A Review of Key Academic and Broker Research on ESG Factors (UNEP-FI, 2007); M. Schroeder, ‘The performance of socially responsible investments: Investment funds and indices’ (2004) 18(2) Financial Markets and Portfolio Management 122. 63   M. Haigh and J. Hazelton, ‘Financial markets: A tool for social responsibility?’ (2004) 52(1) Journal of Business Ethics 59, at 65. 64   Other research suggests there are material differences between SRI and non-SRI portfolios: see, e.g., K.L. Benson, T.J. Brailsford and J.E. Humphrey, ‘Do socially responsible fund managers really invest differently?’ (2006) 65(4) Journal of Business Ethics 337. 65   J. Langbein and R. Posner, ‘Social investing and the law of trusts’ (1980) 79 Michigan Law Review 72; M. Knoll, ‘Ethical screening in modern financial markets: The conflicting claims underlying socially responsible investment’ (2002) 57 Business Lawyer 681. 66   A. Rudd, ‘Social responsibility and portfolio performance’ (1981) 23(4) California Management Review 55.

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Socially and environmentally responsible investment  513 Most investors, however, have yet to be converted to the SRI gospel. Impediments include: continuing scepticism about the link between ESG factors and investment performance; attitudinal and behavioural problems in the organizational culture of institutional funds and their agents, where short-term outlooks often prevail; and the difficulty of monetizing intangible ESG information.67 Climate integrity is sometimes seen by fund managers and trustees as too nebulous for workable financial quantification, and thus not warranting serious consideration. By contrast, investment professionals respond well to financial information such as return on equity, sales growth, price–earnings ratios and other ‘hard’ indicia of financial performance.68 Another dilemma for SRI arises when a countervailing business case for financing environmentally damaging companies exists. The extensive market and regulatory failures to control environmental externalities, notably climate change and degradation of the oceans, provide temptations for financiers. In other words, if adherence to SRI is contingent on profitability, that logic will also sometimes engender reasons to finance environmentally irresponsible practices. While social investors increasingly argue that there is a business case for investing responsibly over the long term,69 many factors blunt this temporal perspective: for example, fund managers hired on two-year performance contracts have incentives to act strongly for the near term, and corporations themselves are structured strongly around short-term financial measurements, such as quarterly financial reporting.70 3.2  Financial Sanctions Another way in which SRI may nudge companies towards better environmental practices is by altering their cost of capital. Social investors may believe they can financially reward the best companies by channelling additional investment to them, while punishing or disciplining laggards by divesting from them, and thereby imposing higher costs of raising money.71 If social investors can differentiate the cost of capital on the basis of environmental or social performance, they could motivate companies to improve their behaviour in order to entice more social investors. This approach is illustrated by ANZ’s rejection of Gunns’s pulp mill, but project financing is a more exclusive form of finance compared to stock market investing. The fossil fuels divestment movement is now at the forefront of efforts to discipline the major carbon polluters by trying to hurt their access to capital and depress their stock prices.72 Corporate finance theory suggests that in general, social investors are price takers, not price makers. In an efficient stock market, this theory postulates that investors can   Jemel-Fornetty, Louche and Bourghelle, ‘Changing the dominant convention’, at 89–91.   Ibid, 90. 69   S. Lyndenberg, ‘Universal investors and socially responsible investors: A tale of emerging affinities’ (2007) 15(3) Corporate Governance: An International Review 467, at 471 (stating that pension funds have ‘inherently long investment horizons’). 70  Richardson, Socially Responsible Investment Law, 120–58. 71   T. Hebb, No Small Change: Pension Funds and Corporate Engagement (Cornell University Press, 2008), 22; R. Sparkes and C. Cowton, ‘The maturing of socially responsible investment: A review of the developing link with corporate social responsibility’ (2004) 52 Journal of Business Ethics 45, at 45. 72   B.J. Richardson, ‘Divesting from climate change: The road to influence’ (2017) 39(4) Law and Policy 325. 67 68

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514  Research handbook on environment and investment law trade any quantity of a firm’s shares without affecting its price; any price movements should reflect only changes in the perceived financial prospects of the company.73 Social investors who avoid a business on ethical grounds therefore might not prevail, as other (conventional) investors stand by ready to buy the stock. Conversely, Pietra Rivoli suggests that because markets do not always behave according to theory, social investors might be able to alter the cost of capital when the corporate stock is particularly unique (that is, has few substitutes) or trades in small, restrictive markets.74 Such conditions might exist for a firm that operates a niche, boutique business or one that is a market leader and innovator. We lack research that informatively predicts the threshold at which a number of social investors might have any influence.75 Empirical evidence on the impact of SRI campaigns is ambiguous. In regard to the South African boycott, many researchers conclude it had only a modest effect on the targeted companies.76 The recent crusade against the tobacco industry also appears to have had limited effect.77 The current fossil fuels divestment campaign, spearheaded by networks such as Fossil Free,78 is attracting good support from a number of public sector funds, university endowments, philanthropic foundations and religious investors; but it has yet to achieve market dominance and its influence will be limited by the fact that many oil and gas businesses are state-owned enterprises, as in Russia and the Middle East. With debt financing, a socially conscious lender might be strategically placed to influence the behaviour of borrowers, especially small, private enterprises with few financing options, as well as established firms seeking large loans.79 Westpac, an Australian bank reputed to be an SRI leader in its sector, believes that ‘[t]he role of the leader is not just to look at themselves but to also look outwardly at who they can influence. As a bank we are in a good position to do that because nearly all businesses have a banking relationship.’80 As discussed previously, Gunns sought a huge loan from ANZ Bank for its controversial Tasmanian pulp mill, which was denied, and this had the effect of ending the pulp mill project and eventually Gunns itself. Lenders most commonly scrutinise borrowers’

73   G. Arnold, Handbook of Corporate Finance (Financial Times Press, 2005), 314, 330; C. Loderer et al., ‘The price elasticity of demand for common stock’ (1991) 46 Journal of Finance 621. 74   P. Rivoli, ‘Making a difference or making a statement? Finance research and socially responsible investment’ (2003) 13(3) Business Ethics Quarterly 271. 75   Yet see the limited stab at modelling an answer: R. Heinkel, A. Kraus and J. Zechner, ‘The effect of green investment on corporate behavior’ (2001) 36(4) Journal of Financial and Quantitative Analysis 431. 76   S. Teoh, I. Welch and C.P. Wazzan, ‘The effect of socially activist investment policies on the financial markets: Evidence from the South African boycott’ (1999) 72 Journal of Business 35; but compare to R. Kumar, W. Lamb and R. Wokutch, ‘The end of South African sanctions, institutional ownership, and the stock price of boycotted firms’ (2002) 41(2) Business and Society 133. 77   T. Burroughes, ‘Ethical investors losing out as tobacco stocks burn up Britain’s equity markets’, The Business (24 February 2007). 78   See http://gofossilfree.org. 79   M. Jeucken, Sustainable Finance and Banking: The Financial Sector and the Future of the Planet (Routledge, 2001); P. Thompson, ‘Bank lending and the environment: Policies and opportunities’ (1998) 16(6) International Journal of Bank Marketing 243. 80   G. Paterson, CSR official, Westpac, quoted in A. De Lore, ‘How the companies compare: A network of high achievers is showing the way’ (Special Report on Corporate Responsibility Index) Sydney Morning Herald (20 May 2008), 2.

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Socially and environmentally responsible investment  515 environmental practices when they might engender costly environmental liabilities. They may consequently adjust the cost of a loan to reflect unresolved environmental risks, require the borrower to adopt specific environmental safeguards or demand more valuable security against the loan.81 In recent years all of the major Australian banks have ostensibly adjusted their policies on financing coal mining, notably against the proposed Adani coal mine, as a result of pressure from climate change activists and a weakening business case for fossil fuels.82 But obviously there are market constraints to how high an ethical lender can raise the bar. In a competitive credit market, lenders have incentives to avoid being seen as excessively demanding, due to the risk of losing clients to less scrupulous financiers. 3.3  Engaging with Companies Most asocial investors prefer to rely on ‘voice’ as a means of influence because it allows them to retain diversified portfolios. These investors, sometimes acting in concert with nongovernmental organisations such as environmental groups, may seek to influence companies through dialogue and pressure from within, rather than by divesting.83 Investors use an array of engagement strategies. Most commonly, they participate in informal dialogue with company executives. More formal strategies include filing or supporting shareholder proposals that challenge a company to address nominated SRI concerns. Some investors may pursue a more public and confrontational style of engagement that sometimes includes using the media to ‘name and shame’ recalcitrant companies. The rise of institutional, ‘universal’ investors in global financial markets over recent decades has raised hopes for greater shareholder oversight of corporate management because these large investors can concentrate share ownership and provide greater economies of scale and incentives to monitor and discipline corporate managers.84 Importantly, this leverage is not simply at the level of individual funds but also operates through their ability to work in concert to achieve more systemic changes in an industry sector. In practice, both the quality and the extent of institutional investors’ engagement have been mixed in recent years.85 While there has been some growth in institutional funds’ engagement with companies on ESG matters,86 their engagements have been rather episodic and fleeting. California Public Employees Retirement System (CalPERS) and

 Ibid.   J. Robertson, ‘Big four banks distances themselves from Adani coalmine as Westpac rules out loam’ The Guardian, (28 April 2017), www.theguardian.com/environment/2017/apr/28/ big-four-banks-all-refuse-to-fund-adani-coalmine-after-westpac-rules-out-loan. 83   J. Cook, ‘Political action through environmental shareholder resolution filing: Applicability to Canadian oil sands?’ (2012) 2(1) Journal of Sustainable Finance and Investment 26. 84   See Hebb, No Small Change, 28. 85   G.L. Clark, J. Salo and T. Hebb, ‘Social and environmental shareholder activism in the public spotlight: US corporate annual meetings, campaign strategies, and environmental performance, 2001–04’ (2008) 40(6) Environment and Planning A 1370; M.P. Lee and M. Lounsbury, ‘Domesticating radical rant and rage: An exploration of the consequences of environmental shareholder resolutions on corporate environmental performance’ (2011) 50(1) Business Society 155. 86   S. Davis, J. Lukomnik and D. Pitt-Watson, The New Capitalists: How Citizen Investors are Reshaping the Corporate Agenda (Harvard Business School Press, 2006) at 15–16. 81 82

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516  Research handbook on environment and investment law the UK Universities Superannuation Scheme (USS) have among the strongest records of ‘active ownership’, as such engagement is often labelled. Research by Proffitt and Spicer,87 as well as that by Lee and Lounsbury,88 on the ascendance of institutional investors highlights both their cumulative victories as active shareholders that challenge corporate management on SRI issues and some corresponding, wider political influence over policymakers. While social investors tend to have a good record of corporate engagement, most investors do not, and consequently the influence of SRI can be weakened without a critical mass of pressure. Research by Riskmetrics found that ‘the institutional investor community consists of two distinct parts: a small active minority and a majority of more passive investors’.89 Goergen and others found that UK institutional investors do not routinely monitor investee firms.90 A more wideranging survey by the International Corporate Governance Network (ICGN) in 2009 found that ‘insufficient trust’ between companies and investors hindered constructive engagement.91 Jurisdictional differences in the extent of investor activism are apparent. It remains predominantly a North American tradition, and not as widely practised among European social investors or in other markets such as Australia.92 Promisingly, the emergence of investor networks may enable more collaboration and thus effective corporate engagement. Hebb traces a trend since the late 1990s of increasing collaboration among institutional funds, especially among public sector pension plans in North America and the UK, directed towards improving corporate governance, including greater accountability to shareholders, more transparency and increased managerial oversight.93 Also, some sovereign wealth funds, such as the New Zealand Superannuation Fund and the Norwegian Government Pension Fund-Global (NGPF-G), are becoming active shareholders and supporting shareholder resolutions on sustainability issues.94 Much of this institutional collaboration is clustering around specific SRI codes of conduct, such as the Carbon Disclosure Project and the Montreal Pledge, as well as networks such as the Council of Institutional Investors (in the US) and the National Association of Pension Funds (in the UK). Because corporate engagement can be time consuming and labour intensive, it is usually done very selectively.95 Active, one to one engagement with targeted firms is typically

87   W.T. Proffitt, Jr. and A. Spicer, ‘Shaping the shareholder activism agenda: Institutional investors and global social issues’ (2006) 4(2) Strategic Organization 165. 88   Lee and Lounsbury, ‘Domesticating radical rant and rage’. 89   Riskmetrics Group et al., Study on Monitoring and Enforcement Practices in Corporate Governance in the Member States (Riskmetrics Group, 2009), 15. 90   M. Goergen et al., ‘Do UK institutional shareholders monitor their investee firms?’ Working paper, (European Corporate Governance Institute, 2007) at 12. 91   S.C.Y. Wong, ‘Shareholder-company engagement: A comparative overview’ (2009) International Corporate Governance Network Yearbook 61. 92   Corporate Monitor, Responsible Investment: A Benchmark Report on Australia and New Zealand by the Responsible Investment Association Australasia (Corporate Monitor, 2008), 23. 93  Hebb, No Small Change, 1–2. 94   B.J. Richardson, ‘Sovereign wealth funds and socially responsible investing: An emerging public fiduciary’ (2013) 2 Global Journal of Comparative Law 125.  95  Hebb, No Small Change, 76.

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Socially and environmentally responsible investment  517 done in few cases at one time. With some 3,500 firms in its portfolio, the Canada Pension Plan is only able to engage closely with about 15 firms annually, although it communicates on SRI issues to many more portfolio companies through questionnaires and proxy voting.96 Likewise, the NGPF-G has shares in approximately 8,500 companies but engages only with about 100 firms annually.97 The milieu for engagement is different with banks, which may have a close, ongoing relationship with borrowers and other clients. The contractual terms of a loan give banks leverage to scrutinise a borrower’s activities and even impose covenants regarding its handling of environmental activities and risks. This leverage may be strongest in the traditionally bank-based economies of continental Europe and East Asia, where lenders have been more important for corporate financing than the capital markets.98 In the US and UK, by contrast, such relationships have traditionally been more arm’s length in nature, with banks generally distancing themselves from corporate governance and operational affairs (though some recent research suggests these interjurisdictional differences are diminishing).99 Banks may also exert influence through research and advisory work; Bowman’s research unveils how some banks have partnered with NGOs and companies ‘to commission and disseminate research that influences policy-makers as well as corporate actors’, and she cites Westpac’s collaboration with the Australian Business Roundtable on Climate Change to commission research on the business case to address climate change.100 The legal structure of corporate governance also shapes the scope for shareholder activism and forms of corporate engagement as means of SRI. Corporate law can limit the content of any shareholder proposal or resolution and the minimum shareholding stake to make such motions, the means by which shareholders can communicate with one another and their access to sensitive corporate information. In recent years financial regulators have begun to encourage more active ownership, and in some cases have made legal changes to facilitate it. In 2009 the UK’s Financial Services Authority issued guidance that existing laws ‘do not prevent collective engagement by institutional shareholders designed to raise legitimate concerns on particular corporate issues, events or matters of governance with the management of investee companies’.101 In Canada and the US, in 2003 and 2005 securities regulators moved to oblige mutual fund companies to disclose their shareholder voting policies and practices.102 Amendments to the Canadian Business

 96   Canada Pension Plan Investment Board (CPPIB), 2011 Report on Responsible Investing (CPPIB, 2011) 8–20.  97   Interview, Ola Mestad, Chair, Council on Ethics, NGPF-G, October 2012.  98   A. Hackethal, ‘German banks and banking structure’, in J.P. Krahnen and R.H Schmidt (eds), The German Financial System (Oxford University Press, 2004) at 71.  99   F. Tung, ‘Leverage in the board room: The unsung influence of private lenders in corporate governance’ (2009) 57 UCLA Law Review 115, at 118–19. 100   Bowman, ‘Role of the banking industry’, 463. 101   S. Dewar, ‘Shareholder engagement and the current regulatory regime’, FRC (19 August 2009), www.frc.org.uk/documents/pagemanager/Corporate_Governance/Related_documents/shareholder_engagement_FSA_letter.pdf. 102   SEC, ‘Disclosure of proxy voting policies and proxy voting records by registered management investment companies’ (31 January 2003); Canadian Securities Administrators, National Instrument 81-106 Investment Fund Continuous Disclosure and Companion Policy 81-106CP (2005).

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518  Research handbook on environment and investment law Corporations Act in 2001 curbed company management’s discretion to disallow a shareowner proposal that promoted political, social or similar objectives.103 National corporate governance codes are also affirming the importance of shareholder engagement. The 2008 Dutch corporate governance code explicitly calls for shareholders to be willing to ‘engage in a dialogue with the company and their fellow shareholders’.104 Yet, despite such legal liberations, corporate engagement ultimately depends on investors determining that the costs and time involved are worthwhile and will lead to improved financial and ESG performance. 3.4  Voluntary Codes of Conduct Social investors and lenders seek not only to influence companies, but also to change other financial institutions.105 The SRI community has developed a plethora of codes for this purpose, serving to coordinate, standardise and facilitate SRI practices. The codes may help overcome impediments to collective action in financial markets and reduce systemic barriers such as information deficits. The SRI codes span a range of methods, structures and goals that can be distilled into two broad types, although a single instrument may combine both approaches. Firstly, some codes are normative frameworks that enunciate substantive principles and guidance on desirable performance. Examples include the Collevecchio Declaration on Financial Institutions106 and the UN Principles for Responsible Investment.107 Alternatively, a code may set process standards that enable the assessment, verification and communication of performance. The Equator Principles are a relevant example.108 Process standards do not dictate social and environmental outcomes for signatories, but rather establish a procedure such as environmental reporting that may spur improvements in signatories’ performance. Apart from their voluntariness, the most distinctive characteristic of these SRI codes is their global reach; most are intended as universal standards for an international market. The following table lists the principal SRI-related codes, including several relating specifically to climate change. In addition to these instruments, numerous CSR and corporate governance codes and standards may be utilised by the financial sector, either directly as signatories (for example, for a financial corporation) or as guidance on the performance of investee companies.109 The potential advantages of SRI and CSR codes include their ability to coordinate action on common concerns, facilitate exchange of information and best practices and   Section 137(5)(b)(i).   Corporate Governance Code Monitoring Committee (CGCMC), ‘Dutch Corporate Governance Code principles of good corporate governance and best practice provisions’ (CGCMC, 2008), 34. 105   B.J. Richardson, ‘Financing sustainability: The new transnational governance of socially responsible investment’ (2007) Yearbook of International Environmental Law 73; Miles, ‘Targeting financiers’, 947. 106   See www.foe.org/camps/intl/declaration.html. 107   See www.unpri.org. 108   See www.equator-principles.com/index.shtml. 109   W. Cragg (ed.), Ethics Codes, Corporations and the Challenge of Globalization (Edward Elgar, 2005). 103 104

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Socially and environmentally responsible investment  519 Table 21.1  SRI-related codes Code

Principal sponsor

Carbon Disclosure Project, 2002 Carbon Principles, 2008 Climate Principles, 2008 Climate Principles for Enterprises, 2018

Rockefeller Philanthropy Advisors Consortium of US banks Climate Group Expert Group on Climate Obligations of  Enterprises Coalition of nongovernmental organisations

Collevecchio Declaration on Financial   Institutions, 2003 Equator Principles, 2003 Eurosif Transparency Guidelines, 2004 Green Bond Principles: Voluntary Process   Guidelines for Issuing Green Bonds, 2014 Investor Network on Climate Risk Action Plan,  2003 London Principles of Sustainable Finance, 2002 Montreal Pledge, 2014 Natural Capital Declaration, 2011 Principles for Responsible Agricultural   Investment, 2014 Principles for Sustainable Insurance, 2012 UN Principles for Responsible Investment, 2005 UNEP Statement by Financial Institutions on  the Environment and Sustainable Development, 1997

Consortium of multinational banks and  the World Bank’s International Finance Corporation European Social Investment Forum (Eurosif) Coalition for Environmentally Responsible   Economies (Ceres) Coalition for Environmentally Responsible   Economies (CERES) UK Department of Environment and   Corporation of London UN Principles for Responsible Investment UN Environment Programme – Finance  Initiative (UNEP-FI), Global Canopy Programme and Getulio Vargas Foundation United Nations Conference on Trade and   Development and other UN bodies UNEP-FI UN UNEP-FI

build a network for peer pressure to minimise unscrupulous and unethical financing.110 Moreover, some codes are developed with substantial input from government, as in the case of the UK Stewardship Code of 2012, which aims to ‘enhance the quality of engagement between investors and companies to help improve long-term risk-adjusted returns to shareholders’.111 Whilst ‘voluntary’ codes are attractive for investors as an alternative to prescriptive regulation, their voluntariness has downsides.112 The motivations and impact of corporate self-regulation have been researched extensively, and do not need to be rehearsed here.113   See M. Priest, ‘Five models of self-regulation’ (1997–8) 29 Ottawa Law Review 233, at 239.   Financial Reporting Council, UK Stewardship Code, www.frc.org.uk/investors/uk-steward​ ship-code. 112   See I. Maitland, ‘The limits of business self-regulation’ (1995) 27(3) California Management Review 132. 113   E.g. J. Moon, ‘The firm as citizen? Social responsibility of business in Australia’ (1995) 110 111

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520  Research handbook on environment and investment law The extent to which voluntarism engenders perfunctory compliance and enables business as usual may depend on the terms of each code. Some give signatories considerable discretion while others are quite prescriptive. A code may contain generic performance targets (for example, to prevent or minimise adverse environmental impacts) or be rather specific (for example, to reduce greenhouse gas emissions by a given quantity and timeframe). A good example of the prescriptive approach is the Collevecchio Declaration, while the UNPRI reflects the more discretionary, openended approach: not surprisingly, investors have shunned the former in favour of the latter. The most successful demonstrated effect of SRI codes has been greater disclosure of corporate social and environmental performance. The best example is the Carbon Disclosure Project, which enables investors to better discriminate between corporate leaders and laggards on dealing with GHG emissions and to apply pressure accordingly. Transparency standards may also foster greater reflection and learning among participants about their practices and impacts, which in turn may stimulate positive behavioural changes.114 Research by Conley and Williams on the Equator Principles, which apply to project financing, suggest they have had generally a positive influence in changing the culture of lenders; the authors identify the presence of NGO watchdogs as instrumental to making the Principles function effectively.115 The voluntariness of SRI codes does not imply they necessarily lack legal implications. A code may be legally binding by virtue of contracts among participating institutions; a bank may include in its contract with a borrower a term that the parties adhere to the Equator Principles’ provisions regarding environmental assessment. A code may also have consequences for regulatory compliance; Denmark’s Financial Statements Act allows an investment institution to fulfil its annual sustainability reporting duty by submitting a progress report in connection with its accession to the UNPRI.116 3.5  Reforming Laws Social investors may exert influence not only by directly targeting other financiers or companies, but also by targeting their regulators. Although SRI evolved as a market-based movement without the imprimatur of government, the movement increasingly concedes the need for government assistance through a more positive policy and regulatory framework. This may necessitate reforms to corporate governance to facilitate shareholder activism, corporate environmental reporting standards to enable investors to make better informed decisions and the introduction of financial incentives such as carbon taxes.117 30(1) Australian Journal of Political Science 1; R. Gibson (ed.), Voluntary Initiatives: The New Politics of Corporate Greening (Broadview Press, 1999); S. Wood, ‘Voluntary environmental codes and sustainability’ in B.J. Richardson and S. Wood (eds), Environmental Law for Sustainability (Hart Publishing, 2006), 229. 114   A. Kolk, D. Levy and J. Pinkse, ‘Corporate responses in an emerging climate of institutionalization and commensuration of carbon disclosure’ (2008) 17(4) European Accounting Review 719. 115   J. Conley and C. Williams, ‘Global banks as global sustainability regulators? The Equator Principles’ (2011) 33(4) Law and Policy 542. 116   Act amending the Danish Financial Statements Act (‘Årsregnskabsloven’), 8 October 2008. s. 99a(7). 117  Richardson, Socially Responsible Investment Law, 303–75; T. Hebb and D. Wójcik,

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Socially and environmentally responsible investment  521 Such reforms have tended to be advocated for the governance of companies rather than investors. The most common way that social investors seek to influence policymakers is through their peak associations rather than in an individual capacity. In Canada, the Responsible Investment Association (formerly called the Social Investment Organisation), which represents the country’s SRI industry, and the Shareholder Association of Research and Education (SHARE), have lobbied governments for law reform, campaigning particularly on corporate governance standards and disclosure standards for both companies and investors.118 The Responsible Investment Association Australasia has played a similar role.119 In the US, in early 2010 major public sector pension funds such as CalPERS successfully petitioned the Securities Exchange Commission (SEC) to oblige listed companies to disclose their investment risks associated with climate change.120 This guidance was a major step towards regulators’ recognition of the materiality of climate disclosures, and strengthened the prospects for litigation to request climate risk information from public companies that do not adequately disclose.121 Not all such efforts, however, are successful; the UK Social Investment Forum’s (UKSIF) lobbying to amend the Financial Services and Markets Act 2000 to include the provision of environmental financing within the Financial Services Authority’s mandate was rejected.122 Likewise, in several countries, proposals to alter the fiduciary duties of institutional investors to give more latitude for SRI have not been accepted.123 While some investors, or at least social investors, may advocate law reform, they tend to be unenthusiastic and even hostile to any legal changes that impinge on their own prerogatives. One example is when the American banking industry successfully lobbied Congress to amend the Superfund legislation to immunise itself from lender liability suits for the costs of remediating contaminated lands.124 Likewise, the mutual fund industry in North America staunchly resisted new securities regulations in the mid-2000s seeking to make it disclose how fund managers vote on shares belonging to their beneficiaries.125 These anecdotes help explain why legal reforms to promote SRI over the past two decades have generally just tinkered with the underlying problems of the financial economy that impede sustainability. These reforms have concentrated on market-based and informational tools that alter the procedures of SRI decisionmaking, without seriously facilitating or obliging

‘Global standards and emerging markets: The institutional investment value chain and CalPERS’ ­investment strategy’ (2005) 37(11) Environment and Planning 1955, at 1971. 118   See www.share.ca and riacanada.ca. 119   See http://responsibleinvestment.org. 120   SEC, ‘SEC issues interpretive guidance on disclosure related to business or legal developments regarding climate change’ (27 January 2010), http://sec.gov/news/press/2010/2010-15.htm. 121   G. Erion, ‘The stock market to the rescue? Carbon disclosure and the future of securitiesrelated climate change litigation’ (2009) 18(2) Review of European Community and International Environmental Law 164. 122   UKSIF, ‘UK Social Investment Forum tells MPs of need to include environment in ­framework for financial services regulator’, Press release, 19 April 1999. 123   See generally Richardson, Fiduciary Law and Responsible Investing. 124   Asset Conservation, Lender Liability and Deposit Insurance Protection Act 1996, ss. 2501-04. 125   Davis, Lukomnik and Pitt-Watson, The New Capitalists, 73.

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522  Research handbook on environment and investment law SRI. Any more ambitious reforms have been reserved for public financial institutions, such as mandating sovereign wealth funds to avoid unethical investments, as with the Norwegian Government Pension Fund Global and the New Zealand Superannuation Fund.126 In the European Union (EU), promising efforts to create a green regulatory framework for finance have emerged in very recent years, which the SRI sector has helped promote through representation on the High Level Expert Group on Sustainable Finance established by the EU in December 2016 to guide the reform process. The Sustainable Finance Initiative of the EU, as the process is known, aims to support ‘the transition to a low-carbon, more resource-efficient and sustainable economy’,127 and its goals have been elaborated in a formal Action Plan.128 Three specific regulatory initiatives to ensue from the Action Plan of relevance to SRI are: (1) establishing a formal classification of sustainable economic activities; (2) obliging institutional investors to disclose how they integrate ESG factors in their financial risk assessments; and (3) creating benchmarks to help investors compare the carbon footprint of their financial portfolios.129 Of particular relevance to SRI is the proposed EU regulation mandating investors to explicitly consider sustainability factors in their financial decisions and to disclose their methodology for such decisions. 130 These reforms do not alter the financial incentives for SRI but at least improve the information flows for integrating sustainability, and overall they bolster the legitimacy of SRI as the new orthodoxy for the financial economy. Other jurisdictions are also introducing new governance measures to stimulate more socially responsible and long-term investing. A recent global study of SRI-related public policy initiatives in 50 major countries identified almost 300 policy instruments, with about half of these instruments being adopted between 2013 and 2016.131 Yet, the report also found the need for considerably more governance reform, as ‘few of the investment-focussed policy initiatives . . . were clearly linked to specific sustainability objectives’.132

4. CONCLUSION The financial economy should be recognized as having a major influence on the environmental impacts of society. Environmental law does not generally regulate the financial

126   B.J. Richardson, ‘Sovereign wealth funds and the quest for sustainability: Insights from Norway and New Zealand’ (2011) Fall(2) Nordic Journal of Commercial Law 1. 127   European Commission, ‘Sustainable finance’, https://ec.europa.eu/info/business-economyeuro/ban​king-and-finance/sustainable-finance_en. 128   European Commission, Action Plan on Sustainable Financing Sustainable Growth, COM/2018/097 final (March 2018). 129   European Commission, Commission legislative proposals on sustainable finance, Brussels, 24 May 2018, https://ec.europa.eu/info/publications/180524-proposal-sustainable-finance_en. 130   Proposal for a Regulation of the European Parliament and of the Council on disclosures relating to sustainable investments and sustainability risks and amending Directive (EU) 2016/2341 Brussels, 24.5.2018 COM(2018) 354 final 2018/0179 (COD) Recital 5. 131   A. Heath, M. Paty and W. Martindale, Global Guide to Responsible Investment Regulation (PRI and MSCI, 2016), 7. 132  Ibid.

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Socially and environmentally responsible investment  523 sector, on the assumption that its environmental sequelae are most appropriately governed at the level of companies and other economic actors in the productive economy. The SRI movement has to some extent sought to fill this lacuna by disciplining companies to improve their environmental performance. The SRI sector is helping to civilise the financial economy and recalibrate it away from unadulterated economic criteria to social and ecological criteria of success. However, the institutional and economic barriers to the SRI market remain entrenched and its influence remains rather muted. The behaviour of most financial institutions remains unchanged, and any evaluation of environmental impact, even sometimes by avowed social investors, tends to be made narrowly in terms of financial advantage. In concluding this chapter, four important takeaways are offered. First, if SRI is to become more relevant to the environmental challenges facing the planet, SRI must more ambitiously address the systemic and structural features of the financial economy as against merely the environmental or social behaviour of individual investors or companies. In the era of finance capitalism that has characterised economic affairs since the Second World War, the finance world has caused significant collateral damage, as seen in the global financial crisis and, less widely acknowledged, the global environmental crisis. There are fundamental structural barriers to what SRI can achieve in the financial sector when the finance system itself is not altered – that system includes the primacy of profitmaking, market competition, open borders for global trading and emphasis on economic growth. If humankind ever reaches an ecoutopia, it is unlikely that finance capitalism as we know it will be part of that milieu. We have yet to devise an economic system to replace the environmentally damaging practices of the current one, and the SRI sector should contribute to the urgently needed debates about this subject. Second, if social investors are to acquire more influence, they should engage more with environmental NGOs, human rights groups and other stakeholders outside the financial economy. Having that engagement with civil society can serve many purposes – including improving the social licence of investors, helping investors to understand wider public opinion and concerns and acquiring partners for SRI campaigns. The dominance of the self-interested business case in SRI decisionmaking might be diluted as the movement becomes more sensitised to nonbusiness values. Third, investors should concentrate more on targeting government regulators and international lawmakers to introduce better environmental laws, such as a carbon tax to tackle climate change. If governments imposed a robust price on carbon, the market would very quickly factor greenhouse gas emissions into its cost–benefit analyses and capital allocation decisions, and there would be a drift – possibly a stampede – away from the dirty fossil fuel sector. Likewise, better laws to conserve biodiversity and sustainably manage natural resources such as water and forests would in turn correct the market failures that SRI tries to address. Indeed, if all environmental problems were properly regulated, there would be little need for SRI in regard to environmental issues. Finally, the SRI community should devote more energy to identifying and promoting what it wishes to stand for, rather than merely what it stands against. The history of SRI has tended to be of standing against things – sweatshops, apartheid, fossil fuels and so on – but what does SRI stand for? The SRI movement needs to articulate more clearly and persuasively the world it wishes to lead society towards. That message – a positive message – has not been well articulated by social investors. In recent years, that ‘positive’

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524  Research handbook on environment and investment law message has framed around two ideas – promoting sustainable development and achieving better financial returns. The latter objective tends to serve the self-interest of investors, and while the former goal dovetails appropriately with the UN Sustainable Development Goals, it is open to risk of simply being defined narrowly about sustaining the economy rather than sustaining natural capital and the biosphere. The one niche sector in the SRI movement that has come closest to genuinely promoting wider societal benefits is the impact investing and microfinance sector.133 It was forged on a vision about building a more just society, a better economy and a healthier environment. A positive message should lead to more leverage and influence for social investors.

133

  K. Wendt (ed), Positive Impact Investing (Springer, 2018).

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Index Aakre, S. 111 Aarhus Convention on Access to Information 65, 75 Abs, H. 266 Aburdene, P. 509 access to water see water and investment Acconci, P. 184 accountability see transparency Addis Ababa Action Agenda 15–16, 36, 153 Africa, long-term investment contracts in energy sector and stabilization clauses 340–63 Chad–Cameroon Petroleum Development and Pipeline Project 354–6, 480–81, 483, 484, 485, 491, 492, 494–502 compensation issues 342, 347–8, 357, 359 contractual clauses 349–50 contractual clauses, and profound change in circumstances 361 current trends 356–62 economic equilibrium clauses 342, 346–8, 354, 355, 356, 357 economic equilibrium clauses, shift towards narrower 358–60 energy sector stability techniques 344–56 freezing clauses 342, 344–6, 348, 352, 354, 356, 357, 358–60 human rights and environment issues 359–60 hybrid clauses 342, 348, 354 inconsistency rule provision 350 legitimate expectations 352, 356 Nigeria/Sao Tome and Principe crossborder project 355 stability agreements 351–3, 354 stabilization clauses duration 345–6 stabilization clauses, flexible and doubleedged, shift towards 360–62 stabilization clauses incorporation techniques 349–56 stabilization clauses, legislation authorizing 350–51, 359 stabilization clauses purpose and scope 341–4 stabilization techniques for crossborder projects 353–6 transparency and accountability effects 357

West African Gas Pipeline Project (WAGP Project) 353–4, 355–6 windfall profit taxes 356–7, 360 Africa, oil and gas investment and local communities 480–503 Chad–Cameroon Petroleum Development and Pipeline Project 354–6, 480–81, 483, 484, 485, 491, 492, 494–502 ‘choice and self-determination’ issues 488 communities’ views and consultations 485–6, 487–8, 491–502 Compensation and Resettlement Plan 497–8, 499 Compliance Advisor Ombudsman (CAO) 485–6, 495–8 decolonization effects 483–4, 490 ‘development as freedom’ perspective 487 environmental impacts of oil and gas production 489–92, 493–4, 495–7, 498–9, 501–2 Environmental Management Plans 484, 495–6 FDI contributions to economic development, debate over 481–2, 486–92 grievance procedures 497–8 IFC and Multilateral Investment Guarantee Agency (MIGA) projects 495 investor-state arbitration 483, 495 marginalisation issues 490–91 neoliberalism and catching-up approach 486–7, 488–9, 490 NGO involvement 496–7 poverty reduction objectives 485, 490, 496, 500–501 right to a clean environment 493 state–investor relationship primacy 481–2 supervision and monitoring issues 497 voluntary dispute resolution process 497 World Bank Inspection Panel 485–6, 495, 498–501 African Charter on Human and Peoples’ Rights (ACHPR) 159, 160 African Commission Centre for Minority Rights Development (Kenya) v. Kenya 488 Endorois Welfare Council v. Kenya 74

525

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526  Research handbook on environment and investment law Free Legal Assistance Group and Others v. Zaire 74 Ogoni 492–4 SERAC v. Nigeria 160 Sudan Human Rights Organisation & Centre on Housing Rights and Evictions (COHRE) v. Sudan 74 Aisbett, E. 296 Alam, S. 264 Alanis-Ortega, G. 47 Aldy, J. 110 Alexandrov, S. 73, 84 Alschner, W. 67 alternative mechanisms, dispute resolution 239–41 Alvarez, J. 380, 429 Amarasinha, S. 133 Amerasinghe, N. 217 American Convention on Human Rights 159, 161 amicus curiae brief EU investment agreements, economic objectives 390, 403 human rights and environmental protection 156 indigenous cultural heritage and natural resources 474 Latin American states, investment claims against 414 procedural issues and innovations in environment-related investor-state disputes 218 sustainable development and international investment law 54 water and investment 73, 76, 84, 91, 96 see also investor-state dispute settlement Anand, P. 316, 321, 483–4 Anderson, R. 8–9, 441–63 Andrup-Henriksen, G. 318 Anghie, A. 115, 484, 490, 502 annulment or set-aside of award 215 Anton, D. 157 Apea, Y. 255 APEC Economic Leaders, Lima Declaration 49–50 Araya, M. 47 Argentinian financial crisis effects 91, 92, 94 Arnold, G. 514 Arsel, M. 295 ASEAN and Regional Comprehensive Economic Partnership (RCEP) 48–9 Ashutosh, R. 316 Asteriti, A. 45

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Australia Australia and New Zealand Banking Group (ANZ), pulp mill funding 511, 513 plain packaging 311 Yanner v. Eaton 471 Baetens, F. 3, 107–30 Bagri, N. 319 Bagus, P. 506 Baker, S. 294 Bala, M. 318 Baldwin, R. 382 Bancal, J.-C. 126 Banifatemi, Y. 85, 425–6 Bankes, N. 292 Bao, Q. 367 Barelli, M. 466 Barnard, C. 383 Barnett, M. 510 Barrera-Hernández, L. 464 Barsch, R. 465 Bartels, L. 382 Bartram, J. 79 Bauer, R. 510 Baxter, J. 302 Bayley, A. 40 Beck, U. 244 Bedjaoui, M. 483 Begic, T. 85 Behn, D. 43, 44 benefit-sharing, biodiversity protection 143–5 Benson, K. 512 Beresford, Q. 511 Berger, A. 296 Berman, F. 124 Beyerlin, U. 41, 161, 162, 427 Bhasin, N. 319 Bilzen, G. 318 Binder, C. 41, 64 biodiversity protection 131–49 compensation considerations 133–4, 143 Convention on Biological Diversity 141 Convention on Biological Diversity, Nagoya Protocol 143–5 future recommendations 147–9 Global Opportunity Index 144 institutional responses to proposed investments 148 investor-state dispute settlement 135, 137, 138–9, 145 legitimate expectations 134, 135–6, 138, 141 minimum standard of treatment 134–5 palm oil production 140, 141

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Index  527 preinvestment environmental risk assessment suggestion 148–9 private international investment boosting biodiversity and safeguards 146–7 private international investment boosting biodiversity and safeguards, biobanking 146 private international investment boosting biodiversity and safeguards, habitat banking 146 protected areas 139–43, 148 protected areas, developing countries and poverty reduction and development 141–2, 147–8 protected areas, public welfare protection 142–3 Sustainable Development Goals 147–8 sustainable investment and access and benefit-sharing agreements 143–5 sustainable investment and access and benefit-sharing agreements, transaction cost reduction 145 UNFCCC REDD+ financing and REDD+ projects 147 biodiversity protection, emerging international investment regimes and biotechnology investments 132–9 biosafety regulations 137–8 Cartagena Protocol on Biosafety 137 ecotourism and environmental law 138–9 environmental obligations 133–6 fair and equitable treatment standard 138, 139, 144, 145 international environmental law 137–8 NAFTA 133, 134–5, 136 performance standards 135–6 Trans-Pacific Trade Partnership (TPP) 135–6, 140, 144–5 Transatlantic Trade and Investment Partnership (TTIP) 135, 136, 145 US Model BIT 132–3, 134, 136 Birnie, P. 160, 164 Biryabarema, E. 360 Bjorklund, A. 2–3, 38–68, 392, 477, 478 Blackaby, N. 73, 84, 223, 224, 227, 228 Blodget, H. 505 Blühdorn, I. 294 Boer, B. 157 Bogle, J. 506 Boisson de Chazournes, L. 41, 71 Bonnitcha, J. 42, 296 Borgen, C. 190, 192, 424 Born, G. 217 Bottini, G. 8, 408–39 Boumghar, M. 157

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Bourgeois, J. 17 Bourquain, K. 69 Boute, A. 126, 292 Bovarnick, A. 408 Bowman, M. 510, 511, 517 Boxburgh, C. 504 Boyle, A. 110, 162, 426 Brand, U. 294 Braunstein, E. 443, 444, 445, 446, 447, 448, 457, 458 Brazil, Agreement for Cooperation and Facilitation (ADFI) 49 Brill, J. 507 Brower, C. 29, 39 Brown, C. 4–5, 175–208, 222 Brown, J. 491 Brown, M. 126 Brown Weiss, E. 71, 79 Brundtland Report 40 Brunée, J. 40, 41 Brunet, M. 307 Brunnée, J. 427 Bücheler, G. 171, 275, 276 Buffard, I. 426 Burman, L. 142 Burroughes, T. 514 Büscher, B. 295 Button, C. 250 Calamita, J. 62 Caldecott, B. 146 Camejo, P. 512 Cameron, P. 340–41, 343, 344 Canada EU–Canada Comprehensive Economic and Trade Agreement (CETA) 51, 379, 392–6, 398–9, 401, 404, 405 Green Energy and Green Economy Act (GEGEA) 300, 303 Hupacasath First Nation v. Canada 471 Inuit Tapiriit Kanatami v. Parliament and Council 471 investment agreement transparency 54 Mikisew Cree First Nation v. Canada 66 Model BIT 388, 390, 394, 395 Model FIPA 220–21, 372–3 Responsible Investment Association 521 Caplan, L. 180, 210, 234, 404 Capotorti, F. 168 Carlarne, C. 107 Carlevaris, A. 76–7 Carlson, M. 84 Caron, D. 210, 234 Carson, M. 73 Carson, R. 164

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528  Research handbook on environment and investment law Cartagena Protocol on Biosafety 137 carveouts foreign investment and international law 19, 33–4 green multilateralism, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11) 279–80, 287–8, 289–90 human rights and environmental protection 164 India, environmental provisions in investment treaties 324–5 public welfare 125–6 treatment standards in environment-related investor-State disputes 203–5 Céline, N. 424 Cernic, J. 359 Chad–Cameroon Petroleum Development and Pipeline Project 354–6, 480–81, 483, 484, 485, 491, 492, 494–502 Chimni, B. 490, 502 China, environmental concerns and international investment agreements 364–78 BIT negotiations 372–3 economic development tipping points 368 economic growth 366 Environment Cooperation Agreement 372 environmental measures clauses 369 environmental protection and FDI interplay 366–8 environmental protection focus 368–72 environmental protection focus, preambular references 368–9 environmental regulatory space, clauses preserving 370 expropriation clauses 371 future agreements 372–8 general exceptions clauses 370 investor-state dispute settlement (ISDS) implications 365–6, 371–2, 375, 377 legitimate expectations 371, 375 and Multilateral Environmental Agreements (MEAs) 371–2 national treatment 373 performance requirement controls 377 pollution levels 366, 367 right to regulate, strengthening 376–8 sustainable development objectives 374–6 transparency 375 Choudhury, B. 60, 86 Choukroune, L. 116 Ciro, T. 504 Cisse, H. 486 Ciurtin, H. 404

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Clark, G. 505, 515 Clark, M. 452 Clean Development Mechanism (CDM), climate change and green investment, Kyoto Protocol 19–20, 110, 112, 114, 115, 118, 124, 238, 240 Cleverly, R. 230 climate change, gender, environment and foreign investment 454–5 climate change and green investment 107–30 colonialism effects 114–15 fair and equitable treatment 116–18, 122, 128–9 future treaties and contracts, recommendations for 125–6 legitimate expectations 117, 118, 122, 123, 126, 128–9 national treatment and most favoured nation (MFN) treatment 116–17, 129–30 performance requirements 118–20 performance requirements, investment clauses regulating 118–19 performance requirements, potential conflicts with climate change objectives 119 poverty issues 119 reconciling and reinforcing 123–30 reinterpretation of existing standards 128–9 subsidies 121, 123 transparency 112, 117, 128–9 United Nations Framework Convention on Climate Change 108–9 climate change and green investment, green investment protection 113–16, 120–23 contractual disputes 120 direct and indirect expropriation 114–15 domestic renewable energy incentivisation schemes 120–23 feed-in tariffs 120 investment value effects 122–3 investor-State arbitration 113, 121–3, 126 potential conflicts with climate change objectives 115–16 and principle of permanent sovereignty 114–15 prohibition on expropriation without compensation 114–16, 120 proportionality test 122 treaty disputes 120–23 climate change and green investment, Kyoto Protocol 107, 109–10 arbitration proceedings 114, 116, 124–5 Clean Development Mechanism (CDM) 19–20, 110, 112, 114, 115, 118, 124, 238, 240

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Index  529 Doha Amendment 110–11, 130 emission reduction regime 109, 110, 111, 112, 115, 120, 125 Flexibility Mechanisms 109–10, 113, 117–18, 129 Joint Implementation (JI) 109–10, 112, 115, 120, 124 Kyoto II 125–6 Kyoto-friendly approach 128 non-Kyoto Parties 114, 117–18, 124 public welfare carve-outs 125–6 Vienna Convention on the Law of Treaties limitations 126–8 climate change and green investment, Paris Agreement 107–8, 111–13 emission reduction regime 111–13 global average temperatures 111 private investment role 112–13 US withdrawal 112 Clough, D. 86 coal industry, India 317–18 see also fossil fuels codification through standards, socially responsible investment (SRI) 508–9 Coe, J. 273 Cohen, A. 167 Colen, L. 452, 453 colonialism effects Africa, oil and gas investment and local communities 483–4, 490 climate change and green investment 114–15 Committee for Economic, Social and Cultural Rights (CESCR), right to water 75, 77–80, 89, 97–8 community core values foreign investment and international law 31–2 science use in investor-state arbitration 256–7 sustainable development and international investment law 58–9 treatment standards in environment-related investor-State disputes 200–201, 202 water and investment 101 compensation issues Africa, long-term investment contracts in energy sector and stabilization clauses 342, 347–8, 357, 359 Africa, oil and gas investment and local communities 497–8, 499 biodiversity protection 133–4, 143 climate change and green investment 114–16, 120 foreign investment and international law 29–30

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green economy and investor-state dispute settlement (ISDS) 298, 306, 309 green multilateralism 265, 266, 272, 276, 290 India, environmental provisions in investment treaties 329, 331 Latin American states, investment claims against 410, 411, 422, 435 treatment standards in environment-related investor-State disputes 176, 177, 187, 194–5 water and investment 91, 93, 100 competition for capital, gender, environment and foreign investment 444–5, 448, 457–8 foreign investment and international law 18–19, 29–33 conciliations, dispute resolution 240–41 Condon, M. 46, 47 confidentiality, investment arbitrations 216–22, 236 see also transparency Conley, J. 520 Constain, S. 240 contractual clauses, Africa, long-term investment contracts in energy sector and stabilization clauses 349–50, 361 contractual disputes, climate change and green investment 120 Convention on Biological Diversity (CBD) 141, 143–5, 239 Convention on the Rights of the Child (CRC) 158 Cook, J. 515 Cordonier-Segger, M.-C. 12, 44, 50, 137 corporate governance effects 505, 516, 517–18 corporate social responsibility (CSR) 17, 63 Cosbey, A. 300 Costa Rica see under Latin American states, investment claims against costs management, investment arbitrations 232–7 Cotula, L. 45, 52, 55, 57, 66, 114, 359 Couture, T. 308 Cowton, C. 513 Cragg, W. 508, 518 Crawford, J. 176, 191, 283, 423, 426, 429, 431 Crockett, A. 42 Crow, K. 52 Cubby, B. 511 Cucinotta, D. 4–5, 175–208, 222 Cullet, P. 489–90 cultural heritage, indigenous see indigenous cultural heritage and natural resources Curtis, T. 483 Cutler, C. 467

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530  Research handbook on environment and investment law Daes, E.-I. 465, 467 Daly, B. 210, 223, 224, 228, 234, 235, 236, 241, 242 Darby, A. 511 Davies, H. 260 Davis, S. 515, 521 De Sadeleer, N. 261 De Sousa Nunes Vicente, M. 117 de-regulatory chill green economy and investor-state dispute settlement (ISDS) 299–307 India, environmental provisions in investment treaties 326 debt financing, socially responsible investment (SRI) 514–15, 517 Del Río, P. 307, 308 Deloria, V. 467 Dennis, M. 162 Desierto, D. 44, 63, 87, 157 Dewar, S. 517 Di Benedetto, S. 12, 41 Diepeveen, R. 491 Dockrill, P. 318 Dolzer, R. 86, 175, 177, 212, 265, 267, 272 Domini, A. 507 Donders, Y. 466 Douglas, Z. 86, 125, 184 Drezner, D. 369 Drymer, S. 86 Dumberry, P. 86 Dupuy, P.-M. 12, 27, 85, 155, 159, 164, 423, 482, 483, 491 Durham, J. 482 Ebeku, K. 492 economic considerations and gender see gender, environment and foreign investment, economics sustainable development and international investment law 41, 43–4 economic development tipping points, China 368 economic equilibrium clauses, Africa, long-term investment contracts in energy sector 342, 346–8, 354, 355, 356, 357, 358–60 economic growth, China 366 economic objectives, EU see EU investment agreements, economic objectives and environmental considerations ecotourism and biodiversity protection 138–9 treatment standards 206–8 see also tourism

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Ecuador claims against see under Latin American states, investment claims against Yasuni–ITT initiative 141–2 effects doctrine 99, 178 Ehresman, T. 293, 294 Ekins, P. 294 El Salvador, Pac Rim v. El Salvador 24, 102, 142–3, 417–18 emission reduction regime Kyoto Protocol 109, 110, 111, 112, 115, 120, 125 Paris Agreement 111–13 employment and wage discrimination, gender, environment and foreign investment 442–3, 444, 445, 447, 458 endangered species, Latin America 410–12 Energy Charter Treaty (ECT) 125–6, 177, 309, 388 energy needs and energy technology needs, gender, environment and foreign investment 453–4 energy sector, Africa see Africa, long-term investment contracts in energy sector and stabilization clauses Engle, K. 468 environmental impact assessments (EIA) 52–3, 66–7 see also sustainability impact assessments Environmental Performance Index 317 Ergas, C. 451–2, 454, 455, 457 Erion, G. 521 Erkan, M. 344 Escobar, L. 52 ESG (environment, social and governance) analysis, socially responsible investment (SRI) 510, 512, 515–16 Esteva, G. 486, 487 EU FTAs and sustainable development 18 sustainability impact assessments 46 Sustainable Finance Initiative 522 EU investment agreements, economic objectives and environmental considerations 379–407 amicus curiae brief 390, 403 balancing environmental and economic considerations 381, 384, 385–7, 389, 393, 394, 395, 399–401, 402–3, 404–6 best practices of the Member States BITs, drawing from 387–8, 395 Charter of Fundamental Rights 383–4 Commission’s Trade and Investment Strategy 386–7 Common Commercial Policy (CCP) 383

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Index  531 Economic Partnership Agreements 389 Energy Charter Treaty (ECT) 388 environmental regulation 383–4 FDI flows between developing and developed States 381 Founding Treaties and balancing FDI and environmental protection 382–4 four freedoms 383 FTAs, investment chapters in 389 international law effects 381 investor-state dispute settlement 390, 398, 399, 403 legitimate expectations 392–3, 394, 395, 398–9, 401, 402 new International Investment Policy 385–9 new International Investment Policy, Commission’s Communication and focus on balance 385, 386–7 new International Investment Policy, Council of Europe and economic benefits of FDI and corporate social responsibility 386 new International Investment Policy, European Parliament, investor’s rights and the right of public authorities to regulate 385–6 proportionality principle 394, 401, 405 public interest consideration 381–2, 385–6, 387, 394–5 sustainability impact assessments 387, 392 sustainable development 381, 391, 392–3, 397, 402, 404 TFEU on environmental protection 383 EU investment agreements, economic objectives and environmental considerations, new nvestment agreements and environment 389–403 EU–Canada Comprehensive Economic and Trade Agreement (CETA) 51, 379, 392–6, 398–9, 401, 404, 405 EU–Canada Comprehensive Economic and Trade Agreement (CETA), preambular references to non-economic considerations 393–4 EU–Canada Comprehensive Economic and Trade Agreement (CETA), shortcomings 395 EU–Singapore FTA 396–8 EU–South Korea FTA 391, 404, 405 EU–Vietnam FTA 398–9, 401, 404, 405 exclusive and shared competences 396 experience deficiencies 390 fair and equitable treatment (FET) 396 financial crisis effects 389–90

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identity of third State with whom EU negotiated, effects of 390 indirect expropriation 394, 397, 399, 401 influenced by investment (and public law) experience of other States 394 multilateral environmental standards and agreements 397 national treatment 396–7 police powers doctrine 396 right to regulate 393, 398–9 substantive investment standards 393, 394, 398 Transatlantic Trade and Investment Partnership (TTIP), Investment Chapter 401 Transatlantic Trade and Investment Partnership (TTIP) negotiations 399–403, 404, 405, 406 transparency 403 European Court of Human Rights Brânduşe v. Romania 82 Budayeva v. Russia 162 drinking water protection 74, 78, 80–82, 83 Dubetska v. Ukraine 80, 82 Dzemyuk v. Ukraine 80 Fadeyeva v. Russia 162 Fredin v. Sweden 103–4 Guerra v. Italy 80, 82, 162 James v. UK 156 Lopéz Ostra v. Spain 80, 162 Matos et Silva v. Portugal 103, 104 Öneryildiz v. Turkey 162 Pine Valley v. Ireland 103, 104 Taskin v. Turkey 80–81, 82, 162 Tatar v. Romania 80, 81–2, 162 Tyrer v. United Kingdom 162 Zander v. Sweden 82 experts’ role investor-state disputes see procedural issues and innovations in environment-related investor-state disputes, technical experts science use in investor-state arbitration 262 expropriation China, environmental concerns and international investment agreements 371 climate change and green investment, green investment protection 114–16 EU investment agreements 394, 397, 399, 401 foreign investment and international law 33–4 green multilateralism, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11) 285–6

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532  Research handbook on environment and investment law green multilateralism, investment treaties and environmental regulation 272, 273–6 India, environmental provisions in investment treaties 324 science use in investor-state arbitration 247–8, 251–2 treatment standards in environment-related investor-State disputes 176–80, 194–208 fair and equitable treatment (FET) biodiversity protection 138, 139, 144, 145 climate change and green investment 116–18, 122, 128–9 EU investment agreements 396 green multilateralism 272–7, 280–83, 284–5 Latin American states 416, 419, 426 science use in investor-state arbitration 249, 252, 253 treatment standards in environmentrelated investor-State disputes 180–84, 197–200, 206–8 Falsafi, A. 86 Fauchald, O. 43, 44 feed-in tariffs (FIT) 120, 297–8, 299–302, 304, 307–9 Ferrer, M. 6–7, 313–39 Ferris, R. 318 fiduciary law omission, socially responsible investment (SRI) 507, 521 Fietta, S. 230 finance capitalism, socially responsible investment (SRI) 504–5 financial crisis effects 91, 92, 94, 389–90 Finnemore, M. 486 Firger, D. 292–3 Fizmaurice, M. 162 Flexibility Mechanisms, Kyoto Protocol 109–10, 113, 117–18, 129 foreign direct investment (FDI) effects Africa, oil and gas investment and local communities 481–2, 486–92 EU, flows between developing and developed States 381 human rights and environmental protection 152–3 India, environmental provisions in investment treaties 314 indigenous cultural heritage and natural resources 470 foreign investment, and gender see gender, environment and foreign investment foreign investment and international law 12–37 carveouts 19, 33–4 and community core values 31–2

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compensation issues 29–30 consolidation of upgraded approach 25–36 consolidation of upgraded approach, mindset change 29–36 corporate social responsibility (CSR) standards 17 current trends 36–7 environmental mismanagement implications 34–6 environmental protection for instrumental (competition) reasons 18–19, 29–33 free trade agreements (FTAs) and megaregionals 17–19 green economy concept 13 indirect expropriations 33–4 investment dispute settlement 19 legitimacy conflicts 27–8 minimum standard of treatment 31, 34 most favoured nation clause 28 necessity clauses 27–8 surge in investment disputes 19–25 Sustainable Development Goals 13–16 Sustainable Development Goals, Addis Ababa Action Agenda 15–16 World Bank, Global Environmental Facility 14 Fortier, Y. 86, 392 fossil fuels coal industry, India 317–18 divestment campaign, socially responsible investment (SRI) 514 mining and hydrocarbon exploration, Latin American states 413–18, 420–22, 423 oil industry see oil industry see also pollution Foster, C. 244, 262 fractional reserve banking effects, socially responsible investment (SRI) 506 Francioni, F. 467, 470 Franck, S. 381, 402, 468 Frank, S. 7, 340–63 freedom of information legislation 217, 218, 306 see also information disclosure freezing clauses, Africa, long-term investment contracts in energy sector 342, 344–6, 348, 352, 354, 356, 357, 358–60 Freiwald, A. 452 French, D. 169 Gaillard, E. 85 Gaines, S. 53 Gal-Or, N. 469 Gallagher, K. 482 Gallagher, N. 372

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Index  533 Gantz, D. 39 Garcia Amador, F. 176–7, 179 Gardiner, R. 86 Gathii, J. 502 Gazzini, T. 41, 117 Gehring, M. 45, 46–7, 54, 137, 403 gender, environment and foreign investment 441–63 climate change 454–5 climate change, health effects 454–5 climate change, human rights implications 455 climate change, and subsistence farming 454 decisionmaking effects 457–8 decisionmaking effects, civil society engagement 457 future research 462–3 gender blindness and gender mainstreaming 459–62 gender blindness and gender mainstreaming, environmental projects 460–62 gender blindness and gender mainstreaming, gender-sensitive policy approaches 460 health effects 454–6 health effects, environmental harm 456, 457 health effects, oil spills 455–6 occupational segregation of women and special discretion jurisdictions (SDJs) 442–3, 445 gender, environment and foreign investment, economics 443–5 competition for capital 444–5, 448, 457–8 employment 445 special discretion jurisdictions (SDJs) 443–4 wage discrimination 443, 444, 445, 447, 458 gender, environment and foreign investment, environmental regulation 450–54 energy needs and energy technology needs 453–4 environmentally friendly technologies 453–4, 456 gender equality 451–2 political status 451–2 pollution halo and haven hypotheses 447, 452–3 underenforcement and health effects 452–3 gender, environment and foreign investment, foreign investment effects 445–50 dispute resolution mechanisms 448 environmental harm and environmental protection 446, 449 green incentives 446, 453–4 market distortions 446–7, 458 race to the bottom 447

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regulatory incentives 447–8 sector-specific industries 448–50 services and tourism sectors 448–50 special discretion jurisdictions (SDJs) 446, 457–8 stabilization clauses in international investment agreements 448 transient labour and sexual exploitation 449–50 Gentry, B. 295 George, C. 17 Gerrard, M. 292–3 Ghehibriwet, N. 319 Ghellal, A. 349 Gibson, R. 520 Gilbert, J. 466–7 Gleick, P. 79 Global Opportunity Index 144 Goergen, M. 516 Goh, A. 454, 455 Golub, S. 453, 454, 455 González-Lutzenkirchen, A. 47 Gordon, K. 17, 46, 50, 153, 321, 368, 374, 380, 381, 382, 389, 390, 393, 451, 491 Gray, K. 116 Grear, A. 157 green economy concept 13 incentives, gender, environment and foreign investment 446, 453–4 investment and climate change see climate change and green investment private sector engagement in 152 green economy and investor-state dispute settlement (ISDS) 292–311 compensation issues 298, 306, 309 de-regulatory chill 299–307 de-regulatory chill, Mesa v. Canada 24, 122, 123, 299–302, 305 de-regulatory chill, Windstream v. Canada 24, 121, 123, 218, 219, 302–7 feed-in tariffs (FIT) 297–8, 299–302, 304, 307–9 freedom of information legislation 306 green economy definition 294–5 green investment (FDI), attracting 295–8 ISDS role 295–310 legitimate expectations 301, 305, 309 reinvestment 298–9 renewable energy costs declining 298 sanctions 305–6 Spanish solar cases 307–10 subsidies 297–8, 308, 310 targeted policy initiatives 297 wind farms, local opposition to 302–7

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534  Research handbook on environment and investment law wind farms, local opposition to, financial benefit arrangements 306–7 green multilateralism 264–91 bilateralism, early 265–6, 267–9 compensation issues 265, 266, 272, 276, 290 investment courts, centralisation through 270–72 investment treaty system 265–72 Investor-State Dispute Settlement (ISDS) claims 268–9, 270–72, 273–4, 275–6 legitimate expectations 273, 283–5 multilateralism, early 266 multilateralism revival 269–70 public participation 271 Vienna Convention on the Law of Treaties 269, 274, 279, 288 green multilateralism, Comprehensive and Progressive Agreement for Trans-Pacific Partnership (TPP11) 264, 271, 277–90 balancing provision 286–90 carveouts and clarifications 279–80, 287–8, 289–90 Environment Chapter 278–9 expropriation provisions 285–6 fair and equitable treatment (FET) 280–83, 284–5 interpretation 279, 287–90 Investment Chapter 280–90 minimum standard of treatment 280–83, 284, 285 green multilateralism, investment treaties and environmental regulation 272–7 expropriation provisions 272, 273–6 fair and equitable treatment (FET) 272–7 fair and equitable treatment (FET), egregious and shocking threshold 276–7 necessity doctrine 275–6 police powers 273–5 precautionary principle 276 proportionality test 274 greening of rights, human rights and environmental protection 161–2, 163–4, 167 Grimmer, S. 222, 241 Grisel, F. 423 Grossman, G. 367 Gruszczynski, L. 250 Guntrip, E. 98 Guzman, A. 295 habitat banking 146 Hackethal, A. 517 Hadjioannou, M. 466 Hafner, G. 426 Haigh, M. 512

MILES_9781784714628_t.indd 534

Hajer, M. 294 Hamby, C. 210, 235 Hansjürgens, B. 110 Harrison, J. 222, 223, 224, 227, 228 Harten, G. 316 Hawke, A. 448, 449, 450 hazardous waste, Latin American states 418–20 see also pollution Hazelton, J. 512 He, J. 367 health effects gender, environment and foreign investment 452–6 human rights and right to health 160 hearings transparency, procedural issues and innovations 218, 219 see also transparency Heath, A. 522 Hebb, T. 510, 513, 520–21 Heinkel, R. 514 Henckels, C. 62, 170–71, 172, 380, 437 Hepburn, J. 52, 423, 429 Herman, L. 306 Higgins, T. 89 Hirsch, M. 127, 155, 157, 382 Ho, R. 151 Hodgson, M. 232 Hof, A. 110 Hoffmann, M. 110 Hoffmeister, F. 405 Holtz, S. 303, 307 Hoshaw, L. 138 Howard, G. 79 Howse, R. 344 human rights Africa, long-term investment contracts in energy sector 359–60 gender, environment and foreign investment 455 indigenous cultural heritage and natural resources 472, 476, 477–8 and right to water see water and investment, human rights supervisory bodies and right to water sustainable development and international investment law 40 human rights and environmental protection 150–73 Addis Ababa Action Agenda 15–16, 36, 153 African Charter on Human and Peoples’ Rights (ACHPR) 159, 160 American Convention on Human Rights 159, 161

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Index  535 amicus curiae brief 156 carveouts 164 Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) 153–4, 170 Convention on the Rights of the Child (CRC) 158 foreign direct investment (FDI) 152–3 greening of rights 161–2, 163–4, 167 Indian Model BIT 154 indigenous rights 159, 160–61, 163 Inter-American Commission on Human Rights (IACommHR) 161 International Covenant on Economic, Social and Cultural Rights (ICESCR) 151, 158, 161–2, 478 investment disputes 155–7 and investment interactions 151–7 investment law implications 163 legitimate expectations 171, 172 Morocco-Nigeria BIT 154, 166 personal injury-based approach 164 pollution and right to private and family life 162, 163 private sector engagement in the ‘green economy’ 152 right to health 160 right to water 161–2, 163 Rio Declaration on Environment and Development 14, 65, 152, 159–60, 260 Stockholm Convention on Persistent Organic Pollutants, and DDT 164 Stockholm Declaration of the United Nations Conference on the Human Environment 159 sustainable development 152, 153 US Model BIT 154, 165–6 Vienna Convention on the Law of Treaties (VCLT) 167–9, 170 human rights and environmental protection, future development of international investment law 164–73 applicable in the relations between the parties requirement 169–70 and lack of relevant treaty obligation 170 proportionality approach 170–73 systemic integration 167–9, 170–71 Hwang, M. 114 hybrid clauses, Africa, long-term investment contracts in energy sector 342, 348, 354 ICSID (International Centre for Settlement of Investment Disputes) Abaclat v. Argentina 217 Abengoa y COFIDES v. Mexico 23

MILES_9781784714628_t.indd 535

Accession Eastern Europe Capital AB and Mezzanine Management Sweden AB v. Bulgaria 23 ADF Group v. United States 282 AES v. Hungary 305–6 Aguas del Tunari v. Bolivia 73, 84, 88, 89, 91 Aguaytia Energy v. Peru 342, 354 Al Tamimi v. Oman 19, 24, 29, 33, 34, 36, 37, 194, 203–5, 207–8, 288–9, 393, 398, 404 AMT v. Zaire 430 Antin v. Spain 122 Asian Agricultural Products Ltd v. Sri Lanka 268 Aven v. Costa Rica 412–13 Azinian v. Mexico 21, 202 Azurix v. Argentina 87, 89–91, 99, 155–6, 435 Bayindir v. Pakistan 184–5 Bayview Irrigation District v. Mexico 21 Bear Creek v. Peru 275, 438–9 Biloune v. Ghana 168 Biwater Gauff v. Tanzania 73, 84, 88, 96–7, 117, 181, 182, 216 Blusun v. Italy 25, 38, 121, 123 Border Timbers v. Zimbabwe 474 BP v. Libya 437–8 BSG Resources v. Guinea 220 Burlington v. Ecuador 25, 29, 35–6, 64–5, 230, 231, 354, 414–15, 422, 423, 473–4 CDSE v. Costa Rica 21, 27, 29–30 CMS Gas Transmission Company v. Argentina 117, 157, 178, 226, 276 Commerce Group Corp and San Sebastian Gold Mines v. El Salvador 22 Corn Products International v. Mexico 189 Crystallex v. Venezuela 24, 421–2 Daimler v. Argentina 186 Duke v. Ecuador 181 Duke v. Peru 342, 354, 359 Eastern Credit v. Estonia 181 EDF v. Argentina 433 Eiser v. Spain 25, 43, 122, 123 El Paso Energy v. Argentina 181, 433 Electrabel v. Hungary 179, 305 Enron v. Argentina 438 Eureko v. Poland 125 Feldman v. Mexico 115, 247 Foresti v. South Africa 22 Gambrinus v. Venezuela 24 Gas Natural v. Argentina 187 Goetz v. Burundi 430 Gold Reserve v. Venezuela 23, 28, 33, 37, 283, 420–21, 434 Hochtief v. Argentina 435–6 Ickale Insaat v. Turkmenistan 185 Impregilo v. Pakistan 425

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536  Research handbook on environment and investment law Infinito Gold v. Costa Rica 217, 218, 221, 413–14 International Bank of Washington v. OPIC 21 Joy Mining Machinery v. Egypt 215 Levy and Grencitel v Peru 23 LG&E v. Argentina 28, 170, 172, 274–5, 276 Loewen Group v. United States of America 117, 124, 181, 216 Lone Pine v. Canada 102–3, 220 Lucchetti v. Peru 21 Mærsk Olie v. Algeria 357 Maffezini v. Spain 21, 67, 185, 186, 187 Mamidoil v. Albania 24 Masdar v. Spain 122 Metalclad v. Mexico 5, 21, 27, 56, 99, 115, 138, 141, 178, 216, 247, 251–2, 259, 380, 418–19, 494–5 Micula v. Romania 183, 390 Mondev v. United States of America 117, 156, 249, 282, 283 MTD v. Chile 21, 148, 273 Murphy Exploration v. Ecuador 182 Nagel v. Czech Republic 181 Neer v. Mexico 180, 281–2, 283, 285 Niko Resources v. Bangladesh 23 Occidental Petroleum v. Ecuador 170, 181, 188 Pac Rim v. El Salvador 24, 102, 142–3, 417–18 Parkerings v. Lithuania 22, 28, 248 Perenco v. Ecuador 24, 29, 35, 36, 37, 136, 214, 223, 225, 226, 376, 414–15, 422, 423, 438 Pezold v. Zimbabwe 474 Philip Morris v. Uruguay 183, 193, 274, 396, 434 Plama v. Bulgaria 22, 28, 127, 185–6, 187 PSEG Global v. Turkey 117 Quiborax v. Bolivia 183 Renco Group v. Peru 24, 221, 223 Roberts (USA) v. Mexico 181 RSM Production Corporation v. Saint Lucia 236 Rumeli Telekom v. Kazakhstan 181 Rusoro Mining v. Venezuela 422 Saipem v. Bangladesh 178 Salini v. Jordan 185 Salini v. Morocco 215, 425 Santa Elena v. Costa Rica 133–4, 135, 137, 194–5, 197, 199, 223, 230–31, 380, 396, 409–10, 423, 430, 431, 494–5 SAUR v. Argentina 84, 88, 92–4, 95, 99, 405 Sempra Energy International v. Argentina 156 Siemens v. Argentina 155, 178, 181, 185

MILES_9781784714628_t.indd 536

SOFRECO v. Chad 23 Spence v. Costa Rica 19, 24, 29, 33–4, 36, 211, 411–12 SPP v. Egypt 21, 30, 126, 127–8, 380 Suez v. Argentina 22, 28, 73, 84, 87–8, 91–2, 95, 210, 212, 221, 226, 430–31, 433, 434 Tecmed v. Mexico 21, 27, 56, 117, 138, 156, 170, 178, 223, 274–5, 327, 380, 405, 419–20, 436, 438, 494–5 Teco v. Guatemala 434 Teinver v. Argentina 185, 427 Tokios Tokelés v. Ukraine 117 Total v. Argentina 170, 431, 432, 433, 434–5, 438 Toto v. Lebanon 85, 215 Tulip v. Turkey 85 and UNCITRAL, differences between 212–15 Unglaube v. Costa Rica 23, 28, 29, 30–31, 37, 134, 141, 223, 231, 410–11 UPS v. Canada 188 Urbaser v. Argentina 24, 94–5, 97–8, 164–5, 169, 413 Van Riet v. Croatia 24 Vattenfall v. Germany 22, 99, 138, 390 Venezuela Holdings v. Venezuela 431, 435, 436 Vivendi v. Argentina 425, 432–3 Waste Management v. Mexico 21, 182–3, 202, 249, 402 Ilge, B. 314, 315 Imam, B. 318 incentives domestic renewable energy incentivisation schemes 120–23 regulatory, and gender, environment and foreign investment 447–8 inconsistency rule provision, Africa, long-term investment contracts in energy sector 350 India Bhopal Gas Peedith Mahila Udyog Sangathan v. Union of India 321 Orissa Mining Corporation v. Ministry of Environment & Forest 65 India, environmental provisions in investment treaties 313–39 arbitrations against India 316–17 BIT programme 314–15, 316–17, 319 carveouts 324–5 coal industry 317–18 coal industry, economic importance 318 compensation issues 329, 331 Environmental Performance Index score 317 environmental provisions in BITs and FTAs 321–5, 333–9

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Index  537 environmental regulation 317–21 expropriation liability 324 foreign direct investment 314 foreign treaty agreements (FTAs) 315, 321–5, 333–9 investor-state dispute settlement (ISDS) mechanism 325–6, 328–30 legitimate expectations 324, 326, 327, 331 Model BIT 48, 154, 325–7, 332–3 National Green Tribunal Act 320–21 performance requirements on foreign investors 323 pollution costs 317–18 provisions for prevention of diseases and pests in animals or plants 323–4 public interest measures 324 regulatory chill reduction 326 technological advancements and knowledge transfer 318–19 Trans-Pacific Partnership (TPP), lessons from 327–30 indigenous communities human rights and environmental protection 159, 160–61, 163 sustainable development and international investment law 64–5 indigenous cultural heritage and natural resources 464–79 adjudicative mechanisms, lack of 467–8 amicus curiae brief 474 cultural collisions 470–75 cultural integrity approach 467 failure to protect investments against actions of indigenous peoples 473–4 FDI impact 470 human rights issues 472, 476, 477–8 international investment governance 468–70 international protection 465–8 investment treaty provision breaches 472 investor–state arbitration 468–70, 471–2, 477 judicially-driven approach 477–8 jus cogens status 477 natural resources development effects 471 permission to intervene in the proceedings 474 right of self-determination 477, 478 treaty rules on hierarchy 475–6 treaty-driven approach 476–7 UN Declaration on the Rights of Indigenous Peoples (UNDRIP) 465, 466–7, 478 Vienna Convention on the Law of Treaties (VCLT) 477 Indonesia, forest fires and haze 150–51, 171–2

MILES_9781784714628_t.indd 537

information disclosure freedom of information legislation 217, 218, 306 knowledge transfer and technological advancements, India 318–19 public disclosure of information about case, procedural issues 214 public information access, and sustainable development 55–6 socially responsible investment (SRI) 506–7, 520 innovations in procedural issues see procedural issues and innovations in environmentrelated investor-state disputes institutional investors, socially responsible investment (SRI) 504, 508, 515–16, 521 Inter-American Commission on Human Rights (IACommHR) 161 Inter-American Court of Human Rights Claude-Reyes v. Chile 55 Kichwa Indigenous People of Sarayaku v. Ecuador 64–5 Maya Indigenous Community of the Toledo District v. Belize 160–61 Saramaka People v. Suriname 161, 163 International Court of Justice Aerial Incident at Lockerbie (Libya v. United Kingdom) 191 Applicability of the Obligation to Arbitrate 429 Arbitral Award (Guinea-Bissau v. Senegal) 167 Avena and Other Mexican Nationals (Mexico v. USA) 167 Beagle Channel Arbitration (Argentina v. Chile) 279 Certain Questions of Mutual Assistance in Criminal Matters (Djibouti v. France) 167, 169 Construction of a Road along the San Juan River (Nicaragua v. Costa Rica) 83 Continued Presence of South Africa in Namibia (South West Africa) 169 Corfu Channel Case (United Kingdom v. Albania) 232 ELSI 432–3 Gabčíkovo-Nagymaros Project (Hungary/ Slovakia) 228–9, 251, 424, 427–8 Genocide (Bosnia Herzegovina v. Serbia and Montenegro) 167 Legality of the Threat or Use of Nuclear Weapons 427 Military Activities Against Nicaragua (Nicaragua v. United States of America) 424

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538  Research handbook on environment and investment law Norwegian Loans (France v. Norway) 437–8 Oil Platforms (Iran v. United States of America) 168 Pacific Fur Seal Arbitration (Great Britain v. US) 244 Pulau Ligitan/Sipadan 167 Pulp Mills on the River Uruguay (Argentina v. Uruguay) 67, 83, 168, 227, 242, 245, 261, 426 Reparation for Injuries Suffered in the Service of the United Nations 424 Texaco v. Libya 482–3 Trail Smelter Arbitration (US v. Canada) 244 Whaling in the Antarctic (Australia v. Japan) 253 International Covenant on Economic, Social and Cultural Rights (ICESCR) 151, 158, 161–2, 478 International Institute for Sustainable Developments Model Investment Treaty 45–6 International Tribunal for the Law of the Sea, Southern Bluefin Tuna 261 investor networks, socially responsible investment (SRI) 516 investor-state dispute settlement Africa, oil and gas investment and local communities 483, 495 amicus curiae brief see amicus curiae brief China, environmental concerns and international investment agreements 365–6, 371–2, 375, 377 climate change and green investment, green investment protection 113, 121–3, 126 green economy see green economy and investor-state dispute settlement (ISDS) green multilateralism 268–9, 270–72, 273–4, 275–6 India, environmental provisions in investment treaties 325–6, 328–30 indigenous cultural heritage and natural resources 468–70, 471–2, 477 innovations see procedural issues and innovations in environment-related investor-state disputes procedural issues and innovations see procedural issues and innovations in environment-related investor-state disputes science use see science use in investor-state arbitration treatment standards see treatment standards in environment-related investor-State disputes

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Iran Sapphire International Petroleum v. National Iranian Oil Company 437 Sedco Inv v. National Iranian Oil Co 273 Starrett Housing Corporation v. Iran 178 Jackson, T. 294, 295 Jacob, M. 42, 117 Jagusch, S. 215 Jemel-Fornetty, H. 510, 513 Jennings, R. 438 Jeucken, M. 507, 514 Jiménez, M. 309 Johnson, L. 286, 301 Joint Implementation (JI), Kyoto Protocol 109–10, 112, 115, 120, 124 Joint Review Panel (JRP) process, science use in investor-state arbitration 256–7 Jones, R. 365 Joshi, M. 317 jus cogens status indigenous cultural heritage and natural resources 477 Latin American states, investment claims against 427–8 treatment standards in environment-related investor-State disputes 191, 193, 199 Kabange, C.-J. 66 Kagan, J. 452 Kaiza, B. 352 Kalfon, J. 126 Kalicki, J. 240 Kammerhofer, J. 51 Kantor, M. 46 Kay, J. 506 Keene, A. 50, 53, 62 Kenis, A. 294 Kenny, W. 217 Kent, A. 45, 54, 299 Khachaturian, A. 52, 77 Khoday, K. 492 Kill, T. 85, 105, 167, 168, 170 Kinder, P. 507 Kinley, D. 70 Kinnear, M. 50–51 Kinsella, N. 42 Kirkman, C. 128 Kirsey, V. 44 Kläger, R. 117 Knahr, C. 77 knowledge transfer and technological advancements, India 318–19 see also information disclosure Knox, J. 51

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Index  539 Koester, V. 75 Kokott, J. 133 Kolk, A. 520 Kolo, A. 406 Kong, H. 51 Kormos, R. and C. 146 Kornicker Uhlmann, E. 427 Kreander, N. 510 Krepchev, M. 476, 477 Kriebaum, U. 3, 69–106, 176 Krien, A. 511 Krueger, A. 367 Kulick, A. 39, 157, 175, 434 Kulovesi, K. 300 Kumar, R. 514 Kundra, P. 316 Kuuya, V. 52 Kyoto Protocol see climate change and green investment, Kyoto Protocol Laichoubi, M. 349 Laird, S. 131 Landicho, R. 167 Langbein, J. 512 Langfield, M. 470 Langford, M. 44 Larrea, C. 142 Latin American states, investment claims against 408–39 arbitration against states involving environmental protection 409–23 compensation issues 410, 411, 422, 435 Costa Rica 409–14 Costa Rica, amicus curiae brief 414 Costa Rica, Aven v. Costa Rica 412–13 Costa Rica, Infinito Gold v. Costa Rica 117, 118, 121, 413–14 Costa Rica, Santa Elena v. Costa Rica 409–10, 423 see also under ICSID Costa Rica, Spence v. Costa Rica 19, 24, 29, 33–4, 36, 211, 411–12 Costa Rica, Unglaube v. Costa Rica 410–11 see also under ICSID Ecuador 414–17 Ecuador, Burlington Resources v. Ecuador 414–15, 422, 423 see also under ICSID Ecuador, Chevron & Texaco v. Ecuador 22, 23, 416–17 Ecuador, Perenco v. Ecuador 414–15, 422, 423 see also under ICSID El Salvador, Pac Rim v. El Salvador 24, 102, 142–3, 417–18

MILES_9781784714628_t.indd 539

endangered species 410–12 fair and equitable treatment standard 416, 419 hazardous waste 418–20 legitimate expectations 416, 420, 421, 422, 429, 432, 438 Mexico 418–20 Mexico, Metalclad Corporation v. Mexico 418–19 see also under ICSID Mexico, Tecmed v. Mexico 419–20 see also under ICSID minimum standard of treatment 412, 425 mining and hydrocarbon exploration 413–18, 420–22, 423 police powers 419, 434 preventive action principle 412 protection standards for foreign investments 412–13 tourism 409–10, 412–13 Venezuela 420–22 Venezuela, Crystallex v. Venezuela 24, 421–2 Venezuela, Gold Reserve v. Venezuela 23, 28, 33, 37, 283, 420–21, 434 Venezuela, Rusoro Mining v. Venezuela 422 Vienna Convention on the Law of Treaties (VCLT) 431, 432, 434, 435, 436–7 Latin American states, investment claims against, interaction between investment and environmental obligations 423–39 fair and equitable treatment 426 international law provisions 424–8 jus cogens application 427–8 national law provisions on environmental protection 428–39 national law provisions on environmental protection, characterization of conduct as internationally unlawful 432–9 national law provisions on environmental protection, defences under national law 434–7 national law provisions on environmental protection, primacy of international law 429–32 national law provisions on environmental protection, subsequent modification of national law 437–9 polluter pays principle 426 precautionary principle 426 sustainable development 426 Lauterpacht, H. 190 Lee, M. 515, 516 Lefeber, R. 109 Leger, J. 509

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540  Research handbook on environment and investment law legitimacy conflicts, foreign investment and international law 27–8 legitimate expectations Africa, long-term investment contracts in energy sector 352, 356 biodiversity protection 134, 135–6, 138, 141 China, environmental concerns and international investment agreements 371, 375 climate change and green investment 117, 118, 122, 123, 126, 128–9 EU investment agreements 392–3, 394, 395, 398–9, 401, 402 green economy 301, 305, 309 green multilateralism 273, 283–5 human rights and environmental protection 171, 172 India, environmental provisions in investment treaties 324, 326, 327, 331 Latin American states, investment claims against 416, 420, 421, 422, 429, 432, 438 science use in investor-state arbitration 249, 258, 259–60 socially responsible investment (SRI) 517, 522 sustainable development and international investment law 42, 43, 47, 59–60 treatment standards in environment-related investor-State disputes 183, 195, 196–7, 200, 202, 204, 207 water and investment 86–7, 93, 94, 95, 104 Lehmann, T. 40–41 Lester, S. 255 Levashova, Y. 12 Lévesque, C. 245, 248, 249, 250, 255, 258 Levine, E. 73, 84 Levine, J. 5, 209–43, 472 Levinson, A. 367 Liang, D. 7–8, 364–78 Lievens, M. 294 Linderfalk, U. 170 Lo, M. 503 local communities and oil and gas investment, Africa see Africa, oil and gas investment and local communities Louche, C. 510 Loughlin, M. 246 Lounsbury, M. 515, 516 Lowe, V. 86, 405, 406 Lowenfeld, A. 114 Luke, E. 4, 150–73 Luttrell, S. 6, 264–91, 323 Lyndenberg, S. 513

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Mabee, W. 297 Mabey, N. 444, 448, 452, 453, 458 McCafferty, G. 150 McCaffrey, S. 162 McFarland Sánchez-Moreno, M. 89 McGarity, T. 259 McGarry, B. 41 McGrath, J. 303 McLachlan, C. 39, 86, 127, 167, 168, 184, 215 McNally, R. 444, 448, 452, 453, 458 McRae, D. 476 Magraw, D. 217 Maitland, I. 519 Malaysia, multilateral environmental agreements, opposition to 47 Manger, M. 382 Mann, F. 181, 182, 438 Mann, H. 46, 124, 126, 217 Manocha, R. 319 Marauhn, T. 161, 162, 427 Marcoux, J.-M. 52 marginalisation issues, Africa, oil and gas investment and local communities 490–91 Markell, D. 51 Markert, L. 39–40 market distortions, gender, environment and foreign investment 446–7, 458 market governance, and socially responsible investment (SRI) see socially responsible investment (SRI), market governance and investors’ influence Marshall, F. 293 Martinez-Alier, J. 492 Mauritius Convention on Transparency 55, 220 Mavroidis, P. 300 Mayeda, G. 45, 52, 63–4 Maynard, S. 217 Mbengue, M. 52 Melikian, S. 236 Memoli, M. 327 Mendes, E. 481, 482 Méndez, R. 309 Méndez Bräutigam, E. 8, 408–39 Mendonca, M. 297–8, 307 MERCOSUR Cooperation and the Facilitation of Investment 49 Metherall, M. 311 Mexico claims against see under Latin American states, investment claims against trade and environmental issues 47 Mickelson, K. 489, 490

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Index  541 Miles, K. 1–10, 39, 41, 45, 68, 116, 117, 118, 128, 152, 162, 175, 188, 293, 482, 490–91, 492, 508 minimum standard of treatment biodiversity protection 134–5 foreign investment and international law 31, 34 green multilateralism 280–83, 284, 285 Latin American states, investment claims against 412, 425 science use in investor-state arbitration 248–50, 256 sustainable development and international investment law 59, 60 treatment standards in environment-related investor-State disputes 180, 181–3, 196–202, 204, 205 water and investment 86, 99, 100, 101, 102–3 mining and hydrocarbon exploration, Latin American states 413–18, 420–22, 423 see also fossil fuels Mir-Artigues, P. 307, 308 Moloo, R. 52, 77 monitoring issues Africa, oil and gas investment and local communities 497 water and investment 73–6 Montini, M. 12, 119 Moon, J. 519–20 Moran, T. 482 Morocco-Nigeria BIT, human rights and environmental protection 154, 166 most favoured nation (MFN) treatment climate change and green investment 116–17, 129–30 foreign investment and international law 28 treatment standards in environment-related investor-State disputes 184–8, 196–7 Muchlinski, P. 470 Mugerwa, N. and Y. 360 Muhaddisoglu, H. 46 Multilateral Environmental Agreements (MEAs), China 371–2 Multilateral Investment Guarantee Agency (MIGA) projects, Africa 495 multilateralism, green see green multilateralism Murmis, M. 142 Mutua, M. 484, 485

expropriation protection 178, 179, 196, 198, 200, 251 see also expropriation fair and equitable treatment (FET) 249, 252, 253, 281–2 see also fair and equitable treatment (FET) human rights law relevance 156 minimum standard of treatment see minimum standard of treatment national treatment see national treatment police powers doctrine 179–80, 199 see also police powers doctrine procedural transparency 54–5 see also UNCITRAL Natarajan, U. 492 national treatment China, environmental concerns and international investment agreements 373 climate change and green investment 116–17, 129–30 EU investment agreements 396–7 science use in investor-state arbitration 248 treatment standards in environment-related investor-State disputes 188–9, 196–200 water and investment 99–100, 101, 102 natural resources, and indigenous cultural heritage see indigenous cultural heritage and natural resources Ndi, G. 343 necessity clauses foreign investment and international law 27–8 green multilateralism 275–6 water and investment 87–8, 91, 92, 93, 95 Nègre, C. 426, 427 neoliberalism and catching-up approach, Africa, oil and gas investment and local communities 486–7, 488–9, 490 Newcombe, A. 50, 53, 66, 67, 86, 119, 184 NGO involvement, Africa, oil and gas investment and local communities 496–7 Nigeria Niger Delta Development Commission v. Nigeria Liquefied Natural Gas 351 Nigeria/Sao Tome and Principe crossborder project 355 Nottage, L. 284 Nowak, M. 75, 77 Nowrot, K. 45, 63

NAFTA (North American Free Trade Agreement) Agreement on Environmental Cooperation 47

Odendahl, K. 426 Odumosu-Ayanu, I. 9–10, 477, 480–503 Oesch, M. 258 O’Faircheallaigh, C. 467

MILES_9781784714628_t.indd 541

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542  Research handbook on environment and investment law Ogbija, T. 455, 456 oil industry Africa see Africa, oil and gas investment and local communities oil spills, health effects, gender, environment and foreign investment 455–6 see also fossil fuels Okafor, O. 484 Okereke, C. 293, 294 O’Leary, S. 235, 236 Onorato, W. 343 Onouha, F. 355 Orellana, M. 246, 248, 249, 255, 258, 259 Ortino, F. 62, 374 OSCE (Organization for Security and Co-operation in Europe), Gender and Environment 460–61 palm oil production, biodiversity protection 140, 141 Paparinskis, M. 222, 403 Pappalardo, S. 142 Paradell, L. 184 Paris Agreement see climate change and green investment, Paris Agreement Parrod, C. 110 Partasides, C. 217 Paterson, G. 514 Paulsson, J. 86, 282 Pauwelyn, J. 129, 169, 250, 251, 262, 424 Pavoni, R. 62 Pazienza, P. 446, 447, 449, 450, 451, 452, 453, 454, 455, 456, 457, 459, 462 peak associations, socially responsible investment (SRI) 521 Peart, N. 5, 209–43 Peel, J. 5–6, 222, 244–63 Peinhardt, C. 382 Perepelynska, O. 120 Perez, O. 508 performance disclosure, socially responsible investment (SRI) 520 performance requirements China, environmental concerns and international investment agreements 377 climate change and green investment 118–20 India, environmental provisions in investment treaties 323 Permanent Court of Arbitration (PCA) Abyei Arbitration (Sudan) 219, 227, 235 Achmea v. Slovak Republic 219, 234 Allard v. Barbados 24, 34, 44, 138–9, 150, 194, 206–8, 215, 218, 223, 224–5

MILES_9781784714628_t.indd 542

Almas v. Poland 232 Antaris v. Czech Republic 122 Arctic Sunrise Arbitration (Netherlands v. Russia) 222 Atlanto-Scandian Herring Arbitration (Denmark v. EU) 234 Bank for International Settlements 234 Bay of Bengal Maritime Boundary Arbitration (Bangladesh v. India) 229 Bilcon v. Canada 3, 5, 24, 31–3, 35, 37, 57–61, 65, 68, 100–102, 103, 104, 138, 189, 194, 200–203, 218, 219, 223, 255–7, 282–3 Chagos Marine Protected Area Arbitration (Mauritius v. United Kingdom) 234 Chemtura v. Canada 22, 27–8, 179–80, 234, 258–9 Chevron and Texaco v. Republic of Ecuador 22, 23, 416–17 Clayton v. Canada 494–5 Conciliation between the Democratic Republic of Timor-Leste and Australia 241 Conservation and Management of High Seas Fishery Resources in the South Pacific Ocean 222 “Enrica Lexie” Incident (Italy v. India) 219 Environmental Rules 237–9 Gallo v. Canada 234 Guaracachi America v. Bolivia 218, 221, 226, 235, 236, 242 Guyana v. Suriname 230, 232, 234 HICEE v. Slovak Republic 234 Howard v. Canada 234 Hulley Enterprises v. Russia 232 Iberdrola v. Bolivia 219, 220 Indus Waters Kishenganga (Pakistan v. India) 228, 229, 231–2, 234, 242 Mesa Power Group v. Canada 24, 122, 123, 299–302, 305 MOX Plant (Ireland v. United Kingdom) 233–4 Naftrac v. Ukraine 23, 120 OSPAR Arbitration (Ireland v. United Kingdom) 234 Polis Fondi Immobiliari di Banche Popolare v. International Fund for Agricultural Development 234 Romak v. Uzbekistan 234 Russian Indemnity (Russia v. Turkey) 276 Saluka Investments v. Czech Republic 179, 183–4, 193, 247–8, 274, 393, 396 South American Silver v. Bolivia 102, 235, 236 South China Sea Arbitration (Philippines v. China) 222, 224, 226–7, 228, 230

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Index  543 Treatment of Polish Nationals 429 Windstream Energy v. Canada 24, 121, 123, 218, 219, 302–7 Wirtgen v. Czech Republic 25, 121, 122 Yukos v. Russia 431, 437 Permanent Court of International Justice (PCIJ), Greco-Bulgarian ‘Communities’ 429 personal injury-based approach, human rights and environmental protection 164 Peterson, L. 120, 250, 309, 310 Petrochilos, G. 282 Phillips, S. 303 Pilgrim, T. 309 Pohl, J. 17, 46, 50, 153, 321, 368, 374, 382, 389, 390, 393, 451, 491 police powers doctrine EU investment agreements 396 green multilateralism 273–5 Latin American states, investment claims against 419, 434 science use in investor-state arbitration 247, 248 treatment standards in environment-related investor-State disputes 179–80, 184, 195, 199, 205 water and investment 92, 93–4, 95, 103 political status, gender, environment and foreign investment 451–2 polluter pays principle, Latin American states, investment claims against 426 pollution China, environmental concerns and international investment agreements 366, 367 halo and haven hypotheses, gender, environment and foreign investment 447, 452–3 human rights and right to private and family life 162, 163 India, environmental provisions in investment treaties 317–18 Latin American states 418–20 Stockholm Convention on Persistent Organic Pollutants 164 water and investment 78, 80–82 see also fossil fuels Poon, F. 223, 224, 228 Porter, M. 367 Posner, R. 512 Potestà, M. 468 Poulsen, L. 296 poverty issues Africa, oil and gas investment and local communities 485, 490, 496, 500–501

MILES_9781784714628_t.indd 543

biodiversity protection 141–2, 147–8 climate change and green investment 119 precautionary principle green multilateralism 276 Latin American states, investment claims against 426 science use in investor-state arbitration 260–61 preventive action principle, Latin American states, investment claims against 412 Priest, M. 519 Prislan, V. 168 procedural issues and innovations in environment-related investor-state disputes 209–43 Permanent Court of Arbitration (PCA) Environmental Rules 237–9 reporting and compliance 242 specialist rules 237–9 procedural issues and innovations in environment-related investor-state disputes, dispute resolution 210–15 alternative mechanisms 239–41 amicable settlement through negotiation 210 annulment or set-aside of award 215 appeals processes and review panels 241 arbitrator challenges 213–14 conciliations 240–41 default appointments 212–13 fora choice 211–15 ICSID and UNCITRAL, differences between 212–15 phases 212 pre-arbitration submission 210–11 provisional relief 214–15 public disclosure of information about case 214 subject matter of dispute qualifies as investment 215 time limits 210–11 procedural issues and innovations in environment-related investor-state disputes, investment arbitrations 216–37 amicus curiae participation 218 confidentiality and transparency balance 217–18, 219–20, 236 confidentiality, transparency and involvement of nonparties 216–22 costs management 232–7 costs management, and confidentiality 236 costs management, security for costs 236–7 freedom of information legislation 217, 218 hearings transparency 218, 219 Mauritius Convention on Transparency 55, 220

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544  Research handbook on environment and investment law Model investment agreements 220–21 participation of nondisputing parties 218–19 regulation of transparency 217–18 site visits 228–32 treaties concluded prior to 1 April 2014 220 tribunals exercise discretion to suit particular disputes 221–2 US Model BIT and Canada Model FIPA 220–21 procedural issues and innovations in environment-related investor-state disputes, technical experts 222–8 appointment of independent experts 225–8 and burden of proof 224–5 flagging questions prior to hearing 224 opposing sides’ experts confer in advance of a hearing 224 party-appointed experts 223–4 technical expert as arbitrator 228 Proffitt, W. 516 proportionality principle climate change and green investment 122 EU investment agreements 394, 401, 405 green multilateralism 274 human rights and environmental protection 170–73 sustainable development and international investment law 62 treatment standards in environment-related investor-State disputes 197, 205 protected areas, biodiversity protection 139–43, 148 provisional relief, procedural issues and innovations 214–15 public disclosure of information about case, procedural issues 214 public information access, sustainable development 55–6 see also information disclosure public interest measures EU investment agreements 381–2, 385–6, 387, 394–5 India, environmental provisions in investment treaties 324 public participation, green multilateralism 271 public welfare biodiversity protection 142–3 Kyoto Protocol 125–6 Pulitano, E. 466 Pulkowski, D. 175, 425 Pyatt, S. 53 Quirico, O. 157

MILES_9781784714628_t.indd 544

race to the bottom effect, gender, environment and foreign investment 447 Rahir, P. 310 Rajagopal, B. 488–9 Ranjan, P. 314, 316, 319 Ransome, W. 508 Rao, R. 128 Raphael, A. 448, 449, 450 Ratliff, D. 237 Reder, A. 507 Redfern, A. 235, 236 Reed, L. 210 regulatory chill see de-regulatory chill Reiner, C. 151, 168, 382 Reinisch, A. 88, 116, 176, 177, 184 reinvestment, green economy 298–9 Reisman, M. 381, 479 Reisman, W. 86, 115 Richard, C. 73, 84 Richardson, B. 10, 504–24 Rio Declaration on Environment and Development 14, 65, 152, 159–60, 260 risk assessments biodiversity protection 148–9 science use in investor-state arbitration 245, 247, 249–50, 252–7, 261 water and investment 83 Rivkin, D. 217 Rivoli, P. 509, 514 Robert-Cuendet, S. 12 Roberts, A. 468 Robertson, J. 515 Rogers, C. 235 Romson, Å. 12, 43, 175 Ronk, J. 295 Ross, A. 150 Ross, D. 510 Rostow, W. 486 Rousseau, C. 190 Roy, P. 318 Rubins, N. 42, 233, 273 Rudd, A. 512 Ruggie, J. 70, 165 Sacerdoti, G. 215 Sachs, J. 352 Sachs, K. 227 Sachs, L. 286 SADC Member States Co-operation on Investment 49 Sahani, V. 236 Salacuse, J. 152, 482 Salomon, R. 510 Sampford, C. 508 Sampliner, G. 86

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Index  545 sanctions green economy 305–6 socially responsible investment (SRI) 513–15 Sandberg, J. 508 Sands, P. 168–9, 239, 251, 260 Satyanand, P. 316 Saul, B. 75, 98 Sauvant, K. 374, 380 Saverin, D. 147 Savoie, P.-O. 125 Schacherer, S. 52 Schefer, K. 247, 248, 249 Schiano di Pepe, L. 110–11 Schill, S. 42, 56–7, 116, 117, 128, 372 Schmidt-Ahrendts, N. 227 Schneiderman, D. 299 Schreuer, C. 84, 85, 86, 151, 168, 177, 182, 210, 212, 214, 218, 241, 265, 267, 272, 382 Schröder, M. 426 Schulte-Tenckhoff, I. 478–9 science use in investor-state arbitration 244–63 adjudicating scientific process rather than science, Methanex Arbitration 252–5, 259, 262 see also under UNCITRAL community core values approach 256–7 disputed science facts, taking no position, Metalclad Arbitration 251–2, 259 see also under ICSID environment-related arbitrations 250–57 experts’ role 262 expropriation claims 247–8, 251–2 fair and equitable treatment (FET) 249, 252, 253 future challenges 258–62 international investment law 246–50 international investment law, legal arguments against state measures 248 Joint Review Panel (JRP) process 256–7 legitimate expectations 249, 258, 259–60 minimum standard of treatment 248–50, 256 national treatment 248 police powers doctrine 247, 248 precautionary principle 260–61 precautionary principle, and standard of proof 261 privileging technocratic risk assessment, Bilcon Arbitration 255–7 see also under Permanent Court of Arbitration risk assessments 245, 247, 249–50, 252–7, 261 and sovereignty 247–8, 255, 259 standard of review 258–60 standard of review, ‘hard look’ standard 259

MILES_9781784714628_t.indd 545

standard of review, normative judgments 259–60 standard of review, process-based approach 259 transparency 249, 255, 260 WTO Sanitary and Phytosanitary Measures Agreement (SPS Agreement) 245, 250 Seguino, S. 443, 445, 458 self-determination right, indigenous cultural heritage and natural resources 477, 478 Sen, A. 487 Sengupta, A. 487 Sépulveda, M. 77 services sector, gender, environment and foreign investment 448–50 Shan, W. 405 Shapiro, D. 509 Sharpe, J. 180, 404 Shawcross, H. 266 Shelton, D. 157–8, 160, 191 Shemberg, A. 116, 340, 341, 342, 356, 359 Sheppard, A. 42, 177, 213 Shetty, N. 316 Shihata, I. 60, 469 Shiller, R. 504 Shirlow, E. 115 Sikka, P. 355–6 Simma, B. 85, 105, 106, 167, 168, 170, 175, 382, 425 Simson, C. 236 Singapore, EU–Singapore FTA 396–8 Singh, K. 314, 315 Singh, M. 318 site visits, procedural issues and innovations 228–32 Sjafjjell, B. 507 Sloane, R. 86, 115 Smarzynska, B. 369–70 Smets, H. 162 socially responsible investment (SRI) 504–24 codification through standards 508–9 corporate governance effects 505 ESG (environment, social and governance) analysis 510, 512, 515–16 fiduciary law 507, 521 finance capitalism 504–5 financial economy’s short-term outlook 505–6 fractional reserve banking effects 506 history 507–8 institutional investors 504, 508, 515–16, 521 irresponsible investment 504–7 legal reforms and disclosure requirements 506–7 legitimate expectations 517, 522

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546  Research handbook on environment and investment law market size and growth 509 methods 508–9 terminological differences 508 transparency 508, 516 socially responsible investment (SRI), market governance and investors’ influence 510–22 corporate governance legal structure 516, 517–18 debt financing 514–15, 517 engaging with companies 515–18 financial advantages of SRI 512–13 fossil fuels divestment campaign 514 institutional funds and active engagement 515–16 investor networks 516 market and regulatory failures, effects of 513, 514 peak associations 521 performance disclosure 520 project financing 511 reforming laws 520–22 sanctions 513–15 trust issues 516 voluntary codes of conduct 518–20 sole effects doctrine 99, 178 Sornarajah, M. 114, 152, 154, 157, 165, 172, 469 South Africa, Promotion and Protection of Investment Bill 47 South Korea, EU–South Korea FTA 391, 404, 405 sovereignty climate change and green investment 114–15 science use in investor-state arbitration 247–8, 255, 259 sustainable development and international investment law 61–3 Spain, solar cases 307–10 Sparkes, R. 507, 513 Spears, S. 380 special discretion jurisdictions (SDJs), gender, environment and foreign investment 442–4, 445, 446, 457–8 Spicer, A. 516 Spiermann, O. 437 stabilization clauses see Africa, long-term investment contracts in energy sector and stabilization clauses Stamatopoulou, E. 467 Stavenhagen, R. 466 Stavins, R. 110 Stern, B. 66, 427 Stewart, D. 162 Stiglitz, J. 487

MILES_9781784714628_t.indd 546

Stockholm Chamber of Commerce Charanne v. Spain 24, 44, 121, 122, 123, 179, 309–10 Isolux v. Spain 24, 122, 123, 309–10 Novenergia v. Spain 121, 123 Stockholm Convention on Persistent Organic Pollutants 164 Stockholm Declaration on the Human Environment 159 Stokes, L. 297 Stoll, S. 297 Strange, T. 40 subsidies climate change and green investment 121, 123 green economy 297–8, 308, 310 sustainable development and international investment law 44 substantive investment standards, EU investment agreements 393, 394, 398 Sullivan, J. 44, 215 Sullivan, N. 482 Sun, W. 504 Supnik, K. 64 Sussman, E. 292, 293 sustainability impact assessments EU investment agreements 387, 392 see also environmental impact assessments sustainable development biodiversity protection 143–5 China, environmental concerns 374–6 EU investment agreements 381, 391, 392–3, 397, 402, 404 human rights and environmental protection 152, 153 Latin American states 426 Sustainable Development Goals 13–16, 147–8, 381 sustainable development and international investment law 38–68 amicus curiae participation 54 arbitrariness and reasonableness standards 61–2 Brundtland Report 40 and community core values 58–9 corporate social responsibility obligations 63 economic considerations 41, 43–4 environmental harm concerns, Bilcon v. Canada 57–61, 65, 68 see also under Permanent Court of Arbitration human rights protection 40 indigenous communities 64–5 investment facilitation 38–9

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Index  547 investment stability 42–3 investment tribunal power and counterclaims 63–4 legal standards 41–2 legitimate expectations 42, 43, 47, 59–60 minimum standard of treatment 59, 60 proportionality principle 62 regulatory flexibility 39 sovereignty constraints 61–3 stakeholders 64–6 standard setting and investment preparedness 66–7 state involvement 42–4, 57 subsidies 44 sustainable development concept 40–44 Vienna Convention on the Law of Treaties (VCLT) 57 sustainable development and international investment law, investment treaties 45–57 APEC Economic Leaders Declaration Investment Lima Declaration 49–50 ASEAN and Regional Comprehensive Economic Partnership (RCEP) 48–9 environmental impact assessment (EIA) and harm prevention 52–3, 66–7 EU sustainability impact assessments 46 exceptions 53–4, 62–3 host state and investor obligations, rebalancing 48–9 International Institute for Sustainable Developments Model Investment Treaty 45–6 investor obligations 51–3, 62–3 MERCOSUR Cooperation and the Facilitation of Investment 49 model BITs revision 47–8 NAFTA, North American Agreement on Environmental Cooperation 47 policy priorities 47–50 public information access 55–6 SADC Member States Co-operation on Investment 49 special treaty provisions 50–51 transparency 54–7, 66 transparency, procedural 54–5 transparency, substantive 55–7 UNCTAD, Investment Policy Framework for Sustainable Development (IPFSD) 45 Sykes, A. 124 Taillant, J. 42 Talus, K. 292, 297, 307, 308 Tanzi, A. 117

MILES_9781784714628_t.indd 547

technological advancements and knowledge transfer, India 318–19 see also information disclosure Telesetsky, A. 4, 6, 131–49 Teoh, S. 514 Tereposky, G. 76 Thomas, C. 76 Thompson, P. 514 Thulasidhass, P. 117 Tickner, J. 259 Tienhaara, K. 6, 292–311, 471, 491 Tietje, C. 116 Tignino, M. 71 Tirado, J. 307, 308 Titi, A. 61 Titi, C. 40, 403 Tobin, J. 170, 171 Tomka, P. 228, 229 tourism ecotourism see ecotourism Latin American states 409–10, 412–13 sector, gender, environment and foreign investment 448–50 Trachtman, J. 475 Trans-Pacific Partnership (TPP) 47, 277, 373–4 biodiversity protection 135–6, 140, 144–5 Comprehensive and Progressive Agreement (CPTPP) 153–4, 170 Comprehensive and Progressive Agreement (CPTPP), and green multiculturalism see green multiculturalism, Comprehensive and Progressive Agreement for Trans-Pacific Partnership India, and lessons from 327–30 Transatlantic Trade and Investment Partnership (TTIP) 14, 374, 375 biodiversity protection 135, 136, 145 EU investment agreements 399–403, 404, 405, 406 transparency Africa, long-term investment contracts in energy sector 357 China, environmental concerns 375 climate change and green investment 112, 117, 128–9 EU investment agreements 403 Mauritius Convention on Transparency 55, 220 procedural issues and innovations 216–22, 236 science use in investor-state arbitration 249, 255, 260 socially responsible investment (SRI) 508, 516

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548  Research handbook on environment and investment law sustainable development 54–7, 66 see also confidentiality treaties disputes, climate change and green investment 120–23 hierarchy rules, indigenous cultural heritage and natural resources 475–6 successive treaties relating to the same subject matter 191–2 and sustainable development see sustainable development and international investment law, investment treaties termination conditions, treatment standards 192–3 treaty-driven approach, indigenous cultural heritage and natural resources 476–7 see also individual treaties treatment standards in environment-related investor-State disputes 175–208 compensation issues 176, 177, 187, 194–5 effects doctrine 178 Energy Charter Treaty 177 fair and equitable treatment 180–84, 197–200, 206–8 jus cogens 191, 193, 199 legitimate expectations 183, 195, 196–7, 200, 202, 204, 207 minimum standard of treatment 180, 181–3, 196–202, 204, 205 most favoured nation treatment 184–8, 196–7 national treatment 188–9, 196–200 police powers doctrine 179–80, 184, 195, 199, 205 proportionality principle 197, 205 protection against expropriation 176–80, 194–208 protection against expropriation, test 178 sole effects doctrine 178 US Model BIT 180 treatment standards in environment-related investor-State disputes, international investment law and environmental law, relationship between 190–93 conflict situation and compatibility 192–3 interpretation issues 193 successive treaties relating to the same subject matter 191–2 treaty termination conditions 192–3 UN Charter response 190–91, 193 Vienna Convention on the Law of Treaties (VCLT) response 191, 192–3 treatment standards in environment-related investor-State disputes, investment claims raising environmental issues 194–208

MILES_9781784714628_t.indd 548

Al Tamimi v. Oman 203–5, 207–8 see also under ICSID Allard v. Barbados 206–8 see also under Permanent Court of Arbitration Bilcon v. Canada 200–3 see also under Permanent Court of Arbitration community core values 200–201, 202 ecotourism 206–8 environmental protections and carveouts 203–5 Methanex Corporation v. United States of America 197–200, 205 see also under UNCITRAL Santa Elena v. Costa Rica 194–5, 197, 199 see also under ICSID S.D. Myers v. Canada 196–7, 199, 205 see also under UNCITRAL water quality 206–8 Treves, T. 382 Trouwborst, A. 261 trust issues, socially responsible investment (SRI) 516 Tudor, I. 86, 283 Tuerk, E. 67 Tung, F. 517 UK Norscot Rig Management v. Essar Oilfields Services 236 Social Investment Forum (UKSIF) 521 UN Declaration on the Rights of Indigenous Peoples (UNDRIP) 465, 466–7, 478 UN Human Rights Committee Ivan Kitok v. Sweden 471 Jouni Lansman v. Finland 471 UNCITRAL (UN Commission on International Trade Law) Al Warraq v. Indonesia 85 Anadarko Algeria and Maersk Olie v. Sonatrach 357 Andre v. Canada 472–3 AWG Group Ltd. v. Argentina 87, 88, 91, 92 Canadian Cattlemen for Fair Trade v. United States of America 22 CJSC v. Mongolia 22 CME v. Czech Republic 430 Dow Agrosciences v. Canada 22, 138 Ethyl Corporation v. Canada 21, 138 Georg Nepolsky v. The Czech Republic 22 Glamis Gold v. United States of America 22, 156, 157, 249, 276–7, 281–2, 283–4, 472, 474

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Index  549 Grand River Enterprises Six Nations v. United States of America 22 Grand River v. United States 472 and ICSID, differences between 212–15 investment transparency rules 54–5 Konsortium Oeconomicus v. Czech Republic 23 Malbaie River Outfitters v. Canada 23 Merrill & Ring Forestry v. Canada 282 Mesa v. Canada 31 Methanex v. United States 5, 21, 28, 42, 73, 84, 99–100, 103, 104, 128, 138, 179, 189, 194, 197–200, 205, 218, 247, 252–5, 259, 262, 273–4, 380, 402, 427 Michael McKenzie v. Vietnam 23 Pope & Talbot v. Canada 189 Saar Papier Vertriebs v. Poland 21 St Marys VCNA v. Canada 23 S.D. Myers v. Canada 19, 21, 135, 138, 184, 194, 196–7, 199, 205, 216, 248, 327, 393 Vito G. Gallo v. Canada 23 White Industries v. India 7, 315, 316–17, 318–19, 331–2 see also NAFTA UNCTAD (UN Conference on Trade and Development) Investment Policy Framework for Sustainable Development (IPFSD) 45 World Investment Report 390 UNFCCC (UN Framework Convention on Climate Change) Kyoto Protocol see climate change and green investment, Kyoto Protocol Paris Agreement see climate change and green investment, Paris Agreement REDD+ financing and REDD+ projects 147 Universal Declaration of Human Rights, right to water 97–8 Unmüβig, B. 294 Unuvar, G. 405 US investment agreement transparency 54 investment risks disclosure and climate change 521 Penn Central Transportation Co v. New York City 284, 394 Superfund legislation 521 US Model BIT 286–7, 373, 394 biodiversity protection 132–3, 134, 136 human rights and environmental protection 154, 165–6 procedural issues and innovations 220–21 treatment standards 180 Uvin, P. 152

MILES_9781784714628_t.indd 549

Vadi, V. 9, 62, 245, 258, 464–79 Van Aaken, A. 40–41, 125 Van Asselt, H. 127 Van der Linder, C. 367 Van Harten, G. 246, 469 Vandevelde, K. 152 VanDuzer, J. 45 Vargiu, P. 114 Vasani, B. 351 Vasciannie, S. 86 Venezuela see under Latin American states, investment claims against Venne, S. 468 Verhoosel, G. 211, 215 Victor, P. 294, 295 Vielleville, D. 351 Vienna Convention on the Law of Treaties (VCLT) climate change and green investment 126–8 green multilateralism 269, 274, 279, 288 human rights and environmental protection 167–9, 170 indigenous cultural heritage and natural resources 477 sustainable development and international investment law 57 treatment standards 191, 192–3 water and investment 85 Vietnam, EU–Vietnam FTA 398–9, 401, 404, 405 Vihma, A. 108 Villareal, M. 47 Viñuales, J. 2, 12–37, 44, 46, 51, 64, 79, 120, 151, 152, 155, 159, 164, 222, 226, 238, 251, 255, 261, 262, 321, 327, 396, 403, 406, 427, 491 voluntary codes of conduct, socially responsible investment (SRI) 518–20 voluntary dispute resolution process, Africa, oil and gas investment 497 Von Moltke, K. 124 Waelde, T. 85–6, 406 wage discrimination, gender, environment and foreign investment 442–3, 444, 445, 447, 458 Wälde, T. 343 Walker, C. 307 Walsh, S. 110 Wanner, T. 294 water access and human rights 161–2, 163 quality and treatment standards 206–8 water and investment 69–106 amicus curiae brief 73, 76, 84, 91, 96

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550  Research handbook on environment and investment law Committee for Economic, Social and Cultural Rights (CESCR) 75, 77–80, 89, 97–8 compensation issues 91, 93, 100 European Court of Human Rights, drinking water pollution 74, 78, 80–82, 83 human and environmental rights obligations 76–7 international law framework 70–77 international law framework, standards 71–3 investment protection standards 76 legitimate expectations 86–7, 93, 94, 95, 104 minimum standard of treatment 86, 99, 100, 101, 102–3 monitoring and complaints mechanisms 73–6 national treatment 99–100, 101, 102 necessity clauses 87, 88, 91, 92, 93, 95 police powers doctrine 92, 93–4, 95, 103 regional human rights conventions 74 risk assessments 83 Universal Declaration of Human Rights 97–8 Vienna Convention on the Law of Treaties (VCLT) 85 water and investment, human rights supervisory bodies and right to water 71–3, 77–83, 86–7 freedoms and entitlements 78–9 legal remedies 79 per capita minimum requirement 79 privatization issues 78, 79 substantive and procedural requirements 79–80 unlawful pollution 78, 80–82 water and investment, investment disputes 84–104 access, privatisation and affordability 88–95 access and water quality 98–104 Argentinian financial crisis effects 91, 92, 94 and community core values 101 human rights norms status 86–7 legitimate expectations 104 physical access 96–8 treaty interpretation principles 85–6 Watson, I. 468 Watts, J. 142 Webster, R. 303 Weeramantry, R. 6–7, 269, 313–39, 365 Wei, S.-J. 369–70 Weiler, J. 246 Welsh, D. 511 Wendt, K. 524

MILES_9781784714628_t.indd 550

Werksman, J. 115–16, 118, 124, 125, 126, 128 West African Gas Pipeline Project (WAGP Project) 353–4, 355–6 Westra, L. 467 White, M. 504 Wiessner, S. 465, 466 Wilbraham, A. 223, 224, 227, 228 Wilkinson, M. 511 Williams, C. 520 Williams, M. 442, 443, 444, 446, 447, 449, 451, 453, 455, 462 Williams, Z. 309, 310 Williamson, R. 297 wind farms, local opposition to, and green economy 302–7 windfall profit taxes, Africa, long-term investment contracts in energy sector 356–7, 360 Winfield, M. 299 Wirth, D. 250 Witenberg, J. 429 Wójcik, D. 505, 520–21 women see gender, environment and foreign investment Wong, J. 29 Wong, S. 516 Wood, D. 510 Wood, S. 520 Wordsworth, S. 184, 228, 229 Worika, I. 126 World Bank Global Environmental Facility 14 Inspection Panel, Africa, oil and gas investment 485–6, 495, 498–501 water-related projects 75–6 Wright, S. 259 WTO (World Trade Organization), Sanitary and Phytosanitary Measures Agreement (SPS Agreement) 245, 250, 255–6, 258, 262 WTO (World Trade Organization) Appellate Body EC – Asbestos 251, 252 EC – Biotech Products 170, 255–6, 257 EC – Meat and Meat Products 261 US – Hormone-treated Beef 252–3, 262 US – Standards for Reformulated and Conventional Gasoline 424 Wynberg, R. 131, 145 Wyplosz, C. 382 Yackee, J. 296 Yahya, M. 109 Yannaca-Small, K. 114 Yardley, W. 112

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Index  551 York, R. 451–2, 454, 455, 457 Yoshida, O. 109 Yotova, R. 8, 379–407 Zahar, A. 107 Zarsky, L. 482

MILES_9781784714628_t.indd 551

Zhan, J. 40, 45, 66–7 Zhang, S. 405 Ziegler, A. 40, 184 Zleptnig, S. 34 Zoellner, C.-S. 217 Zvelc, R. 18

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MILES_9781784714628_t.indd 552

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